Ballmer basically described the growing phenomenon of seven inch tablets with a hint of disdain, calling them, in an interview, "chintzier" than many of their contemporaries. On many levels, he's got a point there--I've seen enough cheap tablets that would make anyone regret dropping $100 on them--but there are still smaller tablets that are doing cheap right. Consider the Kindle Fire tablet, as well as the Nexus 7. These are small tablets, but no one would ever call them "chintzy" tablets. Even Apple's looking to get in the smaller tablet game, likely after seeing the impressive success of the Kindle Fire.
But Ballmer further unnerved by talking about price ranges, calling the "sweet spot" somewhere between the $300 and $800 range, essentially putting the Surface tablets in the same price class as a lower to mid-range PC, and that's likely to be a disaster. Competing with the iPad--which, let's face it, every tablet is doing whether it wants to or not--is a bad idea, especially when the weapon of choice is tech specs.
But Microsoft has one critical advantage that Apple plain old does not: the Xbox 360. The massive gamer fanbase that's currently parking one of Microsoft's consoles in their living rooms, bedrooms, spare rooms or what have you is the perfect sub-market to sell to. What can Microsoft do with the gaming market? There are many possibilities.
One such possibility involves taking games that already exist, and then making smaller game versions specifically for the tablet, in much the way that Sega did back with its Dreamcast VMU systems. Gamers get added value from their current library of games, Microsoft gets to sell tablets in order for the gamers to get that added value. Additionally, Microsoft could make smaller games that would translate into in-game benefits.
Many of the games currently on Xbox Live Arcade would make excellent translations to tablet gaming, as well.
The key takeaway here is that, while the Surface would likely have a hard time gaining ground as just another attempted iPad-killer, it would have a lot of room to run if it incorporated gamers into its philosophy. Of course, that's not the only way the Surface can effectively compete, but it's an idea worth considering, especially if Ballmer et al decide not to compete with the iPad on price.
