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Opinion

Can Microsoft's aggressively priced Surface RT kill the iPad?
Rob Bamforth By: Rob Bamforth, Principal Analyst, Quocirca
Published: 31st August 2012
Copyright Quocirca © 2012
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Within a few short years and only three product iterations, Apple has created and still dominates the touch screen tablet market. There have been touch screen devices before, including Apple’s Newton from 1987 and even a tablet PC form factor launched by Microsoft in the early 2000s, yet Apple’s iPad is still generally seen as the tablet device to aspire to.

It’s a premium product at a premium price, yet Apple’s high volumes enable it to make a profit while keeping the bill of materials costs down. Simply undercutting the price with a less sophisticated device has not been a winning strategy as yet.

It’s not that competitors haven’t been trying and some have been doing well, but there have already been some challengers fading as those not completely accustomed to the faster and fickle pace of retail products and the speed of consumerisation of the enterprise hit obstacles.

HP, Dell, Cisco and RIM/BlackBerry have all stumbled with their tablet offerings and, while Avaya has persisted with its more specialised tablet to support its ‘Flare’ experience, this is not the high volume end of the market to dent Apple’s market share.

However, Google found a number of OEM takers for its Android software platform. Asus, Acer, Motorola, Sony and Archos have all produced acceptable tablet devices, but none quite matching the slickness of the iPad or taking much from its market share, despite generally being cheaper.

Of the traditional mobile manufacturers only Samsung has successfully taken the fight to Apple with its impressive Galaxy Tabs. That was until Amazon released its Kindle range with the Fire, stepping up from supplying e-readers to fully functioning tablets. Barnes and Noble have also taken similar steps with its Nook ranges of e-readers and tablets.

While Android is a common factor in all the above, it’s not always sufficiently common to ensure compatibility, and in cases like Kindle and the Nook, compatibility is not a driving factor—the sale of media content is. These devices are deliberately low cost to support the ‘razor and blades’ model of loss-leading initial acquisition, with repeat on-going purchases delivering the longer-term margins.

It's a good approach to business, but it does require very deep pockets and a ready supply of something to sell over time. This can be software owned and supplied by the hardware manufacturer in the way the dedicated gaming device market has evolved; software supplied through a controlled marketplace, like the Apple App Store; or content aggregated from third parties and sold through a complete retail experience, such as Amazon or iTunes.

The lines between applications and content continue to blur, with in-app purchasing being increasingly used in games and magazine-like applications, so it is increasingly a retail consumer model rather than a traditional IT one. This method of aftersales requires a broad constituency of ready ‘players’ for the content purchased by users.

As the battle for the tablet market hots up, it is becoming clear that the media and services delivered are becoming as much, and probably more, important than the devices themselves.

The resurgence of Microsoft in the tablet platform arena, not only with a revitalised operating system, but also a combined hardware and software offering direct from itself with its Surface range of tablets, means some rather interesting changes are on the way.

Apple would appear, despite the apparent ‘perfectness’ of the iPad’s current size, to be planning to release a smaller version. This would undoubtedly be a lower cost device, perhaps coming down aggressively to play in the same space as the Kindle Fire and Nexus 7, but retaining high quality and specification to avoid eroding the brand value and cachet all that Apple has worked hard to engender.

This might be possible with Apple’s buying power and deep pockets, but would be made easier with more ‘blades’ to offer customers, if it steps further into the video and TV content space, as long expected.

The tablet competitive position of Microsoft became even more intriguing recently as it has emerged that its new Surface RT tablet might also be very aggressively priced, yet still pretty highly spec’d. This will undoubtedly upset Microsoft’s OEM hardware partners, but might herald Microsoft’s first really assertive move into growing mobile marketshare for the “true” Windows platform (as opposed to Windows Phone).

Control of the hardware and software avoids some of the incompatibility issues that affect the devices based on various versions of Android and lets Microsoft set the selling price. If it wants to adopt a razor and blades model it can, just as long as it can identify the blades. It has done so successfully with the subsidised Xbox through Live and will replicate this using a similar idea with the new tablet.

That would unsettle the Androids, even Samsung and Kindle, and could take a bite off Apple. However, to avoid being another ‘Zune’ (a music and content store doomed by being US-only), the approach needs to combine Microsoft’s grasp on the enterprise from the server and legacy desktop-end with a consumerist mobile appeal that embraces home and office use. It also needs to delve deep into its pockets and self-belief.

The mobile market is fast moving and whereas Apple has been riding high, it is only just beginning to face real competition. With a new iPhone and smaller iPad coming through soon, it is unlikely that we will see much change in the iPad’s underlying capabilities and market position.

Nonetheless, the advent of a true Windows slate, priced aggressively, is going to really shake things up in the tablet space. Apple knows this, hence the potential move to a 7-inch slate. If Microsoft is given an inch in the market it will steal a mile before the second half of 2013.

Microsoft’s £200 Windows Surface RT could very well be the biggest challenger to Apple’s business model yet with its high-end media capabilities, enhanced security, Office applications, and army of dedicated developers. 

The tablet space is about to get very interesting.

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Published by: IT Analysis Communications Ltd.
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