Microsoft's Long Awaited Tablets Surface
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On June 18th Microsoft (NASDAQ: MSFT) announced their largest foray into hardware to date. This came in the form of two tablets under the Microsoft brand 'Surface.' Microsoft has wandered into directly making hardware before, with the Zune, Kin and Xbox. So Microsoft has had mixed success with directly making their own hardware. The Zune has been cancelled and it never really took on Apple’s iPod successfully. On the other hand the Xbox has been very successful and the next iteration of the Xbox is already highly anticipated. These two newly announced tablets from Microsoft will be very successful for Microsoft but will also change Microsoft's place in the market.
There are two tablets announced by Microsoft, one is running Windows 8 RT and one is running Windows 8 Pro. The Windows RT tablet runs on a Nvidia ARM processor, has a 10.6 inch ClearType HD display, weighs 676 grams, and has USB 2.0, Micro SD and Micro HD ports. It also has dual antenna technology for the greatest Wifi connectivity possible. The higher end of the two tablets, the Windows 8 Pro tablet, is thicker and heavier. It also brags a ClearType HD screen that Microsoft calls “Full HD,” a Core i5 Intel Ivy Bridge processor, USB 3.0, MicroSD and Mini Display ports. There are two cameras on each model as well as built in kickstands. The Windows 8 Pro model also includes pen input technology. The RT model will come in 32GB and 64GB models and the Windows Pro model will come in 64GB and 128GB options. Microsoft also spoke about the cover that is coming with the tablets. The cover is more than just a cover, it includes a keyboard and track pad as well as being a magnetic cover that is only 3mm thick.
Apple (NASDAQ: AAPL) has sold over 67 million iPads and in the last quarter of 2011 alone they sold 15.4 million. Overall in 2011 the Apple iPad had 73% of the tablet market in 2011. Gartner estimates that by 2015 there will be 326 million tablets sold worldwide and that Apple will account for 50% of all tablets sold. The incentive Microsoft has to enter this tablet market is clear especially because Android tablets, which take the number two spot behind the iPad are not strong or well established. In fact some of them run forked versions of Android like the Kindle Fire.
Microsoft entering the tablet market with a strong line of their own tablets could provide stronger competition to the iPad than Android tablets have been providing thus far. Microsoft could see major adoption from the corporate market. These buyers would stress security and productivity and the ability of Microsoft to provide a complete IT solution would be an advantage. Microsoft will not only be able to tie it in with enterprise users, but also as an entertainment device for consumers with their Xbox. The Xbox is ever more becoming an entertainment device as well as a video gaming console. The newly announced SmartGlass feature from Microsoft will further deepen this integration.
However rumor has it that Google (NASDAQ: GOOG) will be launching a full line of Android devices, under their Nexus brand. Designed and sold directly by Google and announced at their developer conference Google I/O later this month. This upcoming Nexus tablet would be targeting a $200-300 price to compete with the Amazon Kindle Fire and the Barnes and Noble Nook tablet. The Microsoft Surface tablets are set to compete with Ultra-books on price, and although Microsoft did not release prices for its new tablets they will probably be in the range of $500-1000. This would make them similar to the iPad and right around the entry level price for an Ultra-Book. An already established market leader in the iPad, and a low cost leader which could be the Google Nexus tablet could make a third set of tablets, the Microsoft Surface tablets, a tough sell.
Microsoft may additionally alienate their hardware partners who had been looking forward to the release of Windows 8 partly because of its tablet optimized version Windows 8 RT. Though Microsoft has had a tablet version of Windows since 2002 with Windows XP, Windows 8 RT was the first one that looked promising enough to take off. With Microsoft backing their own tablet line, and rumored hefty licensing fees for third party hardware makers to use Windows RT, they may stick with Android for their tablets.
With laptops and desktops Microsoft has a completely even playing field; they do not make their own devices and they do not have a preferred hardware partner. With Windows Phone, Microsoft has a preferred partner with Nokia (NYSE: NOK). They signed a ten year billion dollar agreement with Nokia that saw Nokia adopting Windows Phone as their smartphone operating system. However there are other partners for Windows Phone smartphones and Microsoft does not make their own smartphones. Now with tablets, Microsoft is making their own tablet line as well as trying to license their tablet optimized operating system to third party hardware manufacturers. This will not fly with the third party makers, who do not want to compete with Microsoft when they already experience heightened competition from Asian based hardware makers.
At the same time that Microsoft is moving away from its open licensing model, Google has fully embraced it. Google even gives away the Android source code under an open source license. So as Microsoft moves toward the Apple model, Google has embraced and furthered the Microsoft model. Barnes & Noble (NYSE: BKS) was missing from the Microsoft event, which was odd considering Microsoft invested $300 million in a joint venture with Barnes & Noble to further develop their Nook tablet. Also missing from the event was a firm launch date, the Windows RT Surface tablet should launch alongside Windows 8 and the Windows 8 Pro Surface Tablet will be launching three months after that but no specific dates were mentioned.
ded004 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, Microsoft, and Nokia. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
