In 2001, Bill Gates introduced a Microsoft tablet and predicted that tablet PC would become the most popular form of PC within 5 years. You can say that he was wrong, but it’s probably more accurate to say that his timing was wrong. Microsoft’s tablet failed to become a mainstream device. It saw significant take-up only in the health sector and it never appealed to consumers.

Right now, it’s a very credible idea that the tablet will become the most popular form of user device in the next 5 years, especially with consumers. For that to happen, the tablet would have to torpedo the laptop. There’s a pretty good chance of that, if Apple or any of the other aspiring tablet vendors “gets it right.”

The Tablet and the Laptop

A tablet is a more appealing idea than a laptop (for me at least) as long as you can get information in and out of it when you need to. Bluetooth is now a standard and ubiquitous, so it’s problem solved. The barrier, if one exits at all, is “how do you replace the keyboard?”

The iPhone (and other similar devices) survive with no keyboard, so a tablet can too – probably far more effectively. The keyboard will be on screen and a little cramped, but not impossible – and the scope to move way beyond the touch interface of the iPhone is clearly there.

In case we get sucked into thinking that only Apple can define this market, let’s not forget that Freescale is currently touting tablet prototypes with suggested costs in the $200 range, that Lenovo stole the show at CES with a tablet and computer combo, and there are others, Motorola included, who were at CES with tablets to demo. Indeed, if you think of it, the Kindle qualifies as a “tablet of a kind.”

So what are these devices are running. Well Motorola is running Android, the Lenovo computer is running a version of Linux (on its detachable tablet) and some planned tablets (including the HP one) will probably run Windows. There are also some devices in preparation that will just run Google’s Chrome OS. The Apple tablet will doubtless run OS X.

Why Did The Original Microsoft Tablet Fail?

It just doesn’t make a lot of sense for these devices to run an OS that constrains the freedom of designers or their functionality. Imagine what would have happened if Microsoft’s tablet had been popular. Every single manufacturer would have produced near identical devices. The level of differentiation would only have been in size of screen and size of memory/disk plus the color of the case and maybe material it was made from. Prices would have been pretty much identical too.

And that’s the point. Microsoft’s iron fist control of the OS stifled innovation and Microsoft’s tablet withered on the vine accordingly. Microsoft has already lost the battle for the mobile phone market and it is about to be humiliated in tablet market. Apple will not  be able to have this market to itself. It’s possible that it will be the dominant vendor, but it will cede the low price points to other vendors – and that means Linux, Android and Chrome OS.  The price point for these OSes – zero or thereabouts.

Microsoft Agonistes

Few commentators think of Microsoft’s domination of the IT world over the past few decades as being anomalous, but I do. It happened because the PC market exploded, from annual sales in the hundred thousands to sales in the millions, to sales in the tens of millions and eventually to annual sales topping 100 million. The PC had so many applications and became so useful that almost everyone could use one and wanted one.

In the corporate computing market in the mid 90s there was a move to thin clients (as there is now) but the volume of PCs sales had risen so high that it wasn’t possible for vendors to establish a thin client market at a price point that was lower than the typical PC, even though the thin client could do without a disk and a few other components. So most companies that cared to (and there were quite a few) ran “virtual thin clients” on PCs using Citrix software.

And while all of this was happening, Moore’s Law was generously handing out computer power like ti was going out of fashion. The cost of computer power was falling precipitously but the cost of software was not. That might have been fine, but the the primary reason the cost of software wasn’t falling was that Microsoft was exercising its monopoly.

This energized the Open Source movement, which started to compete directly with Microsoft at a price point of zero. That led to further distortions of the market because Microsoft responded with tactics to impede and, where possible, defeat the Open Source movement. (See 10 Tactics Microsoft Uses To Crush The Linux PC)

There are reasons why the price of software (OS, Office Apps, Graphical Apps, etc.) should have been declining:

• Programmer productivity was increasing
• The availability of skills was increasing.
• The cost of software is in its creation and in establishing a market, the on-going cost of maintenance is comparatively very low.

Instead of pushing the price of software down, Microsoft kept it stable or increased it. It also used the profits from its captive market to subsidise software in other markets – particularly the corporate market. Such behavior is neither original nor unusual in successful organizations that gain dominant market positions, but it often leads to the situation Microsoft now finds itself in.

All of the competitors to the Windows OS on phones and tablets have a low cost or even no cost. The cost of apps on the iPhone are very low and they probably will be on the tablet. The downward price pressure on Microsoft’s software is getting increasingly strong. More and more low cost/no cost alternatives to Windows and Office emerge. So eventually Microsoft’s revenues will be impacted, one way or another.

Windows 7 and the Tablet

Microsoft, to its credit, got Windows 7 right just as, to its discredit, it got Vista all wrong (see Vista: The Little OS That Didn’t.) Microsoft is now proudly pointing out that Windows 7 is the best selling OS of all time. And it is, but partly because Vista failed so badly.

The tablet is not just an interesting new gadget, it is going to replace the laptop – just as Bill Gates was expecting. You know this is the case as soon as you answer the question “will you want to carry both a tablet and a laptop around with you?”

So what does that mean? Right now, if you include the net-book and classify it as a laptop, laptops make up about 66% of the PC market. About 90 percent of those laptops run Windows. Once the tablet market is established, the Windows share of the laptop/tablet market will start to shrink. Right now it’s impossible to predict by how much, but you’ll be able to tell fairly quickly.

Odd though it may seem, Microsoft has already left it too late to play well in this market. And that’s sad news for Redmond, because this is the market that will break the Windows monopoly.

• Apple will shape this market to resemble the iPhone market and feed applications from its app store.
• The only strong competition will come from Android, because “there’s an app store for that.”
• Early sales figures for these devices will indicate the lie of the land, as far as who the primary vendors are going to be.
• Laptop and net-book sales will soon register the impact of the tablets.
• You can extrapolate from there.

This will take about 18 months to play out and Microsoft’s declining market share will start to become news.

The Reverse Halo Effect

The decline of Windows will lead to a reverse halo effect in respect of Microsoft’s Office software. There will be word processing/spreadsheet/presentation/email software on these tablets and it won’t be Microsoft’s. The entrenched position of Microsoft’s office products will begin to decay as more people learn to use alternatives. It’s this reverse halo effect that will be the most lethal in revenue terms for Microsoft.

Luckily for Microsoft, it has one product that will be truly difficult to dislodge – Excel. Most people don’t really need to use spreadsheets (except for trivial activities) and will be comfortable with change, but the whole accountancy profession and a few other professions besides, do use Excel in anger. They will not switch easily because of what they’ve already invested in the product.

2010 is going to be a difficult year for Microsoft. But 2011 will be worse.