Microsoft Said to Cut Windows for Tablet Prices
Microsoft Corp. (MSFT) is cutting the price of its Windows software for small tablets, seeking to shore up foundering efforts to combat Apple Inc. (AAPL) in the mobile-computing market, people with knowledge of the matter said.
Context & Ripple Effects
The reported price cut answers a problem Microsoft has carried since at least August 2012, when Lenovo pointed out that Windows RT tablets were shipping up to $300 cheaper than full Windows 8 machines — a licensing structure that made Microsoft's own small-tablet economics uncompetitive against Android. The demand side has been deteriorating too: UBS halved its Surface shipment forecast to roughly 1 million units in January 2013, and the report lands days after Microsoft began phase two of an advertising campaign aimed directly at Apple's iPad.
The move also sets up the supply side. Asustek agreed in May 2013 to build small Windows 8 tablets, so cheaper licenses would arrive just as new hardware partners come online. Bloomberg attributes the cut to people with knowledge of the matter — it remains unconfirmed by Microsoft — and it coincides with confirmed reports of a major internal restructuring under Steve Ballmer, giving Wall Street two simultaneous storylines on how Microsoft reorganizes around mobile.
First-order effects
- Small-tablet makers such as Asustek gain headroom to price devices against Android rivals without absorbing Microsoft's full license fee, while Microsoft accepts lower per-unit software revenue on exactly the segment where it has no installed base.
- Apple faces a cheaper Windows tablet tier landing alongside Microsoft's second-phase anti-iPad ad campaign, sharpening a comparison Microsoft is actively funding.
Second-order effects
- A cheaper Windows license narrows the price umbrella that let Windows RT and Android coexist awkwardly inside partners' lineups — Lenovo and other OEMs will have to reposition which OS gets which shelf slot.
- If the discount applies broadly rather than to select partners, Microsoft risks compressing the premium its full-price Windows 8 licenses still command, forcing a clearer two-tier licensing structure across device sizes.
Third-order effects
- If the pattern holds, Windows shifts from a uniform per-license fee toward market-priced tiers set by what each device class can bear — an admission that license economics, not marketing, were the binding constraint on Windows in mobile.
- The rumored Ballmer restructuring, arriving alongside this repricing, points toward Microsoft reorganizing product groups around device categories rather than the legacy divisional lines that produced the RT-versus-Windows 8 split in the first place.
The trend: PC-era licensing is giving way to competitive per-segment pricing as Microsoft tries to buy relevance in small tablets against Apple and Android.