Microsoft just priced its Windows 8-based tablets out of the market.
Extremetech reports that they expect Windows 8-based tablets to sell for $600-$900. I think Microsoft is forgetting its history.
Microsoft became Microsoft, and not just another language vendor, when it won the contract to supply IBM with an operating system. Microsoft’s coup was licensing the operating system, rather than selling it to IBM, thus allowing them to license DOS to other computer makers. The first clones weren’t much cheaper than IBM PCs. Compaq thrived by filling niches that IBM ignored, first by building a portable PC, and then going beyond IBM’s PC/AT and building an AT based on the then-state-of-the-art Intel 80386.
Microsoft thrived but didn’t dominate.
Then, in 1985, a New England-based distributor of disks and peripherals decided to diversify by selling inexpensive an Korean-made PC as the Leading Edge Model D. It wasn’t completely IBM PC-compatible, but it was close, and it was priced like a Commodore 128. Other companies followed with similar PCs, and within another year or two, PC/XT clones sold for less than $1,000. Over the course of the following decade, Microsoft went from powering about 25% of the market to 75%, if you’re pessimistic. Some would peg that number at closer to 90%. Software publishers took notice and started testing their software to make sure they would work on the most popular clones, at the very least.
Microsoft won that round of the war because these PC/XT clones sold for the price of an 8-bit Apple IIe, but they were twice as fast, had twice as much memory, and they were every bit as expandable. And besides that, if you had a computer at the office, it probably was an IBM PC of some sort, so these machines were compatible. You could take work home with you.
Microsoft wasn’t the only contender. Had IBM-compatible PCs stayed in the $2,000 price range, Commodore and Atari were both perfectly willing to sell 32-bit computers with graphical interfaces and multitasking for less than that. But neither company could compete with $1,500 386SX-based PCs running Windows 3.0 or 3.1 sold at every big-box consumer electronics store in the nation. Both Commodore’s Amiga and Atari’s ST were demonstrably better in most regards than those Windows 3.1 machines, but those Windows 3.1 machines were easier to buy. They were cheaper, and they were available everywhere televisions and washing machines are sold. Or at Radio Shack. You had to go out of your way to buy an Amiga or an ST. Dad and I drove to a store 48 miles away to buy an Amiga in 1991. The closest Radio Shack was three miles away.
Bill Gates understood that he had to price things in the middle, at most, and he knew that people would settle for an almost-as-good product if they thought they were getting a bargain. Steve Ballmer, by contrast, has always tried to raise prices. But the high-end, boutique player in this market is Apple. It’s been that way for 30 years, and the only company that survived by competing with Apple at the high end with a boutique product at a boutique price was IBM, and that stopped working around 1991 or 1992, the sole (and curious) exception being the Thinkpad line.
By pricing their tablets at the high end of the market, they’ve guaranteed failure. Companies that force Windows phones or Blackberry phones on their employees because they work better with Windows PCs will buy these tablets, but that business model isn’t working all that well. Blackberry owner RIM is desperately seeking a buyer, and Windows phones trail Android and Apple.
A 7-inch Windows based tablet priced in the $200-$250 range would stand a chance in the market. It wouldn’t be a guaranteed success, given that Amazon and Barnes & Noble have Android tablets in that price range, but it would be a fair fight.
But a Johnny-come-lately product with nothing behind it but the Microsoft name, priced $200 higher than an Apple Ipad? Microsoft should be happy if it gets 10 percent of the market. This would be like IBM deciding to stage a comeback into the PC market with higher-than-Apple prices. It wouldn’t work for IBM, so why would it work for Microsoft?