Windows 8 Tablets Need Low Cost, Lots of Apps, Android Weakness

NEWS ANALYSIS: Windows 8 tablets will need a combination of low cost, tons of apps and a little weakness from Google Android.

What does Microsoft€™s Windows 8 need to conquer the tablet market?

Answer: a low price, full functionality and for Google Android to bleed a little.

As with every other product on the planet, tablets tend to sell in greater numbers when they require less disposable income to actually obtain. According to new estimates from research firm IHS, Amazon is profiting handsomely from its decision to sell the Kindle Fire for $199, having shipped 3.9 million units in the fourth quarter of 2011. While that significantly trails Apple, which managed to ship 15.4 million iPads during the same period, it placed the online retailer ahead of any other companies in the space.

Moreover, that low price point for the Fire could end up damaging other Android tablets on the market. €œThe surge in non-iPad shipments in the fourth quarter was achieved at considerable financial cost,€ IHS analyst Rhoda Alexander wrote in a Feb. 16 note accompanying the data, €œwith sharp price reductions across most of the competing Android tablets and actual product giveaways from a number of vendors as part of promotional efforts for other electronic products.€

Despite its impressive share of the mobile OS market, Google Android faces significant challenges from its rivals. Claiming that Android violates its patents, Microsoft has managed to conscript a growing number of manufacturers into paying it royalties for every Android device sold. Meanwhile, Apple continues its expensive quest to sue the purveyors of the operating system (which the late Steve Jobs claimed was a €œstolen€ product) into oblivion.

That could pay off in a big way for Microsoft. €œIn the wake of the new low bar for pricing set by the Fire and the Nook and the looming Google acquisition of Motorola Mobility,€ IHS added in its note, €œmanufacturers and branded vendors are looking to Windows 8 tablets as a more profitable alternative.€

Whether or not Android weakens, Windows 8 on tablets certainly needs other factors to succeed. One is a low price. If the past two years have proven anything, it€™s that tablets marketed at a price comparable to that of the iPad have a hard time gaining any sort of traction with consumers and businesses. Indeed, the only thing that reliably sparks sales-runs for the Research In Motion PlayBooks and Hewlett-Packard TouchPads of the world is a massive price reduction. With the Kindle Fire, you can forward the argument that its $199 price point, and not necessarily the easy access to a universe of streaming content and ebooks, was the primary driver behind its fourth-quarter success.

In sum, Windows 8 tablets will need to be priced lower than the iPad, especially if Microsoft and its partners want to eat rapidly into Apple€™s market share.

Second, Windows 8 tablets will need to offer a full range of features. If the tablet industry€™s taught manufacturers any other lessons, it€™s that tablets with small app ecosystems often crash and burn spectacularly soon after their market entrance. Microsoft seems cognizant of this issue: For months, it€™s encouraged developers to start building apps for the Windows 8 app store. In addition, Windows on ARM (the architecture powering most tablets on the market today) will include a modified version of the next Office, code-named €œOffice 15.€ That full functionality€”€œno compromises,€ as Microsoft executives like to repeat€”will differentiate Windows 8 tablets from rivals like the Kindle Fire, which essentially acts as a portable vending machine for Amazon-based content, as well as Android tablets that might not offer a robust feature-set.

The biggest question mark is whether Windows 8 can make headway against the iPad, which offers top-notch hardware, a massive app ecosystem and a user base in the millions. Even if Microsoft does its customary thing and plays the long game, investing massive amounts of money and effort for years in order to break off larger chunks of the market, Apple will fight hard for every incremental gain.

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