Microsoft (NASDAQ:MSFT) and Toshiba (NASDAQOTH:TOSBF) recently unveiled the Encore Mini, a 7-inch Windows 8.1 tablet, at IFA 2014 in Berlin. Toshiba expects the device to be discounted from $120 to $99 the moment it hits retail, making it the cheapest Windows 8.1 tablet on the market. The final release date hasn't been set yet, but it is expected to arrive by the end of the year.
The 12.5-ounce Encore Mini -- which has a 1024x600 display, 1GB of RAM, and 16GB of storage -- is powered by a quad-core Intel (NASDAQ: INTC) Atom Z3735G processor. It has a microSD slot which supports up to 128GB of additional storage, a 2-megapixel rear camera, and a 0.3-megapixel front-facing camera. The tablet also comes with a one-year subscription to Office 365 Personal and 1TB of cloud storage from Microsoft's OneDrive, which would normally cost $100 if purchased separately.
Can Toshiba's low-end Windows 8.1 tablet help Microsoft finally gain a foothold in the tablet market, and what could that mean for Android and Windows RT devices?
Cheap Windows tablets vs. Android tablets
Gartner expects the global tablets market to grow from 271 million shipments this year to 349 million shipments next year. Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Android tablets accounted or 62% of all tablets in 2013, compared to 36% for Apple's (NASDAQ:AAPL) iPads. Windows devices only accounted for 2% of the market.
The Encore Mini and Acer's $150 upcoming Iconia Tab 8 W, which also runs Windows 8.1, could help Microsoft expand its tiny sliver of the market. Earlier this year, Microsoft dropped Windows license fees for all devices under 9 inches to encourage hardware makers to launch more Windows Phones, phablets, and tablets.
However, Android has remained in the lead for three main reasons -- plenty of hardware support, tight integration with Google's app ecosystem, and much lower prices than iPads. These three factors caused Microsoft's biggest allies during the PC era -- Hewlett-Packard, Lenovo, Acer, Asus, and Dell -- to launch Android tablets. Back in May, HP launched one of the cheapest Android tablets ever, the $100 HP 7 Plus, which had similar specs as the Encore Mini but only 8GB of internal storage.
Microsoft believes that if given the choice between a comparably priced Windows 8.1 and Android tablet, consumers will prefer the former over the latter, since Windows tablets can run both full desktop applications and tablet-optimized apps. This is a clever move because it tethers the tablets to the Microsoft-dominated desktop ecosystem instead of the mobile one, which is controlled by Google and Apple.
The cannibalization of Windows RT
That strategy could help Microsoft gain ground in the low-end tablet market, but it could also mean that the company is finally giving up on Windows RT.
Microsoft introduced Windows RT in 2012 because it believed that it needed an ARM-based operating system. That seemed like a sound strategy, because the majority of smartphones and tablets were powered by ARM-licensed CPUs. The trade-off, however, was that Windows RT couldn't run traditional Windows applications written for Intel and AMD's x86 chips. Therefore, RT-powered tablets could only run apps downloaded from the Windows Store.
By last September, Microsoft was the only company still manufacturing RT tablets, which include the Surface RT, Surface 2, and Nokia Lumia 2520. The new Windows 8.1 tablets, by comparison, run on Intel Atom processors, which allows them to run x86-based software as well as Windows Store apps.
If the Encore Mini and Iconia Tab 8 W sell well, Microsoft won't need RT anymore, since it proves that x86 processors are power-efficient enough to handle both low-end devices and high-end ones like the Surface Pro 3, which is powered by Intel's i3, i5, and i7 processors.
A Foolish final word
Toshiba and Microsoft clearly made the right play by launching a low-end Windows 8.1 tablet. It proves that Windows 8.1 can replace RT as a tablet OS, that x86 CPUs have a future in mobile devices, and that full desktop software can be delivered to tablets.
While this doesn't mean that Microsoft's market share in tablets will surge overnight, it's a step in the right direction which could eventually win back more Wintel era allies.
Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Intel, 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.