Windows RT Desperation Is Starting to Surface

Here's some marketing 101: If people don't want your product, then give them an incentive to want it. That's exactly the thinking Microsoft (NASDAQ: MSFT  ) has had over the past few weeks with its tablet marketing.

Last week the company started throwing in a free keyboard -- which usually costs $100 -- with the purchase of a Surface RT. ­This week the company has apparently lowered its OEM software-licensing fee for smaller Windows RT tablets, according to an article from Bloomberg. The two changes come as Windows RT struggles to gain the attention of tablet consumers.

Is it really that bad?
So are things really that bad for Microsoft, or are these just typical promotional incentives that all companies do to move products?

It's not the latter. Things really are that bad.

IDC says Windows RT has 0.4% of tablet platform market share right now. Yes, Windows RT has only been out since October of last year, but projections for future RT market share are only expected to hit 2.7% by 2017. On top of this, tablet makers have been cooling toward Windows RT as of late.

Though HTC is about to release a 7-inch tablet with the RT platform, the company recently dropped its plans to produce a 12-inch RT tablet. Acer and ASUS are basically staying away from the platform, with Acer CEO JT Wang calling the software "very immature." Samsung also dropped plans to release Windows RT tablets in the U.S. and Germany because demand hasn't been strong enough.

Untapped potential
For better or worse, Dell (NASDAQ: DELL  ) is committed to both Windows RT and 8. But a few weeks ago Dell cut is XPS 10 tablet hybrid from $500 to $300 -- likely due to slow sales. Despite this, the company seems confident Windows is the way to go on tablets, and is developing a successor to the XPS 10 that will likely run RT. But Dell doesn't even make it on the top-five list of tablet sellers, and Microsoft itself is at the bottom of the list.

Microsoft investors should be worried about this. The company that used to have such dominance in the software platform business can't get OEMs to sell significant numbers of its new tablet OS ­-- something the company never had to worry about with its PC software. Apple (NASDAQ: AAPL  ) , Samsung, ASUS and Amazon.com all come before Microsoft when it comes to tablet sales.

Apple takes the No. 1 spot in all tablet shipments for Q1 2013, and commands 39.6% market share among tablet vendors. The company shipped 19.5 million tablet units in the quarter, compared to Microsoft's 0.9 million. But even though Apple is the No. 1 vendor, its iOS takes the second spot behind Android. Apple's second-place spot should be an indicator as to how difficult it is to gain additional market share even when selling millions of tablets ­-- which means Microsoft has an extremely long road ahead of it.

Microsoft still has a few companies on its side, though. A Qualcomm (NASDAQ: QCOM  ) executive said last month that the company is "very optimistic" about Windows RT. Obviously, the chip maker has some stake in the success of RT ­ -- it makes ARM-based Snapdragon processors in Dell tablets running RT. Qualcomm has also said that it's working with more OEMs that will release new RT devices in the near future.

But despite Qualcomm's pep-rally approach to RT, the company doesn't need the platform to do well to sell its Snapdragon processors. They can be found in the Samsung Galaxy S4, HTC One, two Samsung Galaxy tablets, and a long list of other phones and tablets -- and they're rumored to be in an upcoming lower-priced iPhone.

Making a better bet
I don't think Microsoft is out of the tablet fight, but I do think it's got to do something to turn the tide -- fast. Microsoft has been too used to releasing software for devices and having OEMs have no other choice but to sell the darn thing. The mobile landscape has brought more options to device makers and it seems that many of them have already chosen Google's side.

Lower-priced RT devices may help sales of the OS to take off, but I doubt it. Microsoft investors should focus on the mobile version of Windows 8 going forward rather than RT. Unless there's a complete revamp of RT or consumers start choosing it over Android or iOS, then it looks like it may limp along on until Microsoft realizes people don't want it.

Despite the Surface tablet launch and a revamped Windows 8, consumers seem to have their eye on other products. Unfortunately for Microsoft, its longtime software experience hasn't translated well into the mobile world. In a new premium report on Microsoft, a Motley Fool analyst explains that while the future opportunities are huge for the company, so are the challenges. The report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.