Are Android-Based Laptops the Next Challenge to Windows?

Chromebooks have cut into sales for Windows-powered PCs. Are Android laptops the next to cut into Microsoft's audience?

Jun 6, 2014 at 11:15AM

The battle to control the laptop market once dominated by Microsoft (NASDAQ:MSFT) has become increasingly crowded.

It was only a few years ago when Windows-based PCs held almost all the market share with Apple (NASDAQ:AAPL) maintaining a small following of dedicated users. Apple -- at least in the PC world -- was an annoyance to Microsoft but not a real threat to market share due to high prices and relatively thin product lines. 

The Windows dominance of desktops and laptops ended last year when laptops running Google's (NASDAQ:GOOG) Chrome operating system captured 21% of the laptop market. 

"Between January and November 2013 Chromebooks accounted for 9.6% share of U.S. sales of all tablets, notebooks, and desktop personal computers combined. On a year-to-year basis Chromebooks grew 47-fold in sales, a mind-boggling explosion," wrote NPD Group.

The growth of Chromebook market share coupled with the general migration to tablets is bad news for Windows as Chromebooks have clearly emerged as an alternative. Microsoft's competitors have obviously noticed that people are willing to use a laptop that doesn't run Windows. Now two major PC makers and Microsoft partners are looking to see if that demand will extend to laptops running Android (another Google operating system) as an alternative OS, which previously had only been used to power tablets and phones.

How big is Android?

In 2013 Android was the top tablet operating system for the first time ever, besting Apple's iOS, the previous market leader. 

Of the 195 million tablets sold in 2013 Android powered nearly 62% of the 121 million tablets, while Apple moved 70 million iPad tablets for a 36% share. In 2012 Apple led the tablet category with nearly 53% of sales on 61 million units compared to Android at nearly 46% with 53 million tablets sold. 

"In 2013, tablets became a mainstream phenomenon, with a vast choice of Android-based tablets being within the budget of mainstream consumers while still offering adequate specifications," wrote NPD Research Director Roberta Cozza.

Android was also the leading operating system on phones having nearly 79% global market share in 2013. These stats prove that customers are comfortable using Android. The heavy growth in Chromebook users show that people are willing to using non-Windows-based laptops if the price is right. Now the question that needs to be answered is will people accept Android as a viable laptop operating system.

Who is making an Android laptop?

Hewlett-Packard (NYSE:HPQ) has introduced its first Android laptop the SlateBook PC because customers were asking for it, The Verge reported. The laptop has a 14-inch HD touch screen and runs on an NVIDIA Tegra 4 mobile processor. The laptop will start at $399 and be available in August.

"It's in a very new category. Customers told us they spend a lot of time on mobile applications," HP Vice President Mike Nash told The Verge, adding that he received many questions like "why can't I access the Android ecosystem from the clamshell form factor?"

Lenovo (NASDAQOTH:LNVGY) also makes an Android laptop but there are no plans to release it in the United States.

How is Microsoft fighting back?

Microsoft was slow to respond to the Chromebook threat but in recent months the company has aggressively taken steps to protect the bottom of the market.

Earlier this year Microsoft made Windows 8.1 free for tablets under $200. The company also recently announced a newer, cheaper version of Windows 8.1 called Windows 8.1 with Bing. The company has not detailed its pricing for its OEM partners, but Microsoft is clearly looking to fight back on price. Last month Microsoft tested demand for a $199 Windows 8.1 laptop by selling one model on its website for a day. The cheap touchscreen machine sold out in under half a day.

Is there a market for Android laptops?

While Chromebooks are lightweight and many of them are more elegant than many Windows-based laptops, their key appeal has always been price. Since the Chrome OS does not have the existing audience Android does, customers were attracted to it almost entirely based on how little they cost.

Android is a different animal. It has a huge number of people already using it. It's not impossible to believe that consumers with an Android phone and tablet would consider branching out to a laptop running the OS.

Where HP is limiting its market, however, is price. Chromebooks are selling because while they have less-than-full PC functionality, they start at under $200. It's easy to rationalize the fact that Chromebooks require an Internet connection to be useful and that they run apps, not real software, when you factor in how much less they cost than a traditional Windows machine. Charging $399 for an Android laptop limits the audience to the small percentage of people who want to work entirely in the Android ecosystem.

If HP or another manufacturer released an Android laptop at $199 or less it could be a threat at least to Chromebook. The higher price makes it a novelty that won't be a big seller.

Microsoft should keep an eye out but it's hard to imagine that there is a big audience for Android machines priced above decent Windows-based laptops. It's easy to buy a reasonable Windows 8.1 laptop for under $399 and possible to get one for less than $299. Even if Android laptops fall in price Microsoft is already responding to Chromebooks so there is really nothing else the company should do. 

Android laptops may gain market share but that share is likely to cut into the market for Chromebooks not the market for Windows laptops.

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Daniel Kline is long Microsoft. He does not use Android. The Motley Fool recommends Apple and Google (C shares). The Motley Fool owns shares of Apple, Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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