The impact could be felt most by Amazon, whose Kindle Fire tablet also sells for $199. As popular as it is, Kindle Fire doesn't compare to Surface RT, based on what Microsoft has revealed. For starters, Surface RT offers a more generous 10.6-inch screen, compared to Kindle Fire's 7-inch display.
That's just the beginning. Surface RT runs a version of Windows 8 called Windows RT. Windows RT only runs on ARM chips, and it won't run legacy Windows apps. But it's still a Microsoft platform, and that means it will--out of the box or eventually--run a new, touch-optimized version of Office 15, Skype, Explorer, and Xbox Live content. Users will also be able to acquire third-party apps from the Windows Store.
Excel on Kindle Fire? Forget about it.
Other vendors could also feel the pinch. Samsung, with its new, $500, Galaxy Note 10.1, might look over its shoulder. Samsung is also an important hardware partner to Microsoft, and plans to produce its own Windows 8 RT tablet. That's where things could get touchy. If Microsoft's Surface pricing is too aggressive, tablet OEMs may ditch Windows 8 for an Android-only strategy.
Samsung hasn't gotten to that point, but Acer seems nearly there. "We have said [to Microsoft] to think it over. Think twice," Acer CEO JT Wang told the Financial Times earlier this month. Acer, not coincidentally, has no plans for a Windows RT tablet.
[ Check out Samsung's new tablet. See Samsung Galaxy Note 10.1 Details For U.S. Launch. ]
Don't expect Surface RT, regardless of price, to have much impact on iPad sales. Windows 8 and iOS are such different beasts that it's doubtful Apple loyalists would defect to Microsoft for $300, the price difference between the new iPad and Surface RT, if Engadget's report is correct.
A $199 Surface RT tablet would also threaten Barnes & Noble's Nook, but that might be addition by subtraction for the book merchant. Microsoft recently acquired a 17.6% stake in Barnes & Noble's e-book spinoff, and as part of the deal will make a Nook app available for Windows 8. That's likely just a prelude to Barnes & Noble exiting hardware, where it's doubtless losing money, and leaving it to its new partners in Redmond.
All this is contingent on the accuracy of Engadget's report. Some question it, for good reason. The idea of a $199 Surface RT tablet is hard to swallow for many due to Microsoft's pledge that all Windows 8 RT tablets, including Surface RT, presumably, will come with Office 15 preinstalled.
Office 2010 Home & Student sells for about $120. Similar pricing for Office 15 would see Microsoft collect just $80 per unit on Surface RT hardware. That seems unlikely. It's not, however, impossible. Windows 8 is a make-or-break break from the past for Microsoft. So it might be willing to distribute Surface almost for free just to get users to try the OS, which is radically different from previous Windows.
We'll know for certain on Oct. 26, when Surface RT, Surface Pro, which runs Windows 8 Pro, and other Win8 systems hit the market.