Will Microsoft's Surface Mini undercut the competition?

Surface Mini has the Office advantage, but can Microsoft price the rumored tablet low enough to challenge the iPad Mini and new Iconia W3?

For months Microsoft has been dropping coy hints about a forthcoming smaller-form-factor Surface. Two months ago, citing unnamed sources, the Wall Street Journal reported that a 7-inch Surface tablet was in the works. Last month, citing an unnamed source, Paul Thurrott said, "the Surface family will of course expand this year to include at least one more device, the 8-inch tablet I exclusively revealed earlier this year."

Of course.

The problem -- and the great opportunity -- for a Surface Mini is that it will go head-to-head with immensely popular smaller tablets, including the iPad Mini, the Nexus 7, and the Kindle Fire HD, not to mention the Acer Iconia W3 that will ship this weekend. It's already a relatively crowded playing field, and the players are just starting to warm up.

Unless there's a breathtaking deal in the wings, Microsoft can't offer the kind of breadth and depth of content available from Apple, Google, or Amazon. But Microsoft does have two considerable competitive advantages.

First, Office -- every new sub-10-inch Windows 8 tablet will include Office Home & Student 2013. While OH&S 2013 may not have Outlook, the fully licensed package retails for $140 or so, and for some people that will be a game changer, even on an 8-inch tablet.

Second, price: If Microsoft can get its price down from the Surface Pro nosebleed zone, it may be able to come up with a competitive piece of iron. Not paying for Windows 8 or Office 2013 certainly hath its privileges.

The 7.9-inch iPad Mini, with Wi-Fi and 16GB runs $329. Both of the 7-inch tablets -- Nexus 7 and Kindle Fire HD -- with Wi-Fi and 16GB, retail for $199. The considerably larger 8.9-inch Kindle Fire HD goes for $269. Prices for the new Iconia W3 are between $350 and $380.

Earlier today Sameer Singh posted on his Tech Thoughts site a theoretical tear-down and pricing for an 8-inch Surface tablet. No, he doesn't have a crystal ball or insider information. Instead he's extrapolating from known designs, particularly for the Iconia, and adding a battery that's comparable to the iPad Mini. He targeted an 8-inch display at 1,280 by 800, an Nvidia Tegra 4 processor, 1GB of RAM, 16GB of storage, and Wi-Fi only. 

Singh predicts a Surface Mini with those specs would come in with a BOM cost of $190, or $203 including manufacturing costs, plus or minus 15 percent. Based on a gross margin of 42 percent (lower than the gross margin on the Surface RT), he's pegging the retail price of the Surface Mini at $349.

If the cards play out that way -- by no means a foregone conclusion -- Microsoft will find several wolves at its door.

The most obvious problem: The iPad Mini is cheaper. In the 8-inch class, it's hard to imagine consumers flocking to a more-expensive Windows slab, although business users may feel they can get real Office work done on a tiny screen -- for the first few minutes, anyway.

But that's the tip of the iceberg. All three big-name competitors are due for a refresh shortly. The iPad Mini 2, long in the rumor mill, may outclass the whole category, with (perhaps) a high-resolution IGZO screen, A7 quad core chip, and an 8-megapixel back camera, all possibly at the same price as the current iPad Mini. The new Nexus 7, also only rumored as yet, could have a 1,920-by-1,080 display, Snapdragon processor, 5-megapixel rear camera, LTE support, and wireless charging. Maybe at the same price -- maybe. The Kindle Fire HD 2 might also have a more impressive screen, faster processor, and so on, also at the same price as the current offering.

If any or all of those next-gen predictions come true before the holiday shopping season, Microsoft's going to have a very hard time peddling the Surface Mini -- unless Microsoft, too, gooses the specs and lowers the price. It's hard to imagine Office H&S 2013 driving phalanxes of consumers into the Surface camp.

Acer's caught in the squeeze. With a less-than-stellar display on the Iconia W3, slow CPU, and low-resolution camera, it's going to have a hard time competing with the Surface Mini, particularly if Microsoft prices the Mini at a mini level.

This story, "Will Microsoft's Surface Mini undercut the competition?," was originally published at InfoWorld.com. Get the first word on what the important tech news really means with the InfoWorld Tech Watch blog. For the latest developments in business technology news, follow InfoWorld.com on Twitter.

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