Windows 8 should NOT compete iPad Price

If reports from Taiwan are to be believed, hardware manufacturers are struggling to create Windows 8 on ARM (Windows RT) devices that are competitively priced against Apple’s iPad and Amazon’s Kindle Fire. The reason? According to Digitimes, OEMs have to pay Microsoft $90-100 for a Windows 8 license.

While that $90-100 figure sounds a little bit on the high side (Microsoft historically charges OEMs around $50 for desktop licenses and $30 for Windows Phone 7 licenses), it doesn’t really matter: Even at $10 or $20, Microsoft (and OEMs) would be hard pushed to compete with Amazon and Apple on price. Apple effectively gives iOS away (it’s a hardware company, after all), and Amazon gets Android for free. Microsoft has to charge for Windows 8 and Windows RT because it’s a software company; if it didn’t, it wouldn’t make any money, which shareholders might see as a bit of a problem.

The other important thing to bear in mind is that it’s virtually impossible for OEMs to create a tablet that’s comparable to the iPad, for the same price. Apple’s design, supply chain, and manufacturing dominance is so stellar that the iPad is actually one of the cheapest tablets to produce. Famously, the fat, plastic-body, WiFi-only HP TouchPad cost more to manufacture ($318) than the 3G iPad 2 ($310). Once you factor in the additional cost of a Windows license, there simply is no way for similarly-outfitted Windows tablets to compete on price. (As an aside, this is the same reason that OEM ultrabooks are struggling to match the MacBook Air’s specs.)

Where does this leave Windows 8/RT tablets, then? Well, for a start, Apple applies a huge markup to its tablets: The original $310-to-produce 16GB 3G iPad 2 sold for $629 (this is why Apple is the second most valuable company in the world). Windows OEMs can always undercut that price, but once they factor in license fees the profit margins will drop precipitously. It will also be interesting to see if Intel can price its SoC Atom parts (Medfield and Clover Trail) to compete with ARM. It is due to the double whammy of Intel and Windows “taxes” that Dell, HP, and other desktop PC makers only have a profit margin of around 5% (while Microsoft and Chipzilla laugh all the way to the bank with margins of 20-30%).

As long as someone is willing to take a hit to their profit margins, then, it should be possible for Windows ARM tablets to compete with the iPad and Kindle Fire. Of course, all of this speculation doesn’t take into account the fact that Windows RT could be more desirable than iOS; users might actually be willing to pay a premium for Windows tablets. For that to happen, we’d need hundreds of thousands of Windows RT apps, though, and so far it doesn’t look like that will happen. We should also remember that Apple could quite easily block the entrance of Windows RT by dropping the price of its iPads, and still remain healthily profitable.

In conclusion, the price facts as of now might just be rumors. Windows 8 tablets will be in the shelves soon. But if it's going to cost you close to $500, Windows 8 tablets will be screwed and indirectly making Apple tablet going to win the whole tablets business.