"It is likely that Microsoft's ARM-based tablet will be targeted for the high end of the market," said NPD DisplaySearch analyst Richard Shim, in a blog post.
The ARM version, Surface for Windows RT, uses the Windows 8 RT operating system and energy-efficient chips designed by U.K.-based ARM Holdings. Microsoft is pitching it as a direct competitor to Apple's iPad and tablets that use Google's Android operating system.
But Shim thinks Microsoft will have a hard time matching the $399 entry-level price for the iPad, and that it will be even more difficult for the company to compete with Android-based tablets, such as Amazon's Kindle Fire, that sell for less than $200.
Even though Microsoft won't have to pay a Windows license fee for its tablets, the company can't be too aggressive on pricing or it will alienate longtime hardware partners, like Dell, HP, and Acer, who do have to license the operating systgem. It's generally believed Microsoft wants to charge OEMs about $85 per unit to license Windows 8 RT.
[ Windows 8 tablets will need to take off with consumers before CIOs embrace them. See Microsoft Surface: Enterprise Tablet Market Isn't Enough. ]
"Microsoft is likely to face similar pricing challenges if they don't want to upset their hardware partners with an aggressively low price point," Shim said. The risk: If Microsoft undercuts OEMs on tablet pricing, it could drive them into the Android camp.
Microsoft's plan to include a touch-optimized version of Office 15 in Windows 8 RT tablets, including Surface, could also add another layer of cost that might limit the devices to power users.
"Bundling Office with Windows RT will likely push the bill of materials for the tablet up to the point where it will not be price competitive at the low end of the tablet market," said Shim.
The other version of Surface, which will run a full blown version of Windows 8 on Intel's Ivy Bridge architecture, will be even more expensive than the Windows RT edition.
The upshot, according to Shim, is that Microsoft Surface tablets aren't likely to produce blockbuster sales when they debut later this year. "It will likely be a slow build to significant influence for Microsoft in the tablet category," said the analyst.
Microsoft itself has not confirmed any pricing details for its Surface tablets.
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