Can a new wave of two-in-one devices save the PC industry?

At the IFA tradeshow in Berlin, Microsoft's hardware partners are showing off the next generation of Windows-powered hardware, a category Intel calls "two-in-ones." By year's end, the market should be flooded with devices that can shift from PC to tablet on the fly. But who's buying?
Written by Ed Bott, Senior Contributing Editor

If you want to understand why Microsoft is struggling with the transition to mobile computing, all you have to do is walk around the show floor at the massive IFA tradeshow in Berlin.

Many of Microsoft’s most loyal OEM partners are showing new consumer devices here, in preparation for the upcoming holiday season.

Lenovo unveiled four new PCs, a smartphone, and a tablet this week at IFA. Those PCs are all convertible devices, powered by Windows 8.1, that can shift from a conventional configuration to a touch-friendly, keyboard-free layout with a quick flip. The Lenovo Vibe X smartphone, on the other hand, runs Android, as does the company’s new S5000 7-inch tablet.

Over at Toshiba’s stand, it was a similar story, with new portable PCs powered by Windows 8.1 whose displays detach from the keyboard to turn into tablets. A few feet away was an entire table filled with dedicated tablets, all powered by Android.

At a press conference yesterday, Intel showed off a dozen new PCs that included the Lenovo and Toshiba designs as well as similar convertible/detachable/flippable models from Sony and Dell and others. Most of them were powered by the new 4th generation Core (Haswell) chips and ran Windows 8.1. But when the company showed off two new small tablets powered by its upcoming Atom CPU (Bay Trail), one of them was running Android.

Sense a pattern here?

Microsoft’s hardware partners are acutely tuned to feedback from customers, most of whom have made it clear that they’re not yet convinced Windows 8 is suitable for use on a full-time tablet. It’s fine with PCs that can double as tablets in a pinch, but for now at least, Android has captured hearts, minds, and market share among touchscreen devices that don’t have a keyboard.

That’s a very big problem for Microsoft, which finds itself dominating the shrinking PC market and struggling in the fast-growing tablet segment. The recipe for long-term success has to include strong sales in the tablet category, which simply aren’t there for Windows-powered devices.

Indeed, both Microsoft and Intel have pinned their hopes for success on a risky strategy that emphasizes those hybrid designs. Intel calls them “two in one” devices, and uses the tagline "A tablet when you want it and a laptop when you need it.”

By the end of the year, Intel says, the number of devices in this “it’s a PC and a tablet” category will be 10 times what it was at the beginning of the year. And Intel’s market research (take it with a grain of salt) says that buyers who see these convertible devices are five times more likely to want to buy them than a conventional clamshell laptop.

Before you start calculating optimistic sales projections from those assumptions, though, consider the two hurdles that PC makers have to overcome before they book those sales. First, they have to get consumers (and small businesses) to actually try those two-in-one designs out and see their benefits firsthand. And second, they have to deliver those products at competitive prices. In theory, a device that is a PC and a tablet should sell at a premium price. In practice, there’s every reason to believe buyers who’ve grown accustomed to dirt-cheap PCs will be put off by those higher price tags.

That upcoming tidal wave of PC/tablets should be a vast improvement over last year’s models. Windows 8.1 addresses many of the complaints about Windows 8, the Haswell chips dramatically increase battery life, and high-profile apps are in the pipeline. In Steve Ballmer’s pre-retirement dreams, all those factors combine to restore Windows to its former glory.

The category where Windows tablets are most likely to succeed is in the emerging small-form-factor segment. Toshiba, whose current tablet lineup is dominated by Android models, introduced the 8-inch Encore yesterday at IFA. The device, powered by Windows 8.1, offers noticeably better screen quality than the Acer Iconia W3-810, which was first to market in the category, and the Bay Trail processor should translate to all-day battery life.

Still, in a world dominated by Android tablets at every price point and the still-strong iPad line, it’s an uphill battle for Windows tablets and two-in-ones to get mind share or market share. If this fall’s wave of new devices washes out, 2014 will be a long, dreary year for Microsoft, Intel, and their partners.

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