Google announced its first own-branded tablet device, the US$199 Nexus 7, last week, indicating the tablet market is evolving into two distinct segments: the premium-priced Apple iPad and smaller, cheaper Android devices.

Amazon arguably started the low-end market when it introduced its Kindle Fire tablet back in December 2011, and although it has only been available in the US so far, it has proved to be very successful with millions sold.

The thinking with the Fire (and Nexus 7) is that a good value device with a low price can be subsidised by revenue generated by the content – music, e-books, films, apps – users pay to consume. Both the Kindle Fire and Nexus 7 are positioned as media consumption tools rather than the “ultimate gadget” – the role of the iPad.

Apple also offers a broad range of content, but the iPad is more than twice as expensive as the Nexus 7 and Kindle Fire, with the only major hardware difference being a larger screen. The brand cachet and high-profile launches are what allow Apple to charge such a premium.

There have been other tablets that have gone onto the market for a similar price as the iPad but in terms of competing with the iconic Apple tablet, they’ve struggled.

For example, HP’s TouchPad sold in very low numbers until its price was slashed in August 2011. A surge in sales followed, prompting HP into an additional production run, and leading to sales of 1 million TouchPads in the third quarter of 2011 – a 5 percent share of the global tablet market for that period.

Likewise, RIM’s BlackBerry Playbook failed to excite until its price was slashed in January this year. Motorola’s Xoom also needed a price cut to boost sales. 

What all of this shows is that the iPad is the only device that has been able sell in meaningful quantities at a premium price. Tablets made by anyone else need to be priced at the lower end, and pitched as media consumption tools rather than standalone gadgets.

But where does all this leave Microsoft’s recently-unveiled Surface tablet? The company said the 10.6 inch device (pictured) will be available in an ARM-based Windows RT version priced to compete with a “comparable” ARM tablet, meaning it could be in the same ballpark as the iPad.

Microsoft hasn’t currently got the same size of mobile content ecosystem as Apple, Amazon or Google, meaning it would struggle to tie the device so closely to content and generate the sufficient revenue to support a low-priced device.

What Microsoft will need to rely on to compete with the iPad is a strong ecosystem developing around Windows 8. Microsoft is likely to tie Windows RT/8 and Windows Phone 8 together, a strategy that Apple has successfully put into action with iOS on the iPad and iPhone.

And Microsoft has a huge developer community, so it shouldn’t be too much of a stretch for content and applications for the Surface to spring up in a short space of time. And with other companies planning to build tablets running Windows 8 – and the Windows Phone developer community also developing – the ecosystem should grow more rapidly than if it was merely providing content for the Surface.

So, despite the emergence of the two-segment tablet market with the arrival of Google’s Nexus 7, there is still the potential for Microsoft to take the fight to the iPad in the market segment that Apple has made its own.

Tim Ferguson

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members