Microsoft Surface tablet to cost $199?

Enter 'Microsoft Surface $199' at a search engine and a zillion results will be displayed. It is all over the web that Microsoft's Windows 8 tablet will costs a smidgen under $200. In fact, it will match the price of Google's Nexus.

All those stories on the web can't be wrong can they? They could be. All the stories appear to be quoting just one source and it seems that Engadget got the rumour from an anonymous source at a Microsoft TechReady15 conference. It may or may not be true, but everyone is writing news stories and blogging about it.

If it were a 7in tablet then it would be believable, but not for a device with a 10.6in screen, magnesium case and 32Gb of memory for the base version (pdf spec sheet here). An iPad 2 has 16Gb of memory and a 9.7in screen and costs $399. There's no way Microsoft could make a tablet with a bigger screen and twice the memory for half the price.

I think $399 would be a more realistic price for the Microsoft Surface RT (the cheaper of the two versions, the pure tablet as opposed to the Pro version that actually runs Windows). This is $100 cheaper than the iPad 3, which would be its main competitor. It cannot cost any more than than an iPad if Microsoft wants to grab anything other than single digit market share.

Selling computers at cost price would lose you a lot of money, but the same isn't true of tablets, which are more like mobile phones. Phones can be given away cheaply and even for free because of the monthly contract fees we have to pay. With a tablet that is locked in to an online store, Microsoft will earn money on every app sold in a similar way, so there is a remote possibility that the device could be cheaper than expected if this is factored into the price.

I wonder how many apps the average person buys over the life of a tablet? Is this a factor in the pricing? If the real cost is $399, but Microsoft reckons it will make $100 on average through app sales per device, it could sell it for $299 and still make a profit. I think that's the best we can hope for.