We're in the Tablet Age; Microsoft Is in the Stone Age

NEW YORK (TheStreet) -- Over 20 years ago, I wrote a book that considered the future of tablet computers: A Guide to Field Computing, for New Riders Publishing.

It sold poorly. It was before its time. And it is long out of print.

Ten years later, Microsoft (MSFT) coined the term "tablet" with the Microsoft Tablet PC specs in 2001. They had Hewlett-Packard (HPQ) deliver a unit with a removable keyboard soon afterward. It, too, was early, and sank without a trace.

It was Apple's (AAPL) 2010 launch of the iPad, based on its iPhone, which launched the tablet market as we know it. Samsung's Android-based "phablet," a small tablet that acts as a phone, transformed tablets into a highly competitive and global mass market in 2011. The first Amazon (AMZN) Kindle came out in 2007, but it was 2011's Kindle Fire that tied tablets securely to content.

Now, as 2014 dawns, everyone knows we live in a tablet age. Intel (INTC) and Microsoft, which so dominated the PC era that analysts called them "WinTel," now face an uphill battle for traction in a field they created.

Intel's response consists of two "reference designs" for tablets, which other companies are expected to make and sell. They are a clamshell unit with a keyboard, shown running Windows, and an "education Android" based on Google's (GOOG) Android system.

They are designed for mass sale to schools, complete with theft deterrent features, and were introduced at a London education conference.

Microsoft, which merely supplied software in the PC age, is a manufacturer in the tablet age. Its Surface 2, a $450 unit that runs Windows 8.1, ships directly from Microsoft's online store. A fold-down keyboard can act as a front cover; a back cover doubles as a stand.

Microsoft brags it sold $893 million worth of Surface tablets during the quarter ending Dec. 31. But it lost money in the business, and those sales don't begin to make up for the accelerating decline of PC shipments, a quarterly reduction of 6.1 million units, or 6.9%, year over year according to the research company Gartner. In the U.S. market alone, shipments fell almost 1.3 million, or 7.5%.

None of this is news, save for the fact that it has become such conventional wisdom among investors and analysts that Intel shares are considered dead money and the company is cutting its workforce 5%. Former Intel employees have launched an online revolt against its policies.

The need for a turnaround in the Microsoft Surface line has also become a sub-plot in that company's continuing search for a new CEO. Satya Nadella, who runs the company's Azure cloud, is now said to be the front-runner. But his appointment would answer no questions about the Surface, and Microsoft stock barely budged on the news.

The biggest irony in this story is that, now, Intel and Microsoft may actually be too late. IDC sees many tablet markets being saturated. Apple holds a third of the market, Samsung and Amazon together hold another 26% of it, and all the WinTel efforts are stuck in the leftover "other" category, which is declining in size. "Other" is now just 30% of the market.

While WinTel dithered, in other words, the market burned away. This is now a mature product category, and many of 2014's buyers will be looking at their second or third tablets. Apple's iOS and Google's Android operating systems dominate the space, software has followed that train out of the station, and we have reached the point in the market story where leadership is pretty well set.

There may be some hope for Intel in its Chrome-based designs, if they can compete on price as sold through Chinese manufacturers. There may be hope for Microsoft if it can make its tablets more cloud-based, in order to overcome its disadvantages in software.

But I was writing about hope in this market 20 years ago. Sadly, hope is all that WinTel has left.

At the time of publication, the author owned shares in AAPL and GOOG, but held no positions in any of the other stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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