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Should Apple, Inc. Have Hedged Its Bets With Convertibles?

By Evan Niu, CFA – Mar 14, 2016 at 5:30PM

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If convertibles and detachables take off, Microsoft might have the upper hand.

Image source: Apple.

Many years ago, Apple (AAPL 4.86%) and Microsoft (MSFT 6.16%) made consciously divergent bets on where the future of computing would go.

Apple's belief has long been that in order for mobile innovation to flourish, you need to leave the past behind. In doing so, iOS would come to power all of the company's mobile devices including both smartphones and tablets, but it took a lot more work to build the platform since Apple had to start from scratch. On the other hand, Microsoft initially bet with Windows 8 that desktops and tablets could share an operating system. It was easier in some ways, such as app compatibility and availability, but the software giant's execution with Windows 8 left a lot to be desired, since the interface was overly concentrated on touch interfaces, which translated into a poor desktop experience.

But what if the tables turn?

Or rather, what if the tablets turn?
We already know that Apple's iPad business has seemingly plateaued for the time being. Unit sales have been trending modestly lower for a few years now, even if it's still a pretty meaningful business in terms of unit volumes. All the while, the convertibles trend seemed like it wasn't really going anywhere, as a wide range of PC OEMs kept trying to innovate on new form factors. Most of the new devices seemed to be answering a question that no one asked. It looked like Apple's strategic path, even if the iPad wasn't growing, was the right call.

However, now we're starting to see signs that convertibles might be making a comeback -- in the form of detachables. Microsoft jump-started the detachables idea with Surface, which has been growing ever since, and IDC recently predicted that detachables would drive growth in the category going forward. The iPad Pro is categorized as a detachable since it has a Smart Keyboard accessory, so the larger tablet is Apple's best bet of capturing this growing opportunity, along with the rumored 9.7-inch iPad Pro that's expected to be unveiled in a week.

Plan B?
The challenge with convertibles and detachables has always been a matter of interface. Apple has historically shied away from touchscreen laptops since using a vertically positioned touchscreen is an ergonomic nightmare that quickly leads to fatigue. But that's exactly what Apple is asking users to do when using iPad Pro in a laptop configuration. There is no mouse or other type of pointing interface beyond the keyboard and Apple Pencil (which also isn't intended for basic pointing on a vertical display).

Windows 10 has made significant improvements on the interface front, going back to the familiar Start Menu, and allowing the operating system to quickly and dynamically shift from touch-based input to the good old fashioned keyboard and mouse at the touch of a button. While Windows 8 was too touch-centric, Windows 10 has hit a balance. The net result is now that Windows 10 has some advantages over iOS when it comes to convertible or detachable form factors.

And this isn't something that's easy to overcome, either. The input method is the foundation of the platform, and if convertibles and detachables begin to take over the market, iOS could find itself at a disadvantage. Perhaps Apple should have come up with a contingency plan.

Evan Niu, CFA owns shares of Apple. The Motley Fool owns shares of and recommends Apple. 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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