The rumor that Microsoft may be charging $85 for the Windows 8 RT (which runs on ARM, and include Microsoft Office) license to tablet manufacturers is creating waves on news sites, and many people are shocked that in a world where mobile operating systems are -apparently- free (Android, iOS), Microsoft could charge so much for the software. The immediate thought is that money spent on the Windows 8 RT license is not going to the hardware, and to be fair, $85 can buy some nice upgrades.
Are Windows 8 tablets are doomed? I don’t think so. First, Windows 8 tablets will most likely not compete that much in the low-end in the $200-400 range. It is more likely that businesses will buy those tablets, for one obvious reason: they will run Windows apps, especially Office and Outlook. Secondly, Microsoft’s business model is simple: they build and sell software for a living, and this model still works pretty well for them.
Ultimately, Microsoft Office and Windows apps is what it will come down to. To make the tablets successful, Microsoft needs to make sure that Office and Outlook (and others) run very well, and that battery life doesn’t suck (my greatest worry about Windows 8 for now). If they can do that, it’s reasonable to think that people who need those apps will be OK with paying a premium (and add the cost of those licenses too). The alternative is to setup some kind of Windows virtualization like Citrix for iPad or Android, which works, but can be very slow, especially over a 3G network. Citrix also requires a substantial back-end investment and licensing costs.
The other thing that should be considered is that fact that those other operating systems are not “free” either. You may very well know that until recently, Microsoft was making more money from royalties collected from Android smartphone makers like Acer, Quanta, HTC and Samsung, than it earns with its own Windows Phone licenses. The cost of developing iOS also ends-up in the price of an iPad, somehow, and if you want the Google Apps (GMail, Google Play, etc…) the handset manufacturer has to license those to Google for a fee…
While $85 does sounds like an expensive proposition (with Office included, it’s actually not that bad), the pricing of Windows in general didn’t prevent it from being the most used operating system in the laptop world, by far. There are also a number of very (or extremely) affordable Windows machines on the market. In the tablet world, Windows 8 tablet will probably be priced higher, but I don’t think that the short-term goal for Microsoft is to see Windows 8 tablets in Wal-Mart. The company knows that the hardware problem will eventually be solved by Moore’s law, and it is more interested by laying a solid foundation for its tablet strategy.