Good news for Microsoft Corp.: Its cloud business is doing well. In the last quarter, more than a million new Office 365 accounts activated and the Azure platform continues to attract more customers away from Amazon and Google. The uptick in cloud services performance is offsetting declines in Windows licensing, analysts say.
The bad news for Microsoft: Its Surface tablet sales sank by one-third last quarter. While Microsoft doesn’t report actual sales numbers, analysts estimate the company sold nearly 900,000 of its homegrown tablets during the holidays and saw that figured drop to about 500,000 in the first three months of the year.
And Microsoft isn’t alone in the falling tablet sales club. Apple Inc. saw sales of its vaunted iPad fall, as well. Apple shipped 16.4 million iPads in the first three months of the year — a number for which any other tablet vendor would kill. The expectation, however, was for 19.3 million units hitting the market.
Even Samsung Electronics Co., the world’s largest producer of Android tablets, is seeing pressure. While its tablet shipments increased 2.5 times in 2013, analysts are predicting a decline in its conventional form-factor, even with the introduction of new large-format, multi-window units.
What’s going on in the tablet segment? A few things.
1. The market has probably reached saturation. Four years into the tablet craze, introduced by Apple’s iPad, more than 1 billion tablets have shipped, and many of them are second- and third-generation replacements.
2. The tablet replacement cycle is far longer than phones or conventional PCs. Wanting to keep up with the latest styles and features, the average user will replace a smartphone every 12 to 18 months. The average PC user will replace his machine every three years like clockwork. The average tablet user hasn’t found a real reason to upgrade; new features and functionality don’t have the same appeal.
3. Tablets are caught in a squeeze play between smartphones and PCs. Apple invented the love affair with tablets by creating an alternative to netbooks and PCs. They are tremendous information-consumption devices, but not practical for information creation. Applications and accessories make tablets more business-appropriate, but even tablets are too bulky. Smartphones — particularly the larger phablets — are more portable, and PCs are more powerful. Tablets are caught between.
4. Hybrids are popular. Intel Corp. has been saying for years that it expects hybrid PCs, tablets with docking stations, to revive the PCs market. More users are adopting devices that serve both as a PC and tablet, such as Microsoft Surface. Other PC and tablet vendors have similar devices, particularly Lenovo and its Helix and Yoga machines. If you can have one device that serves both purposes, why not economize?
5. Angry Birds, Candy Crush and other games. Aside from reading e-mails and browsing Web sites, it seems the most popular use for tablets is gaming. Yes, many productivity apps exist, but they’re basically the same as those on smartphones. Microsoft’s introduction of Office 365 for iPad may change perceptions, but there’s a greater probability this sales hit will drive users to hybrids rather than tablets.
Does all of this add up to the end of tablets? Yes, as we know them. As an information-consumption device, tablets will thrive, but take a tertiary spot behind smartphones and PCs — particularly hybrids. Tablets will gain new life as lightweight kiosks in hospitality, health care and transportation settings.
For solution providers, this means recalibrating the strategy on tablets to make them more an interface for larger systems rather than the sale item. Solution providers that can incorporate tablets as the entry point for embedded systems will find a market more hospitable than that of resellers trying to ply the crowded smartphone, phablet and hybrid PC segments.
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