In looking at the tablet market it is pretty clear that Apple has it locked up so far with 95 percent of the tablets actually sold (as opposed to shipped) currently coming from that company. However if you look how the tablet market it maturing it kind of looks more like the game console market where content is king and the hardware price is increasingly offset by license revenue from applications and accessories.
This makes it very hard for Android devices to compete because hardware makers don’t have access to these profits but could provide the perfect environment for Microsoft if they apply what they learned competing with Sony and Nintendo with the Xbox to this new market. In other words if they can bring to the platform unique applications with the popularity of Halo and unique accessories with the popularity of Xbox Kinect they actually have a better shot here than Google does. Let me explain.
What makes the iPad Predominant?
I was thinking of this the other day when my brother, who is not an Apple fan, asked for a tablet for his birthday. He outlined what he wanted in a tablet and only the iPad met his requirements and he clearly didn’t lead with an Apple offering. What Apple has accumulated is a unique mix of capabilities they not only have the leading app store with regard to broad content they have the hot applications which include the Kindle reader, the Netflix player, and a variety of Apple and third party media choices. Currently Netflix isn’t available on Android tablets and that knocks them off by brother’s list and likely most of the other platforms.
In effect Apple has locked up the majority of must have applications for their platform just as Sony once had locked up the hot games for their game console. However, Sony isn’t on top anymore and Sony wasn’t even the first dominant video game console company, Atari was. This suggests that dominance isn’t permanent and that a challenging vendor could move on this space if they came to market with a more compelling set of applications and/or a wider selection of content.
That is how the Xbox eventually took out the PlayStation 3 and made event eventually eclipsed the Nintendo Wii which was also dominant for a number of years. First with Halo and then with Kinect the Xbox eventually had the more compelling content set and the result is now history.
Xbox to Windows 8 Tablets
There is little doubt that Microsoft can build a competing operating system as this is their core business but as Google has found out, this isn’t a “build it and they will come” market. And currently the broad market is rejecting most of the Google Android based offerings as non-competitive largely because of user experience, pricing, and content limitations.
Microsoft has showcased repeatedly with the Xbox, Bing and the Nokia deal they are willing to invest heavily to buy back into a market they have fallen behind in. They have also showcased starting with Microsoft office and ending up with their wins in the game console space that they get the importance of differentiated content and their willingness to also invest in its creation.
Finally, with Windows Phone 7 they showcased they get that a unique interface is critical to this market and their announcement placing Windows 8 on ARM has put the x86 vendors on notice that they want vastly better battery life and portability to come to this product category to bridge the current hardware gap between current Apple and Microsoft tablets.
Wrapping Up: Can Microsoft Connect the Dots?
I could have made similar arguments with Zune against the iPod and that didn’t turn out well. However in that case Microsoft was trying to enter a market they clearly didn’t understand and over the last decade has been forced to recognize that their success in Windows isn’t a given against Apple. This time around they are much more likely to bring their “A” game which clearly wasn’t evident in the Zune years. Still Zune is a cautionary tale and certainly indicates that likely Microsoft success can be massively offset by executive ineptitude.
In the end, however, no other vendor has the unique portfolio of products and skills that will likely be necessary in running against Apple, and no other vendor has been as historically successful against Apple as Microsoft. The only question is whether Microsoft will bring it’s “A” game, if they do they have a real shot, if they don’t we’ll have another Zune.
President and Principal Analyst, Enderle Group
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