Much was made of Microsoft's (MSFT +4.26%) Surface Pro 3 -- the "tablet that can replace a laptop" -- and based on last quarter's results, it appears the pseudo-tablet had a solid, if not spectacular run last quarter. Though widely hailed as a strong contender in the race for mobile consumer's attention, the Surface Pro 3 has one, significant roadblock: It's fairly expensive.
While there is an introductory Pro 3 that starts at about $800, consumers need to shell out around $1,200 to get a Surface Pro 3 worth talking about. By comparison, Apple's (AAPL +2.33%) iPad starts at $499, though to get anywhere close to the Surface Pro 3's features and performance, consumer's will need to write a $900 check.
What's a software king to do? Introduce a Surface 3, sans the "Pro," for less than half the cost, and considerably less expensive than a similarly outfitted iPad. The tablet wars are about to get a lot more interesting.
Kicking Apple when it's down
Apple shipped a little over 63 million tablets in 2014, good for a 27.6% share of the overall market, according to IDC. Not surprisingly, Android OS tablets led the way with nearly 155 million units, equal to slightly over 67% market share. Microsoft, long recognized as "the other guy" in the world of tablets, brought up the rear with 11.6 million tablets shipped and a 5.1% piece of the pie.
Though to Microsoft's credit, it enjoyed a 24% year-over-year improvement in Surface revenues last quarter, cracking the billion-dollar barrier for the first time. Still, 5.1% of the overall tablet market wasn't exactly what CEO Satya Nadella had in mind as he transitions Microsoft to a mobile-first, cloud-first industry leader.
But here's where things get interesting: Apple and Microsoft are moving in opposite directions as it relates to tablets. It's no secret that iPad sales have steadily declined, and many pundits even expected Apple to ditch iPads altogether. That's not going to happen, according to Apple CEO Tim Cook, but the downward sales trend for iPads, and the growth of Microsoft's tablet market share, is expected to continue.
By 2019, as per IDC, both Apple and Android OS tablets piece of the tablet market share pie will decline over 4%, respectively, and Microsoft will be the beneficiary. In fact, over the next four years Microsoft is expected to own nearly three times its current tablet market share, growing to 14.1% before the decade ends. And IDC's forecast was released before news of Microsoft's newest tablet, the Surface 3, was introduced to the masses.
Just what the doctor ordered
The Surface 3 is, according to Microsoft, its slimmest and lightest tablet to date. And with features like an eight megapixel, or MP, camera -- the same resolution, coincidentally enough, as the iPhone 6 and iPhone 6 Plus -- and 64GB of storage in the "starter" iteration, it fits Microsoft's objectives perfectly. The Surface 3 is ideally designed and priced for the market Microsoft is targeting: mid-range tablet users primarily interested in accessing their social media accounts, streaming a movie or video, or checking email. And the Surface 3, like its big brother the Surface Pro 3, can morph into a laptop by simply attaching a keyboard.
At a starting price of $499, Surface 3 is priced well below a similarly equipped iPad, yet will suit the needs of the majority of mobile users. Of course, the new tablet could cannibalize Surface Pro 3 sales to some extent, but it's not in the same league nor will it satisfy the needs of the tablet-laptop power user. That is just fine, because the mid-tier mobile consumer is exactly who the Surface 3 is designed for.
As with any new product rollout, only time will tell if consumers buy-in. But Microsoft's new Surface 3 has all the makings of a hit, to the further detriment of the iPad. IDC's forecast that Microsoft will more than triple tablet sales over the next four years to nearly 40 million units could prove conservative, thanks to Surface 3. And at the expense of longtime nemesis Apple? That's just icing on the cake for Microsoft fans.
