Should Microsoft price its Surface tablet against the Google Nexus 7?

Rumours that Microsoft will sell Surface for $199 (or £199 over here given the "rip-off Britain" currency conversion ratio) are to be taken with heaps of salt given the devastating impact that such a move could have on the entire Windows ecosystem.

It is no secret that both Microsoft and Google are looking to emulate Apple by taking the lead and producing the hardware, the software and the services that bind the ecosystem. Doing so ensures much higher margins (once established), a tighter control on quality and time to market, while also conveying a strong message to the end-user.

But Microsoft has built its empire on leaving the hardware side of the equation to its partners and focusing on the software and services bits only. With a $199 Surface, Microsoft would deliberately side step its partners and use its own extensive distribution and retailing network, one that rivals Apple’s and surpasses Google’s, to compete with the likes of Dell, Acer, Lenovo or HP.

At $199, Surface would almost certainly be a loss leader, meaning that the bill of materials plus ancillary costs would be more than the selling price, something Microsoft has done for ages with its promising but money-bleeding Xbox gaming console.

Even Google and Amazon make very slim margins on the Nexus 7 and the Kindle Fire, hoping to recoup some costs on services and software sold as well as lowering the cost of manufacturing them as volumes increase. Device vendors in general can’t afford to be so generous.

In a nutshell, a $199 Surface would certainly be a massive commercial success, helping the company to catch up with Apple and Google but it would almost certainly drive a wedge between Microsoft and its long-time partners, which the company works with on other lucrative areas.

In the end, the pricing at which Microsoft sells Surface will provide a vital clue as to the future strategy it may adopt with its partners. See our previous coverage of Surface and its potential impact on the OEM market below:

Microsoft surfaces while OEM sink

Microsoft's Surface: Unlikely to succeed?

Is Surface just the beginning of Microsoft's hardware ambitions?

Acer boss tells Microsoft to "think twice" about Surface decision