Windows Phone, Not Surface Tablets, Is Microsoft's Perfect Avenue to Mobile

Nicholas is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Over the years, Microsoft (NASDAQ: MSFT) has relied on the success of the PC industry as it sold various software and applications. The mobile wave has cannibalized on the PC industry, however, and consequently one of Microsoft’s core business units.

In a bid to counter this, Microsoft took it upon itself to come up with a computer tablet that could help it sell its operating software and office applications. The company has also made milestones with its Windows Phone OS, with Nokia being its largest partner. With the likes of Google’s (NASDAQ: GOOG) Android and Apple’s (NASDAQ: AAPL) iPads and iPhones out there, however, betting on mobile could be a long shot.

Samsung Electronics maintains the lion's share of Android device sales and the overall smartphone market, while Apple's iPads maintain the lead in tablets.

Microsoft's  venture into mobile has proven to be more of a challenge than initially expected. This is all because the company somehow let pass the opportunity some years ago.

Cheap Surface RT struggles

Microsoft has struggled to penetrate the tablet market with its Cheap 32GB and 64GB Surface RT tablets. I say cheap because it trades at a cheaper price than its counterpart, the Windows 8-powered Surface Pro, which continues to impress despite its high pricing.

The Surface RT devices have been trading at $499 and $649, compared to Surface Pro which sells for $899-$999 for 64GB and 128GB sizes. The Surface RT also trades well below Apple’s iPads. Nonetheless, the devices have struggled to sell in the market, with Apple's iPad being the number one brand of choice. Samsung,  Amazon and Barnes & Noble also provide a massive competition to Microsoft RT with their cheaply-priced tablets.

Microsoft cuts Surface RT prices by $150

On June 15, Microsoft announced that it was cutting the prices of Surface RT tablets by $150. The 32GB Surface RT now trades at $349, while the 64 GB unit is priced at $499. To many, this was seen as an attempt to sell off excess inventory as the device continues to struggle to make a significant impact in the market. Soon afterward, the same price cut was replicated in Australia and Europe. The 32GB Surface RT now trades at AU $389 in Australia, down from AU $599. The 64GB version trades at AU $699, down from AU $789.

Will the price cuts help Microsoft penetrate mobile?

Apple’s market share in the tablets shipments business stands at about 43%. Google’s Android OS, on the other hand, powers a majority of the tablets in the market. Android became the leading tablet OS in 2013 with a 48.8% market share, compared to Apple’s iOS which now has 46%. Windows' share stood at 2.8%, with Windows RT accounting for just 1.9%. According to estimates, Windows RT is expected to account for about 2.7% of tablets by 2017.

To some extent, the price cuts give the Surface RT leeway to compete with other competitively-priced devices in the market. The new price is below the range of Google's Nexus 10 tablets, for instance, which trade at $399 for the 16GB device and $499 for the 32GB device. 

The price cut on Surface RT tablets gives the unit a chance to sell in the market, but at the same time, lowers the overall margins from the tablets business unit. The problem is, even after cutting down the price, it is hard to tell whether the Surface RT tablets would match the Surface Pro in terms of sales.

Windows Phone looking good, but still a long way to go

Microsoft's Windows Phone OS looks like the most realistic play for the company as far as its battle to penetrate mobile is concerned. The company maintains its edge as one of the best software manufacturers alongside Apple and Google, albeit on different platforms. Nonetheless, I still believe that Windows Phone, which has already overtaken BlackBerry in terms of market share, could become a competitive player in the future.

The platform accounted for 3.2% of smartphone shipments in the first quarter of 2013, compared to Blackberry's 2.9%. Google's Android maintained its lead at the top with 75% market share, up from 59.1% the same period last year. Meanwhile, Apple's share dropped from 23% to 17.3% year-over-year. it is worth noting that Microsoft's Windows Phone increased from 2% last year, while BlackBerry fell from 6.4%. 

Microsoft's advantage is that it has no limitations on which companies can use its software on their devices. This means that Microsoft needs to delve on making its Windows Phone superior in terms of performance, interface and features. This could convince companies to manufacture Windows Phone devices more. It cannot afford to rely solely on Nokia's progress. 

It is necessary for Microsoft to penetrate mobile

Microsoft has a wide portfolio of products, including but not limited to software, game consoles and servers. the company still needs to get in the mobile game, however, and do so emphatically. Mobile seems to be the future of computing, and if Microsoft want to remain relevant in the game then it may not be too late.

The bottom line

To some, the race to mobile is over. Some believe that Samsung, Apple and Google are the three to battle out. Microsoft could still sneak in because of its reputation in software, however. Unfortunately, Microsoft’s Surface RT tablets business unit will struggle to make any impact in the market.

The key to Microsoft's mobile campaign seems to rest upon Windows Phone. Any attempt at becoming a computing hardware manufacturer seems to be all but over with the price cuts on Surface RT.

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Nicholas Kitonyi has no position in any stocks mentioned. The Motley Fool recommends Apple and Google. The Motley Fool owns shares of Apple, Google, and Microsoft. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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