Apple’s anticipated iPad update comes as the tablet market is white-hot. In a new report published for Forrester clients today, we’ve revised our US consumer tablet forecast upward: We now expect 112.5 million US adults to own a tablet in 2016, which will equal 34.3% of US adults. In Europe, the numbers are similarly impressive, with an expected 105.7 million tablet users, or 30.4% of consumers 16 and older, in the EU-7 by 2016. With an assumed replacement rate of two years, cumulative unit sales will be much higher: In the US, we forecast that consumers will buy 292.5 million tablets from 2010 to 2016.
Tablets are a global phenomenon—we estimate that US consumers constitute only 43% of Apple’s 55 million iPads sold through the end of its last fiscal quarter, with the rest going to consumers and enterprises in the rest of the 90 countries where the iPad is now sold. Tablets are also a worker phenomenon: Although the No. 1 place where consumers use tablets is in the living room, 37% of US tablet owners take them to work as well. In a recent Forrester survey of 9,912 technology end users at SMBs and enterprises in 17 countries, we found that workers in BRIC countries (Brazil, Russia, India, China) and Mexico actually led demand for wanting to use a tablet for work—and being willing to share the cost of the device with their employers.
In a press release today, Barnes & Noble announced its intention to explore a potential separation of its successful Nook business in order to "unlock that value" and build upon its rapid growth (the Nook business will have an estimated $1.5 billion in revenue this year, according to the company). As PaidContent.org notes, international expansion could be a key motivation for the move.
I have been impressed with how Barnes & Noble has managed its Nook business thus far and I imagine that they have good reasons for exploring this separation. Nook has grown rapidly, but continued growth and international expansion will take sustained investment that B&N shareholders may not have the patience for. However, the Nook business has benefitted from synergy with Barnes & Noble in two key areas: 1) Barnes & Noble's channel (retail stores) and 2) Barnes & Noble's publisher relationships. It's not clear how a separate Nook business would function without the benefit of Barnes & Noble's retail stores and publisher relationships.
Nook has fueled Barnes & Noble's growth: What will be the value of Barnes & Noble without the Nook business? Where will the growth come from?
A key model for Barnes & Noble to consider is that of News Corp. and The Daily. News Corp. owns The Daily but it's managed independently, with its own P&L. The best scenario for B&N may be to pursue a similar structure, giving Nook the independence to grow and attract new investment but maintaining the synergy between Nook and B&N's retail stores.
Today Barnes & Noble (B&N) announced the Nook Tablet, a beefed-up version of the Nook Color that, in our view, gets everything right. My colleagues J.P. Gownder, James McQuivey, and I spoke with several product strategists from B&N about the Nook Tablet, including CEO William Lynch, President of Digital Jamie Iannone, and GM of Digital Newsstand Jonathan Shar. Our conversations and hands-on time with the device led us to conclude that the Nook Tablet:
Is a “wow” product. No, it’s not an iPad lookalike, and it doesn’t need to be. The Nook Tablet improves upon the Nook Color in key areas that matter for tablets, including a dual-core processor and a screen that’s fully laminated with no air gap—two technical details that add up to a better Web and video experience. Compared with Amazon’s Kindle Fire, the Nook Tablet has longer battery life (9 hours vs. 7), 2x the memory, and nearly twice the RAM—feeds and speeds that will make the device more convenient to use and snappier for media consumption and app multitasking. In addition, the Nook’s software update includes innovative experience improvements, such as the integration of recommendations into the navigation UI—think of it as a “Netflix-ization” of navigation.
Looking back at that report, here’s what we got right:
Amazon is competing on price, content, and commerce. The Kindle Fire, a 7-inch Wi-Fi only device, will retail for $199—less than half the price of the iPad, less than the 7-inch Barnes & Noble Nook Color, BlackBerry Playbook, and HTC Flyer. As I predicted, Amazon is indeed drawing on all its content and commerce assets including video, music, games, as well as magazines, apps, and services—the Kindle Fire comes with a 30-day free subscription to Amazon Prime, and a pre-installed Amazon shopping app. It also features a spiffy custom-built browser, called Amazon Silk, which interfaces with EC2, Amazon’s cloud server, to optimize performance. (Meaning: it’s really fast.)
Sony is no copycat. Its Tablet S, revealed at IFA today, shows true innovation in hardware design. It’s slightly smaller than the iPad, but it feels completely different to hold, with its folded-magazine “wraparound” design. It has high-tech features that set it apart from the iPad and other Android Honeycomb tablets, including DLNA support, an IR blaster, and what Sony calls “quick view/quick touch,” which makes the screen and Web browser extremely responsive and fast-loading.
A bigger step for Sony is what comes on the device. The Tablet S comes preloaded with access to Sony Entertainment Network, including a six-month free subscription to its Music Unlimited service, plus two free PlayStation 1 games—finally, leveraging assets from across different business units, a huge step for Sony. Sony has also negotiated deals for an exclusive window to several new Android tablet apps, including Crackle and Foursquare, which will be preloaded on the device. These are all important product innovations, which combined with Sony’s brand should put Sony’s product ahead of many Android competitors in consumers’ minds.
We’ve been beating the Amazon tablet drum for a while—in fact, as early as April 2010, my colleague James McQuivey wrote that Amazon's product strategists should “go head to head” with Apple and create its own tablet. Now, on the cusp of Amazon actually doing so (perhaps as early as October), we’re turning up the volume with a new report explaining exactly how, and why, Amazon will disrupt the tablet market.
This report has been in the works for months. We held off publishing it last week out of respect for Steve Jobs, and we have great admiration for his inventions and influence on our culture.
Even though Amazon taking on Apple is a bit like David taking on Goliath (compare the market cap, profits, and cash position of the two companies), Amazon’s willingness to sell hardware at a loss combined with the strength of its brand, content, cloud infrastructure, and commerce assets makes it the only credible iPad competitor in the market. If Amazon launches a tablet at a sub-$300 price point — assuming it has enough supply to meet demand — we see Amazon selling 3-5 million tablets in Q4 alone.
Amazon’s quick ascension in the tablet market will completely disrupt the status quo. Apple will retain dominant market share, but Amazon will cause product strategists at:
Last week, HP announced it would discontinue the TouchPad and all webOS-based products. This was a dramatic reversal in strategy; just a few months ago (in March), I attended HP’s analyst event, during which HP CEO Leo Apotheker presented webOS as a central tenet of HP’s consumer product strategy and said the TouchPad was “the first of hundreds” of devices that would be running webOS, including printers and PCs.
Minutes after the Wall Street Journal reported that HP plans to spin off its PC business, I'm already getting press inquiries. There's still a lot we don't know, and I hope we'll learn more on the earnings call tonight. Based on what we know now, here's my take on what product strategists at HP are thinking:
HP's PC product strategy is squeezed by two macro-trends: The commodification of the PC market, led by Asian manufacturers like Asus, and the transition to a post-PC era, led by Apple, Inc. (formerly Apple Computer). HP is the biggest PC manufacturer in the world, but its position will rapidly decline if it can't adjust its product strategy to combat both trends.
It makes sense that HP shareholders don’t want its low-margin PC business dragging down its high-margin enterprise services business. As for HP’s chances as a standalone PC manufacturer, it’s tough to be a PC maker in a post-PC world. HP’s competition is Apple on the high end, which has justified higher margins based on non-hardware offerings: service (Genius Bar, Apple Store reps), channel (Apple Store), and software (iTunes/App Store). On the other end, all of HP’s competitors, other than Dell, are based in Asia and have very different manufacturing and labor economics. HP has been caught up in a race to the bottom as the PC market has commodified. Now it needs either to become comfortable with commodification or to build out the elements of an ecosystem to enable true competition with Apple.
We are publishing a new Forrester report today on the European tablet market. With the recent launch (and huge marketing push) of the Acer Iconia Tab and Samsung Galaxy Tab 10.1 in multiple European countries, one might think that things were looking up for Android tablets in Europe — but that’s not the case. In our report, we found that:
Europe is, and will be, a huge market for tablets. We are projecting that EMEA (Europe, Middle East, and Africa) will account for 14.5 million, or 30%, of worldwide consumer tablet sales in 2011. Three times as many Europeans as have tablets today say they are interested in buying one in the future.
Outside the UK, Apple could be vulnerable to competition. Apple has 52 Apple Stores in Europe, and 30 of them are in the UK. (For reference, there are 238 Apple Stores in the US.) Apple’s brand and channel presence is not uniformly strong in Europe; Mac ownership, for example, is lower in every EU-7 country than it is in the US.
But no competitor has met Apple’s challenge. Despite Apple’s potential vulnerability, we estimate that Apple still has 70% market share for tablet sell-through to consumers in Europe. (Sell-through is different from shipments; our interviews with European retailers confirmed that non-iPad tablet inventory is sitting in the channel — i.e., manufacturers are shipping more tablets than consumers are buying. So if you read reports that Apple has a lower market share, look at whether the report is measuring shipments or sell-through.) What’s more, non-iPad tablet competition is quite fragmented — OEMs, operators, and niche players form a crowded marketplace but one notably devoid of shoppers. iPad competitors’ prices are too high, and no competitor has matched Apple on content or channel strategy.
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.