Microsoft Tries to Nudge Tablet PCs Into the Mainstream

Some two years after its introduction, Microsoft is seeking to drive its Tablet PC technology into the mainstream with lower prices. But some analysts say that alone won't do the trick--and not many PC vendors are helping Microsoft's effort.

Microsoft and vendors including Toshiba and Acer want to move beyond niche markets, so they will no longer target Tablet PCs chiefly at mobile professionals and specific industries such as health care and insurance. This year, both Acer and Toshiba will start selling tablets that are not as thin, light, or powerful as their predecessors, but that are up to 25 percent cheaper.

"We're right on the verge of seeing a lot more competitively priced tablets on the market," said Robert Williams, director of business development and partner engineering in Microsoft's Mobile Platforms Division. "This spring, you will see tablets go into retail in the $1500 to $1600 price range."

For the past year or so, Microsoft has been working with PC makers and component suppliers to push down the cost of manufacturing Tablet PCs, Williams said. As a result, the new tablets should only be $100 to $200 more expensive than comparable notebooks, he said.

Toshiba America plans to ship a new Tablet PC in its Satellite consumer and small business notebook line in the first quarter of this year. The $1599 Satellite R15-S822 will be the first Toshiba Tablet PC to be sold widely in retail stores, said Terry Cronin, director of product management in Toshiba's digital products division.

"The market is expanding. Tablet is becoming just another feature on top of notebooks. 2005 is really a take-off point for going mainstream," Cronin said.

Newcomer Averatec is ahead of the curve. The San Diego company in mid-2004 shipped a $1350 Tablet PC that is sold in retail stores. At Microsoft headquarters in Redmond, Washington, several employees took a corporate credit card and bought all the Averatec machines on sale at a local Costco Wholesale store.

Acer, which has been selling Tablet PCs since the launch of Windows XP Tablet PC Edition in November 2002, later this year plans to join Toshiba and Averatec with a lower-cost Tablet PC, said Sumit Agnihotry, a product marketing manager at Acer America.

"What we're heading to in 2005 is to drive Tablet PC to an optimal price point, basically bring Tablet PC to a traditional notebook price, and we believe that is below $1500," Agnihotry said. Acer's new Tablet PC may be sold in retail stores, a first for Acer, he said.

Small Slice of the Market

Since their introduction in November 2002, Tablet PC sales have increased but are still only a blip compared with overall notebook sales. In 2004, about 48.9 million notebooks were shipped worldwide, according to preliminary IDC numbers. Only about 650,000, or 1.3 percent, of those were Tablet PCs, according to IDC research analyst Alan Promisel.

Microsoft and the PC vendors are taking a logical phased approach, said Gartner analyst David Smith. "Technology appeals first to specialized vertical markets, and they might be willing to pay more of a premium than general consumers," he said.

Pricing is crucial for the Tablet PC to be adopted more widely, but applications are also very important, Smith said. "Lower prices are not in and of itself enough to turn Tablet PC into a mainstream market," he said.

IDC's Promisel agreed. "There has been lack of a killer application that creates that gotcha moment for all users that tablet is the way to go," he said.

Microsoft offered a significant upgrade to the Tablet PC operating system last year with Windows XP Tablet PC Edition 2005. Updates included improved conversions from written "ink" on the tablet to text and better integration with its Office applications suite. The company has also made it easier to develop applications for the Tablet PC operating system.

Microsoft will support the launches of the lower-end Tablet PCs with marketing dollars, Williams said. However, not all PC makers are going along with Microsoft's push for broader adoption of the pen-enabled notebooks. IBM and Dell don't sell any Tablet PCs, and Hewlett-Packard (HP), which does offer a tablet, does not see consumers buying the devices en masse.

"I don't think we are as optimistic about consumers buying Tablet PCs," said Matt Mazzantini, manager of business notebook marketing at HP. "We have no plans to have a Tablet PC in our consumer lineup, but certainly we see the Tablet PC becoming less of a unique or specialty class of product and more mainstream for our business customers."

Major Vendor Plans

On February 2, HP plans to introduce two new Tablet PCs in its business notebook lineup. One of the devices will be the company's first convertible notebook, a machine that resembles a traditional notebook but that has a screen that swivels around to support pen-based computing. The device will cost just over $2000, Mazzantini said.

Dell, the world's largest PC maker, is not interested in Tablet PCs because the market is too small. "We think they are truly an interesting technology, but right now the people who are getting the most immediate gain out of tablets are in certain verticals," said Dell spokeswoman Anne Camden. "We're not seeing a significant market trend."

ViewSonic, like HP, is sticking to niche markets when it comes to Tablet PCs. "We are seeing mostly the health care and education vertical play," said Dan Coffman, a senior product manager at ViewSonic.

To make its products appealing to more people, ViewSonic, based in Walnut, California, lowered the price of its V1250S Tablet PC by $300 to an estimated street price of $1499, Coffman said. The ViewSonic tablet has a relatively small screen at 12.1 inches (30.7 centimeters) and lacks a CD drive, so that the unit is still a niche product when the broader consumer market demands bigger screen sizes and a built-in DVD/CD-RW (rewritable CD) drive.

When it launched the Windows XP Tablet PC Edition in 2002, Microsoft envisioned that within five years the majority of notebooks would be Tablet PCs.

But while tablets appeal to field sales people, insurance adjusters, college professors, health workers, and others in specialty professions, weak sales to a broader user base may reflect poor marketing, ViewSonic's Coffman said.

"Microsoft has not done a good enough job marketing the tablet features to make everyone understand those," he said. "If you walk into Best Buy or any of those places today, and you ask why you should buy a tablet, you are very fortunate to get them to say anything besides: 'You can write on it.' It is a bit more difficult message and the whole Tablet PC community needs to figure out a way to deliver that message."

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