Microsoft Isn't Worried About The Tablet Cannibals

With Halloween just around the corner, it's fitting that Microsoft would find itself answering questions about the macabre-sounding phenomenon of tablets "cannibalizing" notebook PC sales.

In a Q&A after Microsoft's first quarter earnings call Thursday, Microsoft CFO Peter Klein fielded questions pertaining to this issue but suggested that Microsoft isn't afraid of any cannibalizing effects. "We have not seen a material shift away from low-end PCs because of tablets," Klein told Wall Street analysts. "We are seeing a strong pipeline of demand for new Windows form factors."

Microsoft is planning to launch Windows 7 powered "slates" this holiday season and is working with hardware OEMs on a range of different devices. If anything, tablets have buoyed Microsoft's confidence in a market in which Windows becomes the OS of choice for new types of hardware, Klein said in the call. "We're confident that tablets will expand the PC market ... and bring Windows to additional form factors and usage scenarios," he said.

But while Microsoft is convinced that Windows can work well in tablet devices, many of its partners don't agree. This group would like to see Microsoft develop a version of Windows that's tailor-made for tablets, as Apple has done with iOS. Jon Bach, president of Puget Systems, a Kent, Wash.-based system builder, hasn't seen tablets eating into Windows desktop PC sales but says as tablets gain more processing power, they could become a viable alternative to notebook PCs.

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"Tablets are more of a threat than a help to Microsoft," Bach said. "If the market shifts to tablets, they lose market share. While tablets do provide another platform for Windows, the iOS and Android platforms are just plain superior for tablets right now."

Next: Is this really a zero sum situation?

Tablets rely on flawless functioning of the touch interface, and in Windows 7, that's an area which "definitely needs some work," says Bach, who expects Microsoft to spend significant effort on improving the touch interface in Windows 8.

Despite all of the cannibalism imagery being bandied about, many solution providers believe there will be plenty of space for desktops, notebooks and tablets. This group doesn't see why this should be considered a zero sum situation. "We feel that there way the market will eventually settle is that everyone will have a desktop, and one, maybe two, portable devices," said Bach.

Andy Kretzer, director of sales and marketing at Bold Data Technology, a Fremont, Calif.-based system builder, works with many Bay Area startups whose executives have been relying on cloud applications in combination with smartphones and iPads. It's a much cheaper alternative to purchasing a couple of servers and a dozen desktop PCs, he noted.

"This paradigm is much better suited for today’s mobile workforce and the upfront capitalization costs are minimal in comparison," Kretzer said.

Microsoft has long viewed Windows as the center of the computing universe, and it may yet sculpt Windows into something that's ideal for serving as a tablet OS. In the meantime, though, the software giant will have to deal with the reality that some people are going to meet their computing needs with tablets instead of notebooks.

"Laptops serve a purpose, obviously, but for users that are looking for a way to consume content and participate in digital socialization, there isn't much reason to pick up a laptop when a tablet experience will do the trick," said Dave Meeker, director of emerging technology at Roundarch, a user experience and technology design firm.