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Apple's iPad Pro Won't Kill Microsoft's Surface Pro

By Leo Sun – Sep 15, 2015 at 7:00PM

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Apple could have a tough time selling the iPad Pro to enterprise customers.

Apple (AAPL -1.76%) recently introduced the 12.9" iPad Pro, powered by its new 64-bit A9X chip and M9 motion co-processor. It has a 5.6 million pixel display and a four-speaker audio system, while the optional Smart Keyboard and Apple Pencil turn it into a 2-in-1 device comparable to Microsoft's (MSFT -0.31%) Surface Pro.

The iPad Pro. Source: Apple.

To win over enterprise users, Apple invited Microsoft on stage during its special event to demonstrate how Apple Pencil can be used in productivity apps. Apple hopes that enterprise demand can boost iPad sales, which have declined for six consecutive quarters due to long upgrade cycles, the rise of phablets, and the commoditization of the tablet market. Last year, Apple CEO Tim Cook expressed hope that the iPad's share of the enterprise market could rise from 20% to 60% within a few years.

As iPad sales fell, sales of Microsoft Surfaces rose, thanks to the latter's ability to bridge the gap between PCs and stand-alone tablets for enterprise users. Apple clearly wants to tap into that same market with the iPad Pro, but I doubt that it can effectively compete against the Microsoft Surface and similar 2-in-1 Windows devices.

What Apple thinks will happen...
Apple's iOS devices accounted for 64% of all mobile enterprise device activations worldwide during the second quarter according to Good Technology's Mobility Index Report. Android devices accounted for 32%, while Windows Phones accounted for 3%. This means that Apple has a huge lead in smartphones and tablets in the workplace thanks to relaxed BYOD (bring your own device) policies.

However, Microsoft still dominates enterprise laptops and PCs. Over 90% of PCs worldwide still run on various versions of Windows, while OS X accounts for less than 5%. So instead of competing directly against Windows PCs with Macs, Apple likely hopes that some companies will replace aging PCs with iPads. Since enterprise customers would buy iPads in the thousands and stick with them, they would generate more stable revenue than fickle mainstream consumers.

To enhance the enterprise appeal of iPads, Apple partnered with IBM (IBM 0.10%) to preload Big Blue's cloud-based enterprise apps on iOS devices and sell them to businesses. Apple also recently signed a deal with Cisco (CSCO -1.84%) to grant iOS devices faster access than Windows or Android devices via "fast lanes" across its networks.

What will likely happen instead...
The first problem for Apple is that many companies still store their data on Windows systems. Apple's devices can access Windows software and desktops via virtualization apps, but they still remain tethered to Windows PCs. To replace older PCs, it would be more reasonable to upgrade to a Windows device like the Surface to avoid compatibility issues with legacy software and data.

Microsoft's Surface Pro 3. Source: Microsoft.

The second problem is the price. The cheapest version of the iPad Pro is the 32GB Wi-Fi version, which costs $799. The Apple Pencil costs $99, while the Smart Keyboard costs another $169. The 64GB Surface Pro 3, which includes the Surface Pen, costs just $649, and the optional keyboard cover costs $130. Plenty of other 2-in-1 Windows devices cost even less. Unlike Apple fans who pay a hefty premium for shiny devices, business customers generally buy the most cost effective devices.

The last problem is Windows 10, which Microsoft is installing across phones, tablets, and PCs as scalable OS. A big part of that push is Continuum, which changes Windows desktop settings based on the device. For example, a Windows 10 Mobile phone would normally display tiles, but it automatically converts into a full desktop once plugged into a PC monitor. This means that Windows 10 devices would be ideal for work environments, since they let workers carry all their data on single devices.

The key takeaway
If Apple believes that the enterprise market can save the iPad, it will be sorely disappointed. iPads can gain ground in the mobile enterprise market via IBM's dedicated apps and Cisco's fast lanes, but those partnerships benefit older iPads as much as newer ones.

iPad Pros also aren't compatible with legacy software, aren't price competitive, and aren't scalable across multiple platforms like Windows 10 devices. So instead of business users, the iPad Pro might only appeal to a niche market of artists or graphic designers -- the same group which bought clumsy stylus-based tablets before the iPad's arrival five years ago.

Leo Sun has no position in any stocks mentioned. The Motley Fool owns and recommends Apple. The Motley Fool owns shares of Microsoft. The Motley Fool recommends Cisco Systems. 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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