he tech world is abuzz this morning with news that the Microsoft Surface could cost just $199. The rumors were fuelled by an Engadget report, in which an “inside source” confirmed that the Surface for Windows RT tablet will launch on October 26 at just $199.

According to Engadget, the price point was unveiled during the recent TechReady15 conference, along with a number of other Surface launch details. As with all tech insider reports of this nature, the mysterious source is completely anonymous.

Microsoft’s OEMs (their manufacturing partners) are already disgruntled about the Microsoft Surface. They claim that the Surface will take away huge business from their Windows 8 devices (which it almost certainly will). Why would OEMs continue their affiliation with Microsoft when Microsoft appears to be trying to sabotage their business?

It’s important to note that OEMs pay approximately $70 for each retail copy of Windows. When there are free options – like Android – available, sticking to the Windows operating system might become less and less practical, especially if consumers don’t catch on to Windows 8.

But selling the Surface at $199 would really make Microsoft’s manufacturing partners even madder than they are right now. At that price range, the Surface would be competing with the Kindle Fire and Nexus 7. Although the Nexus 7 is a cool tablet, it doesn’t have the hardware power, flip keyboard, and other cool features that are included on the Microsoft Surface. And until Amazon unveils the Kindle Fire 2, the Microsoft Surface would blow the Kindle Fire out of the water at $199.

It’s also important to note that Microsoft sold Xbox 360s at a loss for a long time before eventually being able to turn a profit. At $199 for top-quality hardware and manufacturing, the Surface would also be presumably sold at a loss.

Like any company that sells hardware at a loss, the focus is on long-term gains, not short-term losses. At $199, the Surface would likely sell out incredibly quickly, leading to a huge demand. It would also place Windows 8 in the hands of more consumers, something that appears to be very important for Microsoft. If Microsoft Surface is as cool as it appeared to be during tech demos earlier this summer, then consumers could catch on to the device very quickly.

Here are some advantages that the Microsoft Surface would have over other tablets in the $199 price range:

-First 10-inch tablet screen at a sub-$200 price range

-Unique new operating system (only Android-based tablets are currently priced at less than $200)

-Less than half the price of an iPad, a target that Microsoft clearly has in its sights

-Faster hardware

-Higher resolution

-More storage space

In the long-term, it’s expected that Microsoft would recoup its losses through the sales of Windows 8 operating systems, Microsoft Surface Pros, and the Windows 8 app store.

Some tech websites are saying that a $199 Microsoft Surface is simply too good to be true, while others are keeping their hopes up. MaximumPC quotes a number of tech analysis who claim that the Surface cannot sell at $199 due to a number of problems. First, Microsoft would not blatantly undermine its OEM partners by selling at such a low price, and second, it presumably costs $300 to manufacture the Surface, and Microsoft might not be willing to face that type of loss.

The first Windows 8 RT Surface will launch on October 26, and as of yet, we’ve heard little about how much it would cost. This $199 is the first indication we’ve had of any price point, and if it’s true, then the Surface could truly be as revolutionary as Microsoft is suggesting. After all, who could resist a tablet more powerful and versatile than the iPad at less than half the price?

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