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Microsoft rallies Windows for price war with Android

Dirt-cheap Windows PCs and tablets are coming, and it's all thanks to Google's growing low-price threat.

Android tablets are eating the world, Chromebooks have been gobbling up market share in both the commercial and sub-$300 segments, and once-loyal PC builders are even dabbling with "Droidbooks" and Android-based all-in-ones. On the other side of the coin, Windows tablets have struggled to pick up steam, and the PC market has been sinking ever since the iPad saw the light of day.

Microsoft made two moves this weekend to counter the small but growing rebellion. First came news of the company reportedly cutting the cost of Windows 8 licenses to a mere $15 for devices sold under $250. Then on Sunday, Microsoft confirmed the long-rumored Windows 8.1 update, which essentially halved the system requirements for Windows devices.

Yes, folks, Microsoft's sick of losing customers to Google—and a price war is brewing.

Low-cost licenses to spur low-cost devices

By cutting the cost of a Windows license from a reported $50 all the way down to $15, Windows will no longer be an albatross hanging around the neck of cheap hardware. Remember, if you're buying a $200 to $250 device, the manufacturer has to actually build it for far less—and $50 is a big slice of that small pie.

Dell Venue 8 Pro ROBERT CARDIN

Dell's Venue 8 Pro is the cheapest Windows tablet currently available, and it's still priced higher than many Android tablets.

Google's hardware ascent has come on the back of devices costing under $250, because manufacturers simply can't afford to sell stuff that cheaply after plunking down big bucks on a Windows license. The cheapest Windows 8 tablet, the Dell Venue 8 Pro, is currently being sold via Microsoft's online Store for $230, down from its regular $300 price. Scouring Amazon and Best Buy's websites reveal no Windows tablets and few Windows notebooks available under $250.

Small Android tablets, on the other hand, regularly sell around $200 and even cheaper options are available. Chromebooks tend to hover around the $250 mark.

"Microsoft has cut prices historically to meet a competitive threat," says Patrick Moorhead, founder and principal analyst at Moor Insights and Strategy. "Linux-based netbooks threatened Windows, and Microsoft offered Windows XP at a cut rate price—so this move versus Chromebooks makes sense."

That holds doubly true if you remember that Microsoft recently redefined itself as a devices and services company, rather than a simple software company. Getting devices preloaded with Microsoft services into the hands of customers is the true goal now. Selling a Windows license puts money into Microsoft's account just once; service subscriptions and purchases have the potential to pay off in perpetuity. 

Halving hardware requirements

But the savings don't stop at licenses. The just-announced spring update for Windows 8.1 packs a bevy of mouse-friendly features, but more importantly to the bottom line, it plays nicer with minimal hardware. Microsoft VP Joe Belfiore says manufacturers will be able to build Windows 8 devices packing just 1GB of RAM and 16GB of storage.

To be fair, those have been the minimum PC system requirements for the 32GB version of Windows 8 since the very beginning—but slapping the OS on such a sparsely spec'd system wasn't truly feasible. In reality, the most affordable Windows devices—including tablets—all have a minimum of 2GB RAM and 32GB of storage space.

Acer's 8-inch Iconia W3 (priced $430 at launch, but $300 now), the first small-screen Windows slate, over Google's discontinued $200 first-gen Nexus 7. The Nexus 7 had 1GB of RAM and 16GB storage; the Iconia W3 had 2GB of RAM and 64GB of storage

A 7- to 8-inch Windows tablet packing 1GB of RAM and 16GB of storage won't run Photoshop like a champ, but it should certainly encroach on the hallowed $200 price point—especially when paired with the reduced licensing costs. And despite what those Chromebook-hating, Scroogled-spouting Pawn Stars would lead you to think, Microsoft's true target here may really be those cheap Android tablets, not Google's bargain-priced laptops.

"In general I think [Microsoft's moves are] much more of a shot across the bow of tablets than Chromebooks," says Stephen Baker, vice president of industry analyses at The NPD Group. "While Chrome did go from 5 percent of the under-$300 clamshell market in 2012 to 20 percent in 2013, Microsoft’s sales growth in that segment was 25 percent… I believe the price cuts are focused on 8-inch tablets, as we believe that is the competitive segment for 2014."

Indeed, tablets are a key battlefield for Microsoft, and the company has to do something to give Windows slates a shot in the arm.That said, the reduced hardware requirements can also help Microsoft battle Chromebooks, especially given the deep hooks SkyDrive has sunk into Windows 8. Many Chromebooks ship with a simple 16GB solid-state drive and some free Google Drive cloud storage space. Cheap Windows laptops could easily become something similar, tapping into Microsoft's renewed cloud services focus.

Will it work?

For many buyers, Android's greatest appeal lies in its affordability, and there is no loyalty in the eyes of the bargain hunter. Windows Phone's largest successes have come from low-cost devices, and if small Windows tablets like the Dell Venue 8 or Acer's Iconia W3 can achieve relative price parity with Android slates, they could very well see some sales success. Windows 8 holds up surprisingly well on a small screen.

The roles are reversed in laptop land, where the well-entrenched Microsoft is trying to snuff out Chromebooks before they blossom into an even bigger threat. Killing Chromebooks won't be as easy as combating netbooks was, warns Moorhead. "I don't think this price cut will work as well [as the one in the netbook era]," he says, "because Google is behind [Chromebooks] with lots of marketing dollars."

Simplicity is also a key draw for Chromebooks. They just work, assuming you have an Internet connection available, and stay out of your way far better than Windows PCs and the Linux netbooks of old.

The payoff from Microsoft's war on Windows device prices won't be known for months and years to come. One thing is for certain, however: When two giants slug it out in a quest for low-price supremacy, it's the buyers that end up really winning.

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