Why are tablets so successful?
It's no secret that tablets have been a very successful product category, but the real question to ask is why demand has exploded in the way that it has. Many contend that the convenience of long battery life, high portability, and intuitive touch interfaces have been the key drivers of tablet demand. These are certainly factors, but what's interesting to note is that the larger tablets (think 10 inches) have seen waning demand while smaller tablets have continued to grow in popularity. So, is it that people simply enjoy smaller form factors than larger ones? Perhaps, but it's not the whole story.

Indeed, the Taiwanese trade-press site Digitimes published a note claiming that the latest Nexus 7 from Google (NASDAQ:GOOGL) and ASUS wasn't quite selling as expected. Interestingly enough, while the Nexus 7 is certainly an inexpensive tablet for what it provides -- fast processor, 1920x1200 screen, 2GB RAM, and so on -- and while it received rave reviews, it's still not quite as cheap as most customers, particularly in developing nations, would like.

It's all about cheap
It looks as though the $60-$150 price point is the sweet spot for Android tablets, i.e. the vast majority of tablets sold worldwide. While these devices certainly necessitate compromise on performance and build quality, it seems that the real draw is that they get users on the Internet, watching videos, checking emails, and even playing basic games, for a rather modest entry fee.

That's not to say that these low-end tablets are ideal PC replacements. They're not on many levels, from functionality to performance. However, it is clear that the focus in the PC space over the last two years on trying to upsell consumers wasn't going to fly. The key to reigniting growth, particularly at the very entry level -- which is where the sales have seen a fairly dramatic fall-off -- is to bring these tablet-like characteristics to devices that can still be full PCs.

Intel's new push makes more sense
While Intel is still very much pushing the Ultrabook moniker, the broader strategic and public focus has now been on promoting "2-in-1" computing. In a bid to move this effort along, Intel is finally selling a very competent set of low-power, low-cost processors based on its Atom architecture. Additionally, Microsoft (NASDAQ:MSFT) has decided to lower the license fees of Windows 8, as well as of Office Home and Student 2013, so that $350 convertible tablets such as the ASUS T100 could be made possible. This means that both Intel and Microsoft don't get the joy of huge revenues -- and in Intel's case high gross-margin dollars -- per unit sold, but it does allow them to dramatically expand their total addressable market directly into the heart of the tablet market.

This is what both companies should have been pushing long ago, but Intel let its low-power, low-cost Atom lineup languish for five years before it received a meaningful update. Microsoft, too, seemed to insist on hefty licensing fees for its Windows OS coupled with Office. Is it any surprise that cheaper and increasingly functional Android tablets as well as Chromebooks were making meaningful inroads into the traditional Wintel stronghold?


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.