There's a lot of attention being paid to tablets cannibalizing PCs. As we've said in the past, we think PC cannibalization from tablets is overstated. But the cannibalization phenomenon is real: We wrote in a June report (The Products That Lose When Tablets Win) that we expect tablet cannibalization to accelerate in the next six to 12 months as slightly less affluent consumers buy tablets and have to make tough tradeoffs. Several predictions we made in the report are already coming true. We made the call that:
"Portable game player sales will go off a cliff. Portable game players (PGPs) like the Nintendo DS already have huge penetration, so there's a natural saturation point that PGPs are reaching anyway. That saturation combined with cannibalization from tablets and smartphones, which fulfill the same casual, on-the-go gaming scenarios but also multitask with email and other applications, spells trouble for PGPs. The Nintendo 3DS is already reporting weaker-than-expected sales, and we expect this trend to continue."
Much to Nintendo's chagrin, this prediction is proving accurate, as Nintendo reported that its 3DS sales plummeted to 710,000 units this past quarter from 3.6 million units the quarter before.
In the June report, we also wrote that game console sales would not be negatively affected by tablets and could actually see a boost from increased interest in gaming as mainstream consumers find joy in games like Words With Friends and Angry Birds.
My colleague Sucharita Mulpuru and I just published a substantial new Forrester report on tablet commerce, Why Tablet Commerce May Soon Trump Mobile Commerce. Basically, it’s huge already: In a recent study of 2,333 tablet owners fielded by Forrester and Bizrate Insights, we found that 47% of tablet owners report shopping and buying for something on their tablet, and an additional 13% say they’ve shopped on their tablet without buying. Even though smartphones far outnumber tablets, retailers surveyed by Forrester report that 21% of their mobile traffic comes from tablets. With tablets forecasted to reach one-third of US adults by 2015, tablet commerce only has one way to go: Up.
These findings suggest there’s a sea shift coming in tablet product strategy, which we see unfolding in three phases:
Phase 1 (2010-2011): Apple’s iPad catalyzes a media revolution. There’s no doubt that the iPad is used for more than just media — 20% of iPad owners report creating and editing documents on the device, for example, and the massive catalog of business, education, and other non-media apps attest to the iPad’s versatility. But our data shows that after email, media (playing games, watching videos, viewing photos, reading) are the most popular iPad activities. Apple has wrangled the best content from premium publishers, inspiring News Corp to launch an entirely new company just to produce an iPad app.
While all eyes in the online retail space seem to be on social networks and smartphones these days, we’re seeing an emerging trend with tablets that could be the most interesting of all. Only 9% of web shoppers now have tablet devices, but here’s the big deal — most of those people already own smartphones (as well as PCs, of course), and they are saying that they actually prefer to use their tablets for shopping. Not only that, but the ownership of the tablet device itself actually increases the amount of time that people spend online. And we’re anticipating a hockey stick in tablet adoption in the next five years on top of all that. You can read more about these findings in the report my colleague Sarah Rotman Epps and I just wrote titled, “Why Tablet Commerce May Trump Mobile Commerce,” which is based on findings from our joint research on online shoppers with Bizrate Insights. Some of the most compelling aspects that are helping to drive the shopping experience on the device:
The larger screen. Not surprising, given the choice between a smartphone and a tablet, consumers find it a lot easier to use the latter to surf the net, click on links, and type in the critical biodata to purchase something online, especially since PayPal Express doesn’t seem to be integrated onto most mobile commerce sites yet.
The portability. Consumers love taking their tablets around the house and on the go. The living room is the most common room where the tablet is used, but out of the home is also popular, particularly at restaurants and in airports.
Today HP launches the HP TouchPad, the first tablet based on HP's new operating system, webOS, which it acquired along with Palm exactly one year ago. HP's $1.2B initial investment in Palm, plus its additional investment over the past year to bring the TouchPad and its webOS smartphones to market, is a risky investment -- there's no guarantee that consumers will buy these products or that the consumer electronics market has room for another software platform. But the webOS investment is a risk HP had to take, in order to:
Compete with Apple. Apple owns its own hardware and its own operating system, which means it controls the experience to a greater degree than OEMs that make hardware for Apple or Google's software. With webOS, HP gets more control over the total product experience.
Differentiate itself from other OEMs making Android and Windows devices. HP wants to be more than a company that makes gray boxes running Windows. WebOS helps HP differentiate from the pack, but it's also an unknown to most consumers, and adoption is uncertain.
Hedge against PC cannibalization. In a recent Forrester report, we found that PC cannibalization from tablets has been modest so far but is likely to increase in the next six to 12 months. HP is the biggest PC manufacturer in the world, and it needs to adapt its product portfolio to avoid more disappointing quarters like this most recent one.