When Microsoft (NASDAQ:MSFT) took the wraps off its new Surface Pro 3 pseudo-tablet a couple months ago, there were rumors it had also planned to unveil a small-screen version of the device. In hindsight, its decision to scrap a smaller Surface -- if, in fact, it had intended to bring one to market at all -- was probably a wise one. According to research firm IDC, the growth of tablets this year will be slower than originally forecast, and sales weren't expected to be great to begin with.
Microsoft fans undoubtedly still recall the painful $900 million write-off last summer due to excess inventory of its Surface RT tablet. Another such hiccup would have put Microsoft in a big hole as it works to chip away at Apple's (NASDAQ:AAPL) dominant tablet market position. But there's no need to throw in the tablet towel just yet: In fact, the Surface Pro 3 might be just what the doctor ordered, if IDC's projections come to pass.
A glass half-empty
It wasn't long ago that smaller was better for mobile devices. Smartphones became sleeker by the day, it seemed, and the same applied to tablets. Apple's iPad Mini was supposed to be "the next great thing," and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) also has its Android OS Nexus line of mini-tablets. Both of the big hitters are expected to unveil new versions of their respective devices later this year.
If IDC's tablet domestic sales projections for 2014 pan out, both Apple and Google's manufacturers may end up with inventory problems of their own, unless the tech giants can generate sales outside the U.S. If Apple is able to get its rumored 12.9 inch, affordable iPad Pro into the hands of consumers quickly enough, Surface sales could take a hit.
Earlier this year, IDC suggested that overall tablet sales growth would slow to 12.1% compared to 2013's 68% jump. That's not great, but at least tolerable. Unfortunately, IDC has now revised its 2014 tablet sales expectations to global growth of just 6.5%. The problem? In the U.S. and Western Europe, tablet sales will be flat compared to last year as consumers' switch their loyalties to larger-screen devices. That doesn't bode well for an iPad mini or Nexus, but makes Microsoft's decision to stick with its Surface Pro 3 look like a smart move.
A glass half-full
Technically, the Surface Pro 3 isn't a tablet, though its smaller size compared to traditional laptops from Apple and Google is a unique form factor, giving consumers an option to buy a tablet and laptop in one neat package. As IDC suggested, larger screen sizes are the alternative of choice in the lucrative U.S. and Western European markets, and that is the Surface's sweet spot.
But mini-tablet options aren't entirely off the radar globally, according to IDC. Emerging markets still covet smaller mobile devices -- just as we did not so long ago -- including tablets with screen sizes under 8 inches. Of course, sales in developing countries generally equate to pricing pressure, and that is expected to be the case this year, too. But the possibilities emerging regions offer raises an interesting question for Microsoft.
Taking a Surface Pro mini off the table domestically was a wise move, but Microsoft gained a strong presence in emerging markets when it acquired Nokia's devices and services unit. As the tablet market matures, perhaps it would make sense to introduce a Surface mini tablet specifically targeting emerging markets, combined with the Surface Pro 3 for the rest of world? If the rumors of a Surface mini are true, Microsoft may already be sitting on the specs needed to jump-start production.
Final Foolish thoughts
Even as Apple's tablet sales and market share continue to decline, it remains the clear-cut leader in this space. But as developed markets around the world focus on devices with larger screen sizes, and emerging markets focus on price, Microsoft's Surface Pro 3 is alone -- for now -- in offering consumers what amounts to a two-in-one option. Microsoft wasted no time getting the word out that the Pro 3 is unlike anything else on the market, and standing apart in a crowded market is rarely a bad thing.
Pricing pressure cutting into margins, and only meager interest in the world's most lucrative markets, leave little to get excited about when it comes to mini-tablets. But Microsoft's Surface Pro 3 is a whole different ball game, and clearly gives it the best chance of gaining ground on Apple. Make no mistake, Microsoft's tablet ambitions will succeed, or fail, based on the Surface Pro 3.
Tim Brugger has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), 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.