$199 for the Microsoft Surface? Now that would set the market alight…

Everyone and their dog has picked up the rumour-cum-possible-fact originally cited by Engadget that Microsoft will shortly offer their Surface (Windows RT version) for $199.

The tech blogs are full of standard he-said, she-said commentary — obviously a $199 Surface would sell a lot better than a $999 Surface.

However I think the deal is done. There is no choice. Surface will be priced to sell to the consumer who’s already had 2+ years of conditioning from Apple. That means a version of the Surface needs to be priced either the same or cheaper than the basic $499 iPad.

Anything else is commercial suicide.

Whether Microsoft makes a profit on the devices is irrelevant. Microsoft finds itself in a world whereby PC means smartphone and tablet. And it increasingly means Apple, too. You only have to look at the billion dollar companies investing tens and hundreds of millions kitting out their stores, aeroplanes and point-of-sale units with thousands and thousands of iPads. Microsoft has little choice — to stay relevant, they need to be in the game.

If that means sticking these things into people’s hands for cost price — or even cheaper — so be it.

Get in the game first.

Google is leading the way.

Well, actually hold on a moment… HP led the way. They created absolute pandemonium for a few weeks whilst folk clamoured to buy a $99 HP Touchpad. I remember doing some rough calculations on what kind of investment it would take for HP to actually put 20 million Touchpads into the hands of consumers at $99 a pop. It was a big number. But if you could achieve this, you’d have critical mass. You’d have the interest of developers. You’d have an ecosystem begin to emerge. You’d have a going concern.

Taking a leaf out of the HP experience, Google came to market with their Nexus 7 Tablet last month. The price point has had grown men and women around me reaching for google.com/nexus (credit card in hand) the moment they saw the tablet on my desk. I can name 10 people who went and bought one within a week of seeing mine. That sort of immediacy — that sort of viral growth — is precisely what Google needs. Interestingly, of those 10 people who bought one, NOT A SINGLE ONE OF THEM was aware of the Nexus launching or had any intention to buy before they saw mine. That’s viral.

And it’s the price wot dun it. Obviously the engineering, the screen, the whole shebang had to be up to scratch and good enough. But it was the price that clinched it. Not one of these 10 individuals had to think about the purchase. Indeed it’s the equivalent cost of a good meal for many of them — and a business expense for others.

So if Microsoft want to play in this world, they need to get the pricing right. There’s definitely room for a spread of pricing — say $199 (for the lower end RT version) to $1,299 (for the top of the range Windows 8 version).

If the economics simply won’t work, that’s unfortunate. Even if the device(s) end up costing $400, some clever accounting and cash flow management could see Microsoft announce the Surface at $199 up front as long as you buy a 12-month $16.99/month Office365 account. That might work.

The elephant in the room is Apple — always Apple. All this speculation is invalidated the moment Apple’s Tim Cook gets on stage and reveals the iPad Mini 7″ model at $99. Or $149, or anything like that.

So although we’re talking rumours, there’s a fixed reality here: An entry-level Surface price point in excess of $700 will kill it, no matter how cool it is. The iPad has the monopoly on cool. At the moment.

You need the price point to be so appealing, so “oh my gosh” shocking that the CFO is on the phone asking why you’re not buying a job lot for everyone — and dumping those expensive Fisher Price style Apple tablets that don’t have the highly familiar Windows capabilities beloved of enterprises the world over.

It’s going to be a really, really exciting Q4 this year.

[Incidentally, you do have to wonder how come Google (or Asus, actually) can manufacture a 7 inch $199/£159 premium looking tablet and yet they can’t deliver a Nexus smartphone at the same or similar price point?]

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