Microsoft Expected to Unveil Tablet Today to Compete Against IPad
Microsoft Corp. (MSFT) (MSFT) needs to shed its
image as the world’s biggest purveyor of workplace software and
draw on its success selling the Xbox gaming console if it wants
a shot at introducing a tablet to challenge Apple Inc. (AAPL) (AAPL)’s iPad.
Microsoft is expected to preview a company-branded tablet
at an event in Los Angeles today, according to people familiar
with the matter who asked not to be named because the plans
aren’t public. The devices may run Microsoft’s latest operating
system, Windows 8, and different versions may be powered by
either processors based on designs from ARM Holdings Plc or x86
chips from Intel Corp., the people said.
As the primary pitchman for its own tablets, Redmond,
Washington-based Microsoft needs to assemble a compelling lineup
of applications at an attractive price, which may be tough given
the least expensive current iPad sells for $499. That’s been
impossible for challengers such as Hewlett-Packard Co. and
Research In Motion Ltd. that have tried to compete with Apple in
the tablet market, estimated to reach $78.7 billion this year.
“Telling compelling marketing stories to consumers for the
most part is not something Microsoft has demonstrated an ability
to do,” said Michael Gartenberg, an analyst at market
researcher Gartner Inc., in an interview.
Xbox is the exception, he said. Microsoft has sold 67
million Xbox 360s in seven years on the market, making it the
most popular game platform, even appearing in rocker Liz Phair’s
song lyrics.
Xbox Entertainment
Sales surged as Microsoft transformed Xbox from a video-
game player into a full-fledged entertainment center, starting
in 2008 with the addition of Netflix Inc.’s video streaming and
the music service Last.fm. Earlier this month, Microsoft
unveiled Xbox SmartGlass, an app that will work on Windows 8 to
let smartphones, tablets and computers stream media to a screen
controlled by the console.
“Obviously, Microsoft is hoping this will be another
Xbox,” Gartenberg said.
Microsoft might have a shot at competing with Apple if its
tablet includes the content and functionality of Xbox,
particularly if the device had a controller letting it work as a
gaming platform, said Ed Maguire, an analyst at Credit Agricole
Securities USA.
“When you add up all of the relationships Microsoft has
through the Xbox, Microsoft has all of the content relationships
to compete with Apple,” Maguire said in an interview.
Worldwide shipments of tablets this year will be 107.4
million units, Framingham, Massachusetts-based researcher IDC
said in a June 14 report. Worldwide shipments should reach 142.8
million next year and 222.1 million by 2016, the group said.
Apple’s ‘Grip’
Even as companies including Amazon.com Inc. (AMZN) (AMZN) and Samsung
Electronics Co. (005930) release new tablets running Google Inc. (GOOG) (GOOG)’s
Android operating system, Apple’s iPad continues to dominate the
market. IDC predicts the iPad will account for 62.5 percent of
global shipments this year, up from 58.2 percent last year.
Apple’s share could rise even further if it introduces a
smaller, less expensive tablet.
“Apple’s iPad shows few signs of slowing down,” Tom Mainelli, IDC’s research director of mobile connected devices,
said in the report. “If Apple launches a sub-$300, 7-inch
product into the market later this year as rumored, we expect
the company’s grip on this market to become even stronger.”
DisplaySearch, another research firm, said revenue from
tablets reached $44.9 billion worldwide in 2011 and will rise to
$78.7 billion this year.
Pricing Challenge
Microsoft may not be able to sell tablets running Windows
RT, the version of Windows 8 for machines with power-sipping ARM
chips, for less than $599, said Bob O’Donnell, an analyst at
IDC, in an interview.
“When you look at that pricing compared to Apple, it’s a
non-starter,” said O’Donnell, whose price estimate is based on
his checks with component suppliers in Taiwan. “It appears
pricing is going to be a lot higher than people thought. From a
tablet perspective, that’s going to be a challenge.”
Amazon.com had to make several tradeoffs to get its Kindle
Fire tablet to $199, such as sporting a smaller screen size,
forgoing Bluetooth wireless connectivity and reducing on-board
memory. Sales of Amazon’s electronic books, movies and music on
the device may help make up for the narrower profit margins that
will probably result from the low price, according to Brian Blair, an analyst at Wedge Partners Corp. in New York.
“There’s not a whole lot of room to move on price in these
devices,” Gartenberg said.
Apps Disadvantage
Then there’s the apps issue. Tablets running Windows RT,
the machines that are most comparable to the iPad, may have
fewer apps than users are accustomed to because older software
won’t work on the devices. There are more than 200,000 apps made
specifically for the iPad.
Microsoft will make four programs in its Office suite –
Word, Excel, PowerPoint and OneNote — available on its tablet-
optimized operating system. That may not sway consumers who have
gladly snapped up iPads without the availability of Office, said
Michael Cherry, an analyst at Directions on Microsoft, a
Kirkland, Washington-based market-research firm.
“I don’t believe consumers are going to pay a premium on a
tablet to get those Office applications,” he said. Windows RT
tablets may not have one feature people do use — Outlook e-mail
– which could curb demand from corporate information technology
departments, Cherry said.
Through a joint venture with Barnes Noble Inc. (BKS) (BKS) announced
in April, Microsoft is developing a digital reading app for
Windows 8 that will offer a catalog of e-books, magazines and
newspapers. Barnes Noble isn’t involved in the Microsoft
announcement today, according to a person familiar with the
matter who asked not to be named because the plans are private.
Building Apps
The company is also pulling out the stops to debut Windows
8 apps, lining up design firms, recruiting interns and sending
engineers on an around-the-world road show to help developers
get them built.
Microsoft’s last bid to challenge Apple by building its own
device was the Zune music and video player, which was
discontinued last year after failing to gain traction with
consumers who overwhelmingly prefer the iPod.
Tablets based on Microsoft’s Windows operating system have
struggled since their initial release in 2002. The company’s
current market share? Zero, according to Gartner.
“The irony is, of course, Apple didn’t create this market
– you could argue Microsoft did 10 years ago when Bill Gates
started talking about ‘Tablet PCs,’ ” said Gartenberg.
Those ill-fated machines used a stylus instead of a touch
interface, joining the roster of tablet computer flops that
includes Hewlett-Packard’s TouchPad — pulled after just six
weeks on the market — RIM’s PlayBook and the Motorola Xoom.
“Where Apple succeeded was not by trying to force Mac OS
onto a tablet,” Gartenberg said. “They created something that
was true to the form.”
To contact the reporters on this story:
Aaron Ricadela in San Francisco at
aricadela@bloomberg.net;
Dina Bass in Seattle at
dbass2@bloomberg.net;
Cliff Edwards in San Francisco at
cedwards28@bloomberg.net
To contact the editor responsible for this story:
Tom Giles at
tgiles5@bloomberg.net
Article source: http://www.businessweek.com/news/2012-06-18/microsoft-tablet-must-shed-office-image-to-challenge-ipad
