Microsoft Corporation (MSFT)’s Little Shop of Discounts

It’s not just small Windows RT-based tablets that are getting cheaper. Small tablets running the more full-featured Windows 8 are also now seeing their value propositions improve.

Sources told Bloomberg earlier this week that Microsoft Corporation (NASDAQ:MSFT) is slashing licensing fees to manufacturers of small Windows RT devices, and now a Microsoft executive is confirming the discount across both operating systems.

Microsoft Corporation (MSFT)

Nick Parker — VP of Microsoft Corporation (NASDAQ:MSFT)’s OEM division — also says that the discount program will come with free Microsoft Office software. It will be up to the manufacturers to decide if they want to include Word, Excel, OneNote, and PowerPoint in their tablets — no Outlook — and it’s hard to see them passing up on the offer.

This explains why the first 8-inch Windows 8 tablet — Acer’s Iconia W3 — is set to hit the market at a refreshingly reasonable $379 price point.

That’s still higher than most similar-sized Android and iOS tablets, but it’s a big step down from the Windows 8 tablet pricing that was introduced last year.

The licensing discount doesn’t apply to all Windows 8 and Windows RT tablets. Microsoft Corporation (NASDAQ:MSFT) is only offering the lower prices and free Office for tablets smaller than 10.1 inches. In other words, it’s protecting the pricing integrity of its 10.6-inch Surface tablets.

Windows devices getting cheaper isn’t a surprise. Intel Corporation (NASDAQ:INTC) — the company behind the chips in the Windows 8 tablets — made a bold prediction two months ago.

“If you look at touch-enabled Intel Corporation (NASDAQ:INTC)-based notebooks that are ultra-thin and light using non-core processors, those prices are going to be down to as low as $200 probably,” CEO Paul Otellini said during his company’s earnings call.

The prediction seemed silly at the time. Was Otellini telling tech shoppers to hold back on purchases until it put out its cheap yet powerful quad-core Bay Trail chip on the market?

Either way, it seems as if Microsoft is getting hungry enough to not squander this opportunity. It’s down to offering free keyboard covers to move cobweb-collecting Surface RT tablets as the initial buzz is fading. If it wants to stand a chance against slick iPads and cheap Androids, it needs to make sure that it’s competitive enough to offset the lack of third-party developer support.

Office isn’t the difference maker that it used to be, but giving it away on small tablets is the right call when one considers what’s at stake if Microsoft Corporation (NASDAQ:MSFT) fails in the thriving tablet niche that’s growing at the PC market’s expense.

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Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Intel Corporation (NASDAQ:INTC). The Motley Fool owns shares of Intel and Microsoft Corporation (NASDAQ:MSFT).

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