Microsoft is expected to show off the new touch-screen tablet version of Windows next week for the first time, but it probably won’t ship until the middle of 2012 at the earliest.
By then, the iPad will have been on the market for more than two years, and other competitors like Android, RIM’s PlayBook, and HP’s TouchPad will have been out for about a year.
Is that too late?
A report today by Citi says no. Even though Citi estimates Microsoft won’t enter the market until at least 70 million tablets have already been sold, there’s still plenty of room for Microsoft to thrive and become “#2 behind iPad.”
- Tablets are too expensive today. Citi notes that most tablets are in the $500 to $800 range today, which makes them too expensive for mass consumer adoption. Historically, gadgets need to fall below $300 before they really take off. Citi sees prices staying high throughout 2011 because of component shortages. That means Microsoft will have plenty of room to reach people who haven’t jumped on the tablet bandwagon.
- Android tablets are not very good. While the iPad will continue to dominate, Microsoft’s chances of success will be largely defined by how well Android tablets do between now and the end of 2012. Android quickly rose to the top in smartphones, but Citi doesn’t think the same will happen in tablets: early Android tablets like the Motorola Xoom are selling poorly compared with the iPad, and most of the reviews have been pretty bad as well.
- Android faces legal challenges. Android tablet makers might sour on the platform because of legal challenges. They are already facing a bunch of intellectual property suits from Apple, Nokia, Oracle, and Microsoft. HTC has already agreed to pay Microsoft about $5 per Android unit shipped, and Citi thinks Microsoft is hoping for royalties of between $7.50 and $12.50 per unit. That would erase some of the cost-advantage of shipping Android.
- Apps. Although Microsoft will be coming from way behind in terms of apps, it has a huge army of developers who use the .NET platform — more than 6 million, second behind only the 9 million who know Java. Microsoft will almost certainly release new tools for these developers to get them building touch-optimised apps for Windows tablets. Plus, Microsoft can save Office as an exclusive for its tablet, and will be able to use its strong relationships with game developers (built by the Xbox business) to get them to build some exclusive big-ticket games.
- Enterprise. Most corporate IT departments already know how to deploy, update, and push apps out to Windows PCs, meaning that Windows-based tablets should be easier for them to deal with than other kinds of tablets. Microsoft will also probably make Office an exclusive to its tablets, and might have interesting and unique scenarios where a tablet can “extend” an employee’s existing PC (for instance, by giving them access to locally stored files). Citi notes that the “bring your own device” trend — where employees buy their own gadget and IT is forced to support it — might favour the iPad instead, but this trend is still in early days and not proven.
Overall, Citi predicts that about 75 million tablets will ship in 2013, and that Microsoft will have “meaningful share” of those. Added to the 400 million-plus PCs that will ship that year, and predictions of Microsoft’s demise in the next six quarters seem crazy.
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