Microsoft today confirmed what many analysts suspected, that it has cut prices of Windows 8 and Windows RT licenses to hardware partners building smaller-sized tablets as a way to drop device prices and juice sales.
Analysts questioned whether the cuts are enough to dramatically lower tablet prices and spur sales, and were skeptical that Office would be a big draw for consumers, who purchase the bulk of tablets.
According to the Wall Street Journal (paid registration required), the head of Microsoft's OEM division, Nick Parker, said the company has expanded its discount from Windows 8-only to also include Windows RT, the spin-off that has failed to gain traction in the market.
The licensing price cuts will apply to OEMS only for tablets with screens between 7-in. and 10.1-in. in size. Microsoft declined to detail the amount of the discount.
Parker confirmed the discounts at the Computex trade show in Taipei, Taiwan, which opened Monday.
Along with the discounted licenses for Windows 8 and Windows RT, Microsoft is also bundling Office Home & Student 2013 with Windows 8 on the smaller tablets, said Tami Reller, the CFO of the Windows group, also from Computex.
Windows RT has always been accompanied by Office Home & Student RT, a collection of Excel, OneNote, PowerPoint and Word, but Windows 8 has not had a similar free offering. Office Home & Student 2013 features the same four applications -- like Office RT, it lacks the Outlook email client, a must-have for business users -- and like its RT offshoot, is not licensed for commercial, aka workplace, purposes.
The bundles will also be included in new devices running Windows 8.1, the update for both Windows 8 and Windows RT that Microsoft will launch later this year.
Three months ago, the Wall Street Journal was the first to claim Microsoft had kicked off license discounts with OEMs and would bundle Office with Windows 8. On Monday, Acer unveiled the first smaller-size Windows 8 tablet, the 8.1-in Iconia W3, which includes Office Home & Student 2013 and comes with a starting price of $379, signaling that the Journal's March report was accurate.
Last week, Microsoft hinted at a Windows 8-Office tie-in when it launched its own Surface Pro tablet in Japan, where the tablet will come with a copy of the commercial-licensed Office Home & Business 2013.
"I think this is revenue neutral, that the end price to the OEMs is neutral, but they're throwing in Office," said Patrick Moorhead, principal analyst with Moor Insights & Strategy.
Smaller displays mean less expensive displays, Moorhead explained. "Going from 10.6-in. or 11.1-in. to 8-in. or 7-in., you're going to bring down prices dramatically. So any price reductions will be more on the basis of the new hardware, and not attributed to what Microsoft is doing."
For some consumers, the inclusion of Office on Windows 8 tablets may be enough to tip the scales in Microsoft's favor, said Wes Miller of Directions on Microsoft. "It's an incentive to those Office-heavy consumer users," he noted. "But I'm not sure it's going to encourage the sale of smaller [Windows] tablets. Maybe it's not supposed to."
Neither Miller nor Moorhead thought that Office would significantly change the fortunes of Microsoft and its OEMs in the tablet market, simply because the suite isn't a powerful draw to that audience. The fact that those tablets will come with a non-commercial license also made them doubt that business users would be any more likely than before to pick a Windows tablet over lower-priced rivals powered by Android, or an iPad sold by Apple.
Still, Moorhead saw the move toward smaller tablets -- and their lower prices -- as good for Microsoft, even if its discounts are actually negligible. "I think Microsoft will see more success with the 7-in., 8-in. tablets," Moorhead said.
It had better.
Other experts have noted a rapid shift in the tablet market to smaller displays -- IDC recently forecast that tablets 8-in. and smaller would account for 55% of sales this year -- and said that Microsoft had been forced to hustle before it was left behind.
The decision to cut prices and give away Office could be a signal that Microsoft realizes its late-to-the-party position, or it may simply be another sign that the company believes Office is key to selling anything powered by Windows.
Many analysts have concluded that Microsoft believes its best sales tool is Office, not Windows: They came to that judgment because Microsoft has not created versions of Office for the two largest mobile platforms: Android and iOS. Instead, the thinking goes, Microsoft is withholding Office on the rival OSes to wave it as a carrot for Windows tablets.
If that's the strategy in Redmond, it's not new: Microsoft played the same card last October when it launched Windows RT -- which has gotten a cold shoulder from most OEMs -- and has not driven demand for Microsoft's own Surface RT.
Miller questioned whether that same blueprint, repeated with Windows 8 tablets, smaller ones at that, holds much promise. "Office RT wasn't terribly touch optimized," he pointed out, adding that Office 2013 is even less so. "Sure, you can run other [Windows] applications on a Windows 8 tablet, but they're not optimized for touch either."
What's the point? he seemed to be saying.
Ultimately, Moorhead was more optimistic. "Microsoft is on track with their platform strategy," he said, immediately swinging to a caveat. "But they remain off-track with apps."
Apps, Moorhead said, remain the biggest barrier to Windows' success on tablets. And Miller concurred. Both have criticized Microsoft's Windows Store, not for the number of apps it distributes, but for a lack of high-quality apps.
"My concern is that if your collection of apps can't motivate people to buy the platform, the only alternative is to ride this pricing war to the bottom," said Miller. "It looks like Microsoft and the OEMs are giddily jumping on that. But [Windows tablets] must split the pie three ways, Microsoft, Intel and the ODM [original device manufacturer]. There's no way they can compete on price with Android, where only the ODM has to make money."
