Will people swallow Gates’ tablet PCs?

Microsoft’s chairman Bill Gates saw a long-held dream come to fruition last week. For several years, Gates has preached his vision of a PC that is as simple to use as pen and paper. Now, Microsoft claims, this has become a reality, with the launch of the Windows XP operating system for tablet PCs. The tablet is a generic name for devices that look like a notebook computer, but feature a screen that can be written on with a digital pen.

Microsoft revealed the operating system for tablet PCs two years ago. At the annual IT jamboree Comdex, in November 2000, Gates could barely contain his enthusiasm for what he described as “one of the most amazing projects we’ve ever done”.

Microsoft employees have demonstrated similar zeal. UK marketing director Nick Barley described the tablet as “a new form of personal computing, combining the intuitiveness of hand-to-eye co-ordination with familiar software applications”.

Windows product marketing manager Neil Laver went so far as to call it “the next step in the evolution of computing”.

Large claims indeed, but Microsoft now has to make the product a success. The company is spending an estimated $70m (&£44m) on marketing the software around the world, having already spent $400m (&£252m) in research and development.

Unsurprisingly, Microsoft is bullish in its forecasts. According to Barley, 35 per cent of mobile PCs sold next year will be tablets, and they will feature Microsoft’s operating system. Few industry analysts are willing to endorse these figures, however. Andy Burns, International Data Corp’s European, Middle East and Asia research manager for mobile computing, says: “No one expects massive volumes next year – only the early adopters will be buying them.”

Research company Gartner Dataquest estimates that, worldwide, tablet PCs will account for only 1.2 per cent of total notebook sales next year. However, it believes the number of notebooks sold with screen “digitizers” – which allow users to “write” on the screen – and detachable keyboards will increase to 35 per cent by 2007.

Despite the fanfare surrounding this launch, the tablet PC is not a new product. Various versions have been launched since the Seventies, by Xerox, Apple and Go. These failed to gain sales volume, however – largely as a result of inadequate software applications.

This is where Microsoft believes it has the solution. Burns says: “This time, there is a standard PC operating system with additional features. Businesses should be more likely to adopt it, and it should, therefore, have some success.” Microsoft has this particular sector almost to itself: the competition comes from makers of machines with specialised applications or alternative operating systems.

Given the infancy of the market, the pressure is on Microsoft to prove to the industry that it can make the tablet PC work. The company is launching an outdoor and poster advertising campaign in the UK. Barley says: “Because the product is designed to appeal to ‘mobile workers’, one of the ways we want to market it is to capture that kind of person when they are on the move.” Microsoft will be buying the poster sites that line the escalators at London Underground stations and using ads that swivel between portrait and landscape views, in the same way as the tablet screen does.

There will be a mainstream poster campaign in January and Microsoft is planning roadshows at London’s Waterloo and Paddington mainline stations and at airport terminals to allow people to test the system.

Whether all this activity will translate into sales remains to be seen. Growth in the sales of Microsoft’s core PC operating system and Office software has slowed to single digits. The software giant needs to look to other markets to make up revenue. To this end, in April it announced an additional investment of $800m (&£500m) on developing areas such as its games console Xbox, its next-generation phones – which interact with PCs – and now the tablet PC.

Microsoft’s track record with new products has not been entirely successful. Forrester analyst Paul Jackson says: “The phone has not done well largely because of a lack of partnerships with key manufacturers. The Xbox had more trouble than Microsoft anticipated because of PlayStation 2, pricing and a raft of software issues.”

Certainly, the Xbox’s sales figures do not make good reading for Microsoft. Microsoft is estimated to have sold 500,000 consoles in the UK, while Sony has sold 3 million PlayStation 2s. Globally, PlayStation 2 sales are ten times those for Xbox.

This is not the result of a lack of investment from Microsoft. The company is estimated to have ploughed $500m (&£315m) into marketing the Xbox worldwide. Part of this comprised a TV advertising campaign, created by Bartle Bogle Hegarty. One ad, showing a new-born baby ageing rapidly before crashing into an open grave as an old man, drew censure from the ITC, and Microsoft was eventually forced to drop it.

The ads have received some praise from the advertising industry, however. Damon Collins, creative director at Lowe, which lost the Xbox pitch to Bartle Bogle Hegarty (MW January 11, 2001), says: “With the ‘play more’ launch advertising, Xbox chose a generic gaming strategy. The ads were strong, but obviously it’s dangerous to focus on a generic benefit when there is already a strong market leader.”

Few other Microsoft ads have drawn much praise. One advertising executive says of Microsoft: “It is a classic global client, which spends a fair amount of money and doesn’t get a lot out of it. Microsoft has never cracked advertising.”

Some in the industry, however, argue Microsoft does not need to advertise its products, thanks to its dominant position.

Burns says: “Tablets are unlikely to fail because Microsoft has a lot of clout. The question is whether they are going to be interesting enough to persuade people to buy them.”

While Microsoft has signed up 13 hardware manufacturers – including Hewlett-Packard, Toshiba and Acer – to manufacture tablet PCs, two notable hardware companies remain absent: Dell and IBM. The former plans to enter the market in a couple of months by reselling other manufacturers’ products. IBM, however, seems set to remain on the fence for the foreseeable future.

Given the depressed state of the IT market, IBM’s might turn out to be the “safest” option. Ultimately, Gates could find out that even his optimism is not enough to overcome economic forces.