Microsoft Corp. needs to shed its image as the world’s biggest purveyor of workplace software and draw on its success selling the Xbox gaming console if it wants a shot at introducing a tablet to challenge Apple inc.’s iPad.
Microsoft is expected to preview a company-branded tablet at an event in Los Angeles today, according to people familiar with the matter who asked not to be named because the plans aren’t public. the devices may run Microsoft’s latest operating system, Windows 8, and different versions may be powered by either processors based on designs from ARM Holdings Plc or x86 chips from Intel Corp., the people said.
As the primary pitchman for its own tablets, Redmond, Washington-based Microsoft needs to assemble a compelling lineup of applications at an attractive price, which may be tough given the least expensive current iPad sells for $499. That’s been impossible for challengers such as Hewlett-Packard Co. and Research In Motion Ltd. that have tried to compete with Apple in the tablet market, estimated to reach $78.7 billion this year.
“Telling compelling marketing stories to consumers for the most part is not something Microsoft has demonstrated an ability to do,” said Michael Gartenberg, an analyst at market researcher Gartner inc., in an interview.
Xbox is the exception, he said. Microsoft has sold 67 million Xbox 360s in seven years on the market, making it the most popular game platform, even appearing in rocker Liz Phair’s song lyrics.
Sales surged as Microsoft transformed Xbox from a video- game player into a full-fledged entertainment center, starting in 2008 with the addition of Netflix inc.’s video streaming and the music service last.fm. Earlier this month, Microsoft unveiled Xbox SmartGlass, an app that will work on Windows 8 to let smartphones, tablets and computers stream media to a screen controlled by the console.
“obviously, Microsoft is hoping this will be another Xbox,” Gartenberg said.
Microsoft might have a shot at competing with Apple if its tablet includes the content and functionality of Xbox, particularly if the device had a controller letting it work as a gaming platform, said Ed Maguire, an analyst at Credit Agricole Securities USA.
“When you add up all of the relationships Microsoft has through the Xbox, Microsoft has all of the content relationships to compete with Apple,” Maguire said in an interview.
Worldwide shipments of tablets this year will be 107.4 million units, Framingham, Massachusetts-based researcher IDC said in a June 14 report. Worldwide shipments should reach 142.8 million next year and 222.1 million by 2016, the group said.
Even as companies including Amazon.com inc. and Samsung Electronics Co. release new tablets running Google inc.’s Android operating system, Apple’s iPad continues to dominate the market. IDC predicts the iPad will account for 62.5 percent of global shipments this year, up from 58.2 percent last year. Apple’s share could rise even further if it introduces a smaller, less expensive tablet.
“Apple’s iPad shows few signs of slowing down,” Tom Mainelli, IDC’s research director of mobile connected devices, said in the report. “If Apple launches a sub-$300, 7-inch product into the market later this year as rumored, we expect the company’s grip on this market to become even stronger.”
DisplaySearch, another research firm, said revenue from tablets reached $44.9 billion worldwide in 2011 and will rise to $78.7 billion this year.
Microsoft may not be able to sell tablets running Windows RT, the version of Windows 8 for machines with power-sipping ARM chips, for less than $599, said Bob O’Donnell, an analyst at IDC, in an interview.
“When you look at that pricing compared to Apple, it’s a non-starter,” said O’Donnell, whose price estimate is based on his checks with component suppliers in Taiwan. “It appears pricing is going to be a lot higher than people thought. From a tablet perspective, that’s going to be a challenge.”
Amazon.com had to make several tradeoffs to get its Kindle Fire tablet to $199, such as sporting a smaller screen size, forgoing Bluetooth wireless connectivity and reducing on-board memory. Sales of Amazon’s electronic books, movies and music on the device may help make up for the narrower profit margins that will probably result from the low price, according to Brian Blair, an analyst at Wedge Partners Corp. in new York.