How Microsoft May Wind Up Being Relevant In Tablets

NEW YORK (TheStreet) -- Don't write off the Microsoft (MSFT) Surface and other Windows-based tablets just yet. If new tablet market projections pan out, Microsoft may come roaring back.

According to the latest research from IDC, the total tablet tablet market, including 2-in-1 devices, is expected to grow just 19.4% this year, after having grown 51.6% in 2013. Much of that is due to the slowdown in mature markets, such as the United States, as the market gets bigger. This is affecting sales of Apple (AAPL) iPads, and Google (GOOG) Android devices, but Microsoft may be the beneficiary, once the market as a whole matures.

IDC now expects 260.9 million tablets to be sold in 2014, up from roughly 218.1 million tablets sold in 2013. IDC noted the projections came from "slowing consumer purchases as hardware iterations slow and the installed base-particularly in mature markets-continues to grow."

"After years of strong growth, we expect the white-box tablet market to slow in 2014 as consumers move to higher-end devices that work better and last longer," said Tom Mainelli, IDC's program vice president of devices and displays, in the press release. "In mature markets, where many buyers have purchased higher-end products from market leaders, consumers are deciding that their current tablets are good enough for the way they use them. Few are feeling compelled to upgrade the same way they did in years past, and that's having an impact on growth rates."

However, consumers' choice of operating system "will be a key differentiating factor when it comes to success in the commercial segment," notes Jitesh Ubrani, a research analyst at IDC, in the press release. "Though Android and iOS will remain dominant, we expect Windows-based devices to capture more than a quarter of the market as its benefits become apparent thanks to growing adoption of 2-in-1s."

In Microsoft's fiscal-second quarter, Surface revenue more than doubled from the prior quarter to $893 million, up from $400 million, as revenue for the Devices and Consumer group rose 13% to $11.91 billion.

Admittedly, this is coming off a small base, but it's important to note that Windows-based devices will capture more than a quarter of the market as it becomes mature, and people realize the benefits of 2-in-1 devices, at least according to IDC's Ubrani.

What's hurt the Surface, aside from the fact that Apple essentially reinvented the tablet space in 2010, is the lack of apps available for it, and the confusion surrounding the Microsoft Surface Pro, and the Surface RT, which is a stripped down version of Windows. Apple has said as recently as January 2014 that more than 500,000 native apps are available for the iPad. Microsoft is thought to have in the hundreds.

This doesn't mean that iOS and Android tablets are going to be overtaken anytime soon, though. Last quarter, Apple sold 26 million iPads, thanks in part to strong demand for the iPad Air and iPad mini with Retina Display. Google (GOOG) does not break down how many Android-based tablets are sold, but it's generally thought that Android is the leader in market share by operating system.

As the tablet market has matured, the average selling price (ASP) has declined drastically, but IDC notes the decline may be slowing. In 2012, ASPs fell 18.3% from 2011, and in 2013, ASPs dropped another 14.6%. IDC forecasts ASPs to drop just 3.6%, with the reasons being "the growth of higher-priced commercial shipments and a consumer movement away from ultra-low cost products."

--Written by Chris Ciaccia in New York

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