Microsoft Might Finally Have a Hot Tablet: Surface 3

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Germany's CeBit Tech Show
Krisztian Bocsi/Bloomberg via Getty ImagesMicrosoft's Surface Pro 3 tablet computer was displayed a at German tech show in March.
It took three years and three generations of hardware, but Microsoft (MSFT) may finally be getting it right with its new tablet. The world's largest software company is introducing Surface 3 next month. Unlike the original Surface RT and the Surface 2 that followed, Surface 3 won't be fueled by Microsoft's poorly supported Windows RT.

Surface 3 -- like the pricier Surface Pro models before it -- will run the same version of Windows that most consumers know and enjoy as the Microsoft experience. That's a big distinction, and pricing the new tablet at $499, the same as earlier RT-powered tablets, should make it far more successful than the Surface RT and Surface 2.

Microsoft finally did what it should have done three years ago, and while there will be a price to pay for betting on RT for too long, it's better to see the company finally get it right than to never get it at all.

The Fall and Fall of RT

Microsoft's initial foray into tablet hardware was doomed from the start. The Surface may have had some innovative features like the magnetically attached keyboard cover and snapping kickstand, but the new operating system was never going to fly.

You need software and developer support to woo mainstream users, especially if you want to sell a tablet that at $599 was more expensive than the entry-level iPad and far pricier than the vast number of dirt-cheap Android devices. Developers, naturally, don't want to waste their time putting out their popular apps in fringe operating systems. Microsoft was able to talk a few major developers into supporting RT, but at the end of the day it was stuck with a tablet that did little that other tablets or even Windows PCs could do.

A couple of price cuts and improving features helped Surface 2 improve on the original's sales, but it still left Windows in all flavors a distant third to Android and Apple's (AAPL) iOS. Microsoft was running out of options, and it finally did the right thing in abandoning RT in favor of the more conventional Windows for its entry-level tablet.

It Might Be Too Late

The sad note to this otherwise upbeat development is that Microsoft may be too late. Even Apple -- the company that ushered in the era of tablets with 2010's introduction of the iPad -- has suffered year-over-year declines for several quarters.

Consumers have largely tired of tablets. As smartphones get bigger and tablets get smaller, it's less necessary to own two devices. Why spring for an iPad mini when a slightly smaller iPhone Plus 6 can do the same thing? Just 76.1 million tablets shipped worldwide during the holiday quarter, according to industry tracker IDC. This is the first time that tablets have posted a year-over-year decline.

Microsoft $499 price may also be too high in light of Android tablets that can be had for as little as $100, but it doesn't really have much of a choice. If it prices Windows tablets too cheaply, it could start to eat into the sales of Windows desktops and laptops. So, yes, Surface 3 should be Microsoft's most successful tablet ever next month. Unfortunately for Microsoft, it may not be enough.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. Check out our free report on the Apple Watch to learn where the real money is to be made for early investors.
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