When Microsoft first announced it was entering the tablet market, analysts were impressed with the hardware but were concerned about pricing. How much would the Surface cost? And would Microsoft undercut its licensees, putting other Windows-based tablets at a disadvantage?

Microsoft on Tuesday started taking pre-orders for the Surface, which was originally unveiled in June. There are three models: a 32 GB version is priced at $499; a 32 GB version bundled with a black Touch Cover priced at $599; and a 64 GB version bundled with a black Touch Cover priced at $699.

"Microsoft is not dramatically undercutting its licensees," said Avi Greengart, an analyst at Current Analysis. "There was concern that Microsoft would feel the need to compete with Apple and by so doing make it impossible for anyone else to pay Microsoft's fee on the operating system and still make a profit."

Leaving Room for Other Vendors

Surface will be available for purchase beginning Oct. 26 at all Microsoft Store locations in the United States and Canada, including in all 34 new holiday stores. Surface will be available for sale online in eight markets across the world: Australia, Canada, China, France, Germany, Hong Kong, the United Kingdom and the United States. There will also be several other options available this holiday shopping season, including a $999 Acer model.

"With the $499 price, Microsoft is definitely leaving room for the Asuses and the Toshibas and the HPs of the world to sell a product alongside the Surface and have a chance at market success without competing against a tablet sold basically at cost," Greengart told us. "Google is selling the Nexus 7 and Amazon and Barnes & Noble are selling their tablets at cost, but Microsoft is pricing this to sell at a profit in terms of both the hardware and the software."

Microsoft is also peddling a variety of Surface accessories, including Touch Covers in five colors for $119.99. Customers can also purchase a Type Cover in black for $129.99, which adds moving keys for a more traditional typing feel. Microsoft apps also come included, such as Microsoft Office Home and Student 2013 RT Preview, Windows Mail and Windows Messaging, SkyDrive, Windows Internet Explorer 10, Bing, Xbox Music, Xbox Video, and Xbox Games.

Not Priced Below the iPad

"When you compare it to the iPad, at first glance it looks like the Surface is priced below the iPad because the 32 GB iPad is $599 and the 32 GB Surface is $499," Greengart said. "However, the iPad has a much, much higher resolution display. Consumers that value that hardware aspect would expect to pay more for that. In some sense, the Surface and the iPad are priced somewhat equivalently."

Greengart also noted that Microsoft has been promoting Surface with a heavy emphasis on the keyboard, but the keyboard is not included in the price. So the surface really starts at $599. Greengart calls it a fair price for the device, which has a nice industrial design with premium materials.

Microsoft pointed to Surface design features like the casing, which is created using what's called VaporMG, a magnesium-based combination of material selection and process to mold metal and deposit particles that creates a finish similar to a luxury watch. By leveraging this approach, Microsoft said, Surface is thin and light yet also rigid and strong. The VaporMG approach also makes room for a built-in kickstand that makes it convenient to watch movies or take photos and videos with the Surface.