Apple released it's financial results on Tuesday, and they were nothing short of spectacular. Apple is making money hand-over-fist across product categories, though particular attention was paid, not surprisingly, to the new iPad. They managed to shift 7.33 million units last quarter, an incredible number when you put them in the context that Henry Blodget did over at Business Insider. Apple's iPad now accounts for approximately 7% of global PC shipments, assuming a ship rate of 100 million per quarter.
Cannibalization is already taking place (though it seems to be hitting Macs hardest, not surprisingly), and the netbook market is being eaten whole by tablet computers. That might explain former netbook leader Acer's new-found interest in the tablet form factor.
Netbooks turned out to be less of a threat to Microsoft than was originally thought, as most ended up running some variant of Windows, even if it was usually the lower cost Windows XP. Its tablet replacement, however, is in a different platform universe. iPad, based on Mac OS X, still accounts for over 90% of the market for tablets (not surprisingly, as they ignited the craze with the rollout of the iPad), and Linux-based Android doesn't give Microsoft much love.
It's understandable, then, for everyone to be screaming for Microsoft to release a tablet challenger. They were knocked at CES for offering little more than plans to bring Windows to low-power ARM processors, a shift that is only likely to materialize in 2012. According to Peter Bright at Ars Technica, fixating on power consumption is spectacularly besides the point, as Microsoft's real problem in the tablet space isn't short battery life but the lack of a user interface expressly designed for touch.
Clearly, the newly resurgent tablet space should be cause for concern in Redmond. Panic, however, can be more destructive than delay, especially if it wastes resources that could have been used more effectively elsewhere. That's why I still think Microsoft should wait a bit before fielding a true competitor to the iPad.
Don't get me wrong...I think it's absolutely critical that Microsoft field something in the not-too-distant future. I just think that getting it right is more important than getting it tomorrow. Perhaps my perspective is somewhat tailored by fire season in Los Angeles. When there are multiple fires with which to contend, sometimes you have to pick your battles, even if it leaves a few expensive houses in the hills a bit crispy.
I still think Microsoft's first priority in portable devices should be to get its mobile phone house in order. Microsoft has an uphill battle to fight in mobile phones, afflicted as they were by the "early entrant" curse that has hit all incumbent mobile phone vendors. Nokia, RIM, Ericsson and Motorola are all hurting, whereas the new market leaders, such as HTC, Samsung and Apple were almost non-existent in the space a mere seven years ago. The lessons learned from those early days simply don't apply today. The iPhone inflection point has had the market effect of a hydrogen bomb.
Clearly, the sales numbers for its "strategic reset," the new Windows Phone 7 (WP7) platform, aren't where Microsoft needs them to be, as they'd be crowing about them the way they did about Kinect at CES. Or, maybe they aren't as bad as information-starved journalists imagine while floating in their pundit isolation chambers. Amazon still doesn't release real numbers on Kindle, even though most estimates claim it is selling well. The HTC HD7 is in short supply at the stores in my area, though the cause is anyone's guess.
To be fair, though, I don't think Microsoft has promoted WP7 as much as it should. Maybe they have lots of TV commercials (I don't know, all my TV is on-demand and streamed over the Internet), but when I think of BIG promotional campaign, I think of what Apple has done in Los Angeles. You can't throw a rock in this town without hitting an ad for an Apple product.
WP7 is definitely the right direction for Microsoft to take. I have an HTC HD7 AND a Nexus S, something I'm sure to talk about more in some future blog. In my experience, the WP7 device is much easier - and more fun - to use.
But irrespective of the difficulties or possibilities, a key reason to focus on WP7 is how it informs future strategy. Apple found the path to a sensible touch UI by way of building portable devices, starting with iPod, moving into phones, and blasting through the surface in a shower of money with the iPad. Microsoft followed some of that trajectory with WP7 (albeit with less financial success), as the Metro UI originated with concepts developed for its Zune media player. I think Microsoft's strategy in tablets will depend on doing something sensible in mobile.
Sun's barrier with client-side Java was that they didn't understand the client as well as the server. The same dynamic applies to portable devices, and in particular, phones. There's a lot more pressure to achieve a simple user interface in phones. Besides screen size, which of necessity are small enough to fit comfortably in one's hand, users carry their phone with them everywhere to a degree they won't with a tablet computer (well, unless you have a jacket with very big pockets). This creates learning opportunities that simply don't exist for any other type of mobile device.
For a company that hopes to continue its important role in client computing, having a credible stake of the smartphone market is absolutely critical. No other device will be used as often as a smartphone. Many of Microsoft current web service offerings, including the "Live" family of products (which are tightly integrated with WP7) and the Bing search engine, will depend on a strong showing in phones, particularly as Google uses Android as a trojan horse by which to encourage linkage to their own web service offerings.
The Windows ARM strategy, by itself, isn't much of a near-term competitor to iPad. It does signify, though, that the company is serious about unifying their fragmented client operating system story. Combined with hints that Microsoft wants to make the Metro interface a built-in shell on Windows 8, it appears Microsoft believes believes they can create a common core that can be shared across desktops and devices.
Some might find that "Windows everywhere" strategy to be so 1990s. It's worth pointing out, though, that it's the same strategy followed by its competition. Apple has extended a modified version of Mac OS X across form factors, and Google pushes Linux (by way of Android) from its backend through to mobile phones. The consistency advantages has a lot to recommend it, particularly given the massive base of products that work with desktop Windows.
Regarding the numbers, Blodget thinks that iPad could be 25% of the market for PCs in a few years (though how much of that 25% are new computer users remains to be seen; it doesn't have to consist only of cannibalization of existing sales, in other words). That's clearly a threat, though even on Blodget's numbers, 75% is still a significant beachhead from which to launch a counterattack. Such a counterattack, if done properly, would have the advantage of seamless interoperability with a large base of Windows-based computers, while bringing with it some of the real advantages of PCs...without the complexity.
In other words, Microsoft NEEDS to avoid the impulse to rush a product to market due to very real threats on the horizon (as they did, I think, with the KIN) and take the time to get it right. There is obviously danger from the "network effects" that are building up around iPad. I can't open a magazine without finding ads touting a new custom application for an iPad. On the other hand, Windows brings with it rather sizable network effects (and will even in Blodget's "several years"), provided they direct it properly.
Microsoft needs to make a tablet solution that is truly different than what is on offer from competition that will only be more formidable in a year's time. They have done it with WP7, in my opinion. Now they have to figure out a way to communicate that effectively. Microsoft should focus on the huge job they have ahead of them in phones, and give themselves time to figure out how to make the other areas of its business feed into a really compelling tablet form factor that is notable as more than just a competitor to iPad.
[ADDED Jan 21, 2011] I've had a couple of people ask what "synergies" desktop Windows has with Tablets (which is paraphrasing, as the actual question was posed as if I was stark raving mad). What I'd REALLY like is a Windows tablet with a "real" touch UI (as opposed to one that shows the Windows desktop and let's you try to use it with a finger), plus the ability to dock it so that I can attach a full-width monitor, keyboard and mouse and treat it like a desktop computer. Basically, it's still a Windows PC, but a new shell gives you a proper touch environment.
Obviously, apps would have to be written to use that new shell, and many of the applications that you might use while docked (like Visual Studio) simply wouldn't be available while in "tablet" mode (I do NOT want a touch version of Visual Studio).
I'd love if something similar could happen with a Windows Phone as well. In fact, perhaps that's what Microsoft is trying to do with the move to ARM processors. They plan to make a unified Windows platform that will serve as the baseline for all their products. That's bad news for the Windows CE team, but good news for everyone else.