Progress seen steady as Tablet PC turns one

It's been a year since Microsoft Corp. launched Windows XP Tablet PC Edition and declared a new chapter in the history of personal computing to be starting. The platform hasn't caught on as fast as its biggest cheerleader was perhaps hoping but despite a quiet first year few are willing to dismiss the platform just yet.

It's tempting to write off the Tablet PC as a failure. After all, Microsoft Corp. Chairman and Chief Software Architect Bill Gates predicted at Comdex 2001 that "a lot of people in the audience will be taking notes with those Tablet PCs" during the 2002 event. Not only was the launch of Tablet PC delayed, thus causing his prediction to fall flat on its face, but it looks unlikely to come true this year either.

Microsoft, perhaps predictably, feels "great" about the first year of the Tablet PC, even though the company might fall a bit short of its sales targets, said Andrew Dixon, marketing director for Tablet PC at Microsoft. The goal was to sell 500,000 Tablet PCs by year's end and the company is on track to reach between 400,000 and 500,000 units sold, he said.

About half of all Tablet PC sales are in the U.S., the other half is split between Europe and the Asia-Pacific region, he said. Users are typically enterprises that have large numbers of employees in specific categories such as salespeople and insurance claims adjusters, Dixon said.

"Our goal is to become the next mainstream notebook PC," he said, adding that Microsoft still believes that four years from now the majority of all portable PCs will be Tablet PCs. That reaffirms a prediction made by Gates at Comdex 2001 that Tablet PCs will become the most popular form of PC within five years of their launch.

Microsoft anticipates a hockey-stick style growth curve for Tablet PC sales. "I can't say when that will happen, but we believe it will," Dixon said. Key factors in kickstarting sales will be new devices and more software becoming available, he said.

Others offer a similar view of Tablet PC's first year.

Barring any wildly optimistic predictions, things have gone as well as most observers might have guessed, said Stephen Baker, director of industry analysis at NPD Techworld in Reston, Va. He sees it taking some time for the devices to expand from vertical markets to horizontal ones.

Baker wouldn't divulge his company's estimates for unit shipments but said that sales through commercial markets such as retailers and distributors reached about 2% of the overall notebook market in the year since the device was launched.

If first-year success of the platform can be measured by the number of device makers producing Tablet PC-based computers, however, then progress can be seen.

Nine companies had devices ready for the launch on Nov. 7 last year and today there are 26 companies offering Tablet PCs, according to Microsoft.

Others are coming on board too, including Gateway Inc. The PC maker currently sells a machine designed by Motion Computing Inc. but is planning to begin selling its own machine in November, said Mike Stinson, vice president and general manager of mobile products for Gateway.

"We're real pleased with the level of interest," he said. "But it's a little disappointing that because this is a new form factor, it's taking people longer to test and profile it, and they're being more cautious about rolling it out."

Others are more blunt about their first year with Tablet PC.

"Our current run rate is around 8,000 to 10,000 [units] per month," said Campbell Kan, the chief officer of Acer' Inc.s notebook products division, in a recent interview on the sidelines of the Computex exhibition in Taipei. "We are not satisfied with that."

Acer won't be able to make money on Tablet PC until volumes hit between 20,000 and 30,000 units per month for each of its three models, he said. He cited problems, including high prices -- Tablet PC devices are often a premium over conventional notebook PCs -- a lack of applications that take advantage of the Tablet PC's functions and the absence of an aggressive marketing campaign from Microsoft.

"Nobody is able to actually be profitable making the Tablet PC," said Kan.

On the software side, the applications that Kan says are needed have been slow in coming -- and not just from third party vendors.

Microsoft itself has been dragging its heels. It wasn't until October that the company launched its OneNote note-taking software, which was previewed a year ago at the platform launch. Users of the company's Office productivity suite also had to wait until October and the release of Office 2003 to get Tablet PC support but now the company has started a push to get developers behind the platform.

At its Professional Developers Conference in Los Angeles last month Microsoft gave developers a new software development kit with tools designed to make it easier to develop for the operating system. The company knows Tablet PC won't go anywhere without software that takes advantage of features such as handwriting recognition with "Digital Ink."

"The applications really do represent the business value and the why-to-buy for the TabletPC," said Microsoft's Dixon. "People really do need to know what they can do on the TabletPC."

The operating system will keep evolving too. At the Comdex trade show later this month, Microsoft is expected to provide more details about the next version of Windows XP Tablet PC Edition. Code-named Lonestar, the new version should ship in the first half of 2004 and offer improved handwriting recognition, among other features.

Julia Lerman, an independent software developer in Vermont, recently started using an Acer C110 Tablet PC and is developing a Tablet PC application for one of her clients. "I can't get over how great the handwriting recognition was right out of the box, but it is still many times more efficient for me to type," she said by e-mail.

Lerman sees forms on Tablet PCs as the greatest opportunity. "Being able to walk around with the tablet as though it was a clipboard and writing is huge," she said.

"I think the Tablet PC needs to be more than a novelty for people to [grab hold of] it. The applications, tools and utilities that developers will create are what will make this happen," Lerman said.

Werner Vogels, a research associate in the computer science department at Cornell University in Ithaca, N.Y., uses an NEC Corp. Litepad. Vogels has used the Tablet PC in the class room for presentations and has developed software for the device.

"The Tablet is now my preferred platform for doing presentations because I can use ink in PowerPoint during the presentation to clarify things. I now build my presentations around the notion of having ink available," he said.

Other usability features Vogels likes about the Tablet PC are the form factor, which makes it easy to carry around and unobtrusive in meetings. Also, the speech recording capabilities in the Tablet are good, he said.

In terms of software for the Tablet PC, Vogels feels the mainstream commercial developers are "slowly" getting on the Tablet PC train and so are smaller independents. "There are some verticals such as the health care industry that have massive development under way to integrate tablets into their platforms," he said.

Corel Corp., which produces the Grafigo sketching software that was one of the first applications to offer Tablet PC support, says adoption of the platform has been slow but as expected. The company is waiting for greater adoption of the technology before adding support to other applications such as CorelDraw and WordPerfect Office, said Nick Davies director of graphics products at Corel.

As for the future, the entry of IBM and Dell Inc. into the market is important if Tablet PCs are to penetrate further into enterprises, said Alan Promisel, an analyst at IDC. He believes both will launch devices should there be customer demand. IBM and Dell representatives could not be reached for comment.

Tablet PCs are helping expand the overall PC market and enabling him to sell machines to places that haven't used computers before as a replacement for paper pads or forms. Scott Eckert, president and CEO of Motion Computing.

Earlier this week the company announced a deal to provide 5,000 of its Motion M1300 Tablet PCs to HealthSouth Corp. for use in workflow applications in its approximately 1,400 outpatient rehabilitation centers in the U.S.

"The Tablet appears to be the ultimate evolution of mobile computing," he said.

(Sumner Lemon in Taipei contributed to this story)

Copyright © 2003 IDG Communications, Inc.

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