Positions in the Great 4Q2012 Tablet War are beginning to take form. Microsoft and Apple seek the pricing high ground, while Google pushes for bargains. For now, Windows 8, Windows RT and Android OEMs have to feel out what consumers are willing to spend in this crowding market, but I don't think there's much doubt that OEM prices will trend down.
Yesterday we finally got Microsoft pricing for the Surface RT, and rumors of prices for the iPad Mini are beginning to become more consistent. Another story has Google selling a $99 Nexus tablet soon.
So Microsoft is going to try to compete with Apple up in Apple's price tier. My opinion and the consensus among my BYTE colleagues is that they can't get away with it, but I don't pretend to understand buyers' price elasticity of demand for tablets. I already think iPads are overpriced and yet Apple sells all they can make.
It makes sense that the bargain basement of the tablet world will be occupied by Android devices, if only because they don't require an OS license. I have to think that the emphasis on lower prices in so many models hurts the ability of higher-end Android tablet makers to charge premium prices. In fact, I think we've already seen this: the real volume in Android tablets is in the lower-cost models, while there are no lower-cost iPads and won't be any time soon.
The reports of the iPad Mini starting out at $249 make sense: It's higher than the common Android price of $199, but not outrageously higher. On the big iPad, Apple charges about 20% more for the next step up in memory, and for $249 this conveniently works out to around $299, so count on the iPad Mini coming out at $249 for 8GB, $299 for 16GB and $349 for 64GB, and some fixed markup above those prices for 4G. On the big iPad the markup is $130.
Some opinions differ on the Surface RT prices announced by Microsoft, but the one thing you can't call them is "low." Microsoft can make a claim that buyers are getting more for their money because Surface devices come with more flash memory by default, but I have to think the number consumers' eyes go to first is the lowest price in the product line: $499, same as the cheapest iPad, and twice the cheapest iPad Mini.
Initially, when Microsoft announced Surface, the fear was that they would put their OEMs in a tough spot by setting a low price that would force OEMs to accept lower margins, but that's just not the way Microsoft works. They're all about helping OEMs to make money, and I suppose Surface, or at least Surface RT, is about setting a technology baseline and high price expectations.
Some of the initial OEM Windows 8 announcements, like the Lenovo convertibles, also seem to be setting the price bar high. I don't think there's much doubt that OEM prices will trend down. There's too many Windows OEMs to keep prices so high.
BYTE contributor George Ou has been arguing that RT is doomed in large part because ARM-based tablets won't run the existing body of Windows software and that the next generation of Intel-based Windows devices will have all the hardware advantages of ARM -- always on, weeks of standby battery life -- and software compatibility. $499 is a tall order under such circumstances. But if the Intel devices will be clearly superior to the ARM-based Windows 8 tablets, can they command even higher prices than $499? That's an even taller order.
If the iPad Mini sells out at $249+ then it really doesn't matter how well Android and Windows tablets sell; Apple will keep charging premium prices. In the long term it makes sense that the market won't be big enough for everyone and that competition from these other devices, if consumers and businesses do buy them, will begin to crowd onto Apple's turf. We seem to be a long way away from that, so I guess the tablet market is still too young to make long-term predictions.
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