Analyst Report: Is there a tablet market, or is it just an iPad market after all?


Apple’s competitors have had 18 months to design and build their answer to the iPad. During that time, iPad sales have continued to grow, now to the tune of 28 million sold since introduction, with estimates for total iPad sales this year nearing 38 million, according to analysts at UBS. All the major mobile tablet platforms finally have a slate for sale: Aside from the iPad, consumers and enterprises can choose from tablets running on Android, BlackBerry and webOS. But are they buying? And if they are, do any of these tablets stand a chance against the iPad?

At the end of last year, Marco Arment, the creator of the popular Instapaper app for iOS, may have best predicted the answer. He said,

There really isn’t a tablet market. There’s an iPad market, and the iPad could be classified as a tablet, from a hardware-centric viewpoint. But the market for non-iPad tablets is about as big today as it was before the iPad, which isn’t nothing, but it’s close enough to nothing that Apple doesn’t need to worry about it.

Although the non-iPad tablet market is still relatively young — and manufacturers aren’t sharing sales figures — there are a few proxy calculations that indicate Arment is currently correct: The iPad is still running away with the lion’s share of the tablet market. The rate of annual iPad sales is actually accelerating, not slowing, even as competing devices arrive on store shelves (see below).


Source: Apple

Newcomers may have shipped too early (and too late)

Research In Motion’s BlackBerry PlayBook and HP’s TouchPad are relatively new, having only launched recently. Neither manufacturer has produced sales figures, but there’s no evidence yet that either has a hit. Likewise, it’s far too early to call either a flop without evidence. What we do know is that both devices aren’t yet feature-complete, nor do they have a wide variety of third-party applications available.

The PlayBook has no native email application, for example, and instead still requires a BlackBerry handset and special software for email, contacts and calendar activities. RIM announced that a summer software update will bring native apps for these activities, yet PlayBook owners are still waiting. To compensate for a relative lack of third-party software, RIM’s PlayBook will run a subset of Google Android software. After months of rumors indicating that this would occur, RIM made the news official in May, but the solution still isn’t available. Essentially, RIM is trying to sell a tablet device that doesn’t yet offer a complete tablet experience.

On the other hand, HP’s TouchPad has all of its core features included but has few apps. Furthermore, it shipped with a placeholder for Amazon’s Kindle software, an example of not quite being ready for prime time. The Kindle app did appear a few weeks after launch, however, and so too did a webOS software update, which has boosted performance noticeably. After using a TouchPad both before and after the update, my first thought was, “Why didn’t HP simply wait a few weeks and ship the device with this software?” In other words, the overall experience with the update is much better. You only get one chance to make a first impression; potential customers using a TouchPad in stores prior to the update may have been turned off by the device’s marginal initial performance.

In both cases, these tablets were late to market in one sense and ironically launched too early in another. Again, it’s too early to call either a failure, but in the case of RIM, supply-chain sources suggest the company has cut internal sales estimates from 2.4 million units in Q2 to 900,000 — a figure that may still be optimistic, considering that the same software and features challenges that existed at launch are unresolved. With the HP TouchPad’s launch just a month ago, there aren’t any sales estimates to consider, so we’ll get a better sense of the device popularity within a few months. HP is discounting the device already by $100 for a limited time, which may help boost sales.

How many Android tablets have been sold?

Google Android tablets, however, have been available since February’s launch of the Motorola Xoom, which was followed by a number of other Honeycomb tablets from Acer, Asus, Samsung, LG and others. They too have had missing features: Most notable was the Xoom’s 4G radio upgrade, which was promised soon after launch but won’t arrive until September. Honeycomb itself is still maturing as well, with two software upgrades available in the past six months. Although the device makers are mum on sales, we can extrapolate a reasonable idea of how these Android tablets are doing. Motorola did announce that it has shipped 440,000 Xoom tablets in the second quarter, but it hasn’t said how many of those were actually sold. That figure follows the 250,000 shipped the previous quarter.

Google recently reported 135 million cumulative Android device activations, the vast majority of which are likely smartphones. One unique feature that distinguishes Android handsets and tablets, however, is the version of Android being used, which can help estimate total Honeycomb tablet sales. Google publishes a dashboard for developers, showing how the percent of Android devices on each version of Google’s software changes over a two-week period. The data is captured by visits to the Android Market, and while not all tablets necessarily use the market, it’s reasonable to assume that a majority of them do. (Why would people be spending $400 to $800 on a slate simply to browse the web and check email?)

As of my last check, Google says that 0.9 percent of all Android devices hitting the market over the most recent two-week period were running Android 3.0 or better. Using the cumulative devices, which is surely an optimistic view, that works out to 1.215 million Android tablets to Apple’s 28 million iPads. A more realistic estimate may be to use the daily activation numbers provided by Google, which now top 550,000 per day, or 7.7 million Android devices every two weeks.

If 0.9 percent of those have accessed the Android Market in a two-week period, then that represents approximately 69,300 Android tablets during those two weeks. Over the same two weeks, Apple will have sold roughly 1.44 million iPads, on average. Note that I’ve used the recent quarterly sales figures of 9.25 million iPads and divided them by the appropriate number of days to represent a two-week time period. Obviously these figures are simply estimates, but they’re based on reasonable assumptions. Even with a 20 percent margin of error, it’s clear that the iPad is outselling Android tablets by at least 15 to 1, if not more.

Even combining the relatively meager sales of BlackBerry PlayBooks, HP TouchPads and various Android Honeycomb tablets, this still suggests that Arment’s December statement is holding true, at least for now. There’s a limited market for non-iPad tablets. Yes, it’s on the rise, but it has taken 18 months to develop. As competitors try to emulate the success of Apple’s first tablet from 2010, Apple is moving forward to mature its iPad and the ecosystem behind it.

Challenges for the challengers

Often, Apple doesn’t define markets. Instead, the company redefines a market by improving on the work of others; the iPod is a perfect example. But the iPad has actually defined the market for ARM-powered tablets running for 10 hours on a truly mobile software platform. The iPad name is becoming synonymous with tablets. So other tablet makers aren’t just late to market with their devices; they’re fighting a public perception that there are no tablets aside from the iPad.

Some other key obstacles:

  • A PC-like approach. Many of the Android tablets are trying to differentiate themselves through specifications instead of user experience. Some have full-sized USB ports, while others have microSD or SD memory card slots. But in order to gain some of these differentiating features, a prospective tablet buyer may need to give up another feature. The buying process requires too much work for what’s essentially a secondary device for most people. This hardware-centric scenario takes away from what customers are focusing on: What apps and services can my new tablet run?
  • You know what you get with an iPad. Related to the PC approach, all the choices among Android, BlackBerry and TouchPad tablets lead to a more complex buying decision. The only iPad choices are storage capacity and connectivity options. While that can be limiting for some, it simplifies the purchase for many others.
  • Flash doesn’t seem to matter. Support for Adobe Flash is available on all non-iPad tablets, but it hasn’t helped sales in a noticeable way. Part of the issue is that Flash software has seen several updates since the beginning of the year to improve the experience. Again going with the idea that you only get one chance to make a first impression, early interactions with Flash on tablets haven’t always provided a positive experience. That may eliminate some of the potential advantages that Flash-capable tablets hoped to offer.
  • You can do work on the iPad. Apple’s slate may be dismissed as a toy by some, but enterprises seem to disagree. A May study commissioned by Model Metrics shows that among businesses planning to deploy tablets, 83 percent are leaning toward the iPad. And why not? Software for remote desktop apps or front-end, touch-friendly clients for enterprise solutions are increasingly becoming available for the iPad. Other tablets either lack similar software or, such as BlackBerry, they work best with a company-specific solution like BlackBerry Messenger software or a BlackBerry handset.
  • An Apple for the teacher (and the students). On its most-recent quarterly investor call, Apple said it sold more iPads than Mac computers to the education market. There are few compelling reasons at this point for schools to consider any other tablet in droves, as none offer the same range of educational or kid-friendly apps, nor are any yet proven in the market by comparison.
  • Pricing is too high. Several tablets are priced similarly to the iPad, but they are still missing key features or are perceived to be works in progress. These could be viewed as overpriced, since they offer fewer features, functions or apps at the same price. BlackBerry’s PlayBook lacks a native email client, for example, while HP launched a video store for the TouchPad after launch as a beta service. Customers choosing between two equally priced solutions are more likely to opt for one that’s complete, proven and has more apps. If tablet makers want to offer their tablet at iPad prices, the tablets need to offer the “iPad experience” or differentiate in some other way, if possible. Otherwise, the products need to be priced lower.
  • The network doesn’t sell the tablet. Unlike the smartphone market, subsidized tablet pricing models don’t seem to be working. Apple took a different approach by charging $130 more for a 3G-capable iPad. Customers aren’t locked into a contract and choose their monthly data package. Competing 3G and 4G tablets such as Motorola’s Xoom and Samsung’s Galaxy Tab 10.1 are priced similarly, or even more cheaply, but such prices require a two-year carrier commitment. The Galaxy Tab starts at $529 with a mobile broadband contract, but it costs $629 for month-to-month usage. If anything, early subsidized pricing programs seem to hurt, not help, tablet sales.

Challenges notwithstanding, the tablet market is still young. My observations are a snapshot in time; only recently have all the tablet makers played their cards and delivered their answer to the iPad. Actually, there’s still one player that hasn’t yet entered the game but may have the best shot at taking on Apple. Amazon has slowly built up an Android ecosystem of its own with a mobile app store, native MP3 player and streaming service. Amazon’s Unbox video service could be the last piece of the ecosystem puzzle for the expected Amazon tablet later this year. With the right mix of software, services, price and branding, an Amazon tablet could leapfrog all the others in the race to challenge Apple’s iPad.

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