Microsoft Needs Partners to Fight Apple iPad: Analysts

By Nicholas Kolakowski  |  Posted 2010-06-05

Microsoft Needs Partners to Fight Apple iPad: Analysts

Microsoft could claim substantial market share from Apple in the growing tablet PC arena, but will need to both engage its manufacturing partners and create software that allows a tablet to interact with products such as the Xbox, according to a research report produced by analyst firm Forrester.

Apple currently dominates the consumer tablet PC market with its iPad, which sold more than 1 million units in the month following its April 3 release. Even before the iPad reached store shelves, however, Microsoft and other IT giants were planning their own entries into the arena; during January's Consumer Electronics Show in Las Vegas, Microsoft CEO Steve Ballmer used his keynote address to display several tablets that he said would run Windows 7.

One of those devices, produced by Hewlett-Packard, was touted by Ballmer as a key example of the upcoming synergy between Windows 7 and the tablet form factor. In the interim, though, HP acquired Palm and will likely produce a tablet that runs on the Palm WebOS. Despite that setback, former Microsoft CEO Bill Gates suggested in early May that the company has other tablet projects in the works. 

"Tablets are the next important computing form factor," J.P. Gownder and Sarah Rotman Epps, analysts with Forrester, wrote in that May 27 report. "To keep its products front and center, Microsoft needs a partner to produce a successful Windows tablet that competes with the Apple iPad. At stake is nothing less than the future of the operating system (OS): For Microsoft to remain relevant to consumers, it needs to adapt its operating system to new form factors beyond the traditional PC."

The competition doesn't stop at the Apple iPad, however; Google is collaborating on tablets that integrate a modified version of its Android operating system, which has proved increasingly popular on smartphones, while Hewlett-Packard will likely push its own multitouch devices utilizing its newly acquired Palm WebOS. As the devices gain acceptance among consumers and possibly businesses, the number of developers creating must-have applications for these platforms will likely increase, in turn creating a positive feedback loop that increases tablets' ubiquity and popularity. 

Tablets running Windows 7, the analysts added, have a chance at marketplace success if Microsoft follows a few key steps. First and foremost, the tablets must provide "a simple, streamlined, guided experience" along the lines of Microsoft's Zune HD and Kin phones' user interface: "Microsoft and its partners must develop UX shell(s) appropriate to the tablet format to compete with Apple's excellent iPad experience."

The second part is promotion, which will mean heavy spending by Microsoft and its partners to capture market share. That will work in conjunction with an appropriate price point: "If a sub-$499 tablet offers a bad consumer experience, it will fail. Prices above $750 would almost certainly be too high for a complementary device that acts as a second, third or fourth PC in the home."

Lastly, placement in a variety of channels-"Microsoft and its partners must look outside Best Buy here"-is also vital, in the analysts' estimation. Additionally, Microsoft needs to think ecosystem: A tablet that "synchs with the Xbox 360-with all the implied benefits, including the Natal interface-would be a killer hub for the digital home, enabling back-and-forth streaming of videos and games that one-ups the capabilities of the iPad."

That last step alone, they feel, could potentially render Microsoft viable for the next decade in the consumer space. But to make any of that happen, the company needs an OEM partner that can create "killer" hardware to pair with a streamlined OS and ecosystem-facing functionality.

"Microsoft must keep HP-the largest player in the U.S. consumer market-in the game and tap into HP's TouchSmart lessons and assets," the report states. "Dell, too, is a critical player for the consumer market. Dell will need more hand-holding than HP, as it lacks the TouchSmart experience." Lenovo, Sony, Toshiba and other manufacturers can also enter the fray through different strategies.

The risk of failure, the report suggests, comes with Apple cornering the tablet market in the same manner as it did the portable media player market with the iPod: "If Microsoft and its partners-or Google-don't get the tablet product, promotion, price and placement spot on, -tablet' will be synonymous with -iPad' for years to come."

One possible Microsoft tablet product, Courier, was eliminated before it could leave the development lab. Based on early concept designs that leaked to the media, Courier involved two multitouch screens connected by a central, booklike hinge; in theory, the device would have allowed users to not only perform traditional functions such as Web surfing, but also take notes or draw longhand.

Despite that, Microsoft has other tablet initiatives in the works-at least according to Gates.

"Microsoft has a lot of different tablet projects that we're pursuing," Gates said during a television interview May 3, according to a Fox Business Network transcript quoted by TechFlash. "We think that work with the pen that Microsoft pioneered will become a mainstream for students. It can give you a device that you can not only read, but also [use to] create documents at the same time."

Focus on Use of Hands, Fingers


Other companies' development road maps for tablets, though, seem to focus more on the use of hands or fingers in manipulating the user interface. And according to one analyst, Microsoft's intent to spread Windows through the tablet space may encounter headwinds, in those companies' need to keep tablets' eventual retail costs down:

"HP's upcoming Slate tablet was originally expected to run Windows 7 OS, although using Windows 7 would translate to a higher cost to the consumer and could mean more strain on the processor," Anna Hunt, an analyst with IMS Research, wrote in a May 3 research note. "The tablet market will likely see devices at sub-$250 price points within a year's time ... therefore suppliers must be very aware of lowering costs while maximizing performance and end-user experience."

HP's use of the Palm WebOS, and other companies' apparent gravitation toward Android as a tablet operating system, suggests that low cost and maximized performance have indeed become keywords for suppliers. In that case, Microsoft may well be examining how to best streamline Windows 7 for tablets, as well as keep the operating system low-cost for OEMs. If the Forrester report holds weight, then nothing less than Microsoft's share of the tablet market depends on it.  

During an onstage talk at the D8 conference June 3, Ballmer insisted that lightweight, keyboard-free devices will run Windows, with customization depending on the needs of particular products. But he also defended Microsoft's embrace of a stylus as an input method on touch screens.

"Do we think people want to take notes and draw? What's the best way to do that? Well, there are different ways to do that, and we'll support them all," Ballmer told the audience. "Today, we offer devices that do use a stylus. I certainly believe that people do want to take the things that they do today with pencil and paper and do them with new technologies."

Ultimately, though, Microsoft seems to bet that the tablet market is still nascent enough to provide the company with an opening to seize market share at some later date.

"The software has not kept up with the hardware here," Microsoft Chief Software Architect Ray Ozzie said while onstage with Ballmer. "We haven't yet with touch even figured out what the control architecture should be."


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