Forecast Update: Amazon Expands Tablets’ Addressable Market

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.

The big story we’ve been following since the iPad launched is the war of the platforms: How will Google and Microsoft take share from market-leading Apple, and how will Apple maintain its lead? In the US, we’ve seen half of the question answered. Google is stealthily gaining tablet platform share—but not through Motorola, Samsung, HTC, or its other mobile or PC OEM partners. No, Google is gaining, thanks to Amazon and Barnes & Noble, whose tablets use a version of Android branded with their own services, not Google’s. As we describe in our report, we believe that Amazon and B&N have actually expanded the addressable market for tablets in the US by launching their tablets at significantly lower price points than the iPad. In China, the iPad is popular in Tier 1 and Tier 2 cities, but Lenovo’s Android tablet and even cheaper white-label Android tablets appeal to a broad swath of consumers.

For better or for worse, price is becoming a more important factor in tablet choice. But it’s not the only factor, or even the primary one. Forrester’s data shows that the top reason consumers don’t buy tablets isn’t price or technology—it’s because they say “I don’t think I need it.” It’s about the services—what you can do with the device, which is why Apple, Amazon, and B&N have succeeded in the US where pure hardware plays have failed.

In 2012, disruptive product strategies stand the best chance of winning. Whether it will or not, we think Apple should launch a smaller, cheaper iPad to ward off competition from Amazon. We think Amazon should combat Apple by licensing its platform to other hardware OEMs. And we think OEMs like Lenovo, Toshiba, Samsung, and HTC should abandon pure Android in favor of Windows, at least in the US. Strong calls—we’ll see who answers.

Comments

You miss 2 important drivers: Ecosystem and industrial

I cannot see how Windows tablets can take significant share from Apple or Android systems. 25 billion apps, 210,000 app developers on just the iPad/iPhone/iPod platform alone. For those consumers who do appreciate what a tablet can do, the thorough ecosystem Apple has developed represents a high hurdle to significant competition with Apple.

Less obvious is the impact of industry standardizing on the iPhone and iPad. Thousands of companies are purchasing iOS products by the thousands at a clip. Just as the Blackberry consumer market was opened by the industrial Blackberry, the iPhone has taken over in the industrial phone space. The iPad is the perfect sales presentation delivery and salesforce communication device. Those industrial-purchased iPads will trigger a consumer iPad purchase in virtually every employee's home.

Finally, education. Apple during the early Jobs years established a rock-solid connection to the education market that it surrendered during his departure - but which he renewed when he returned. Windows is "so yesterday" to today's high school and college kids. They are totally immersed in the i-World... I could impress none of my children with the ability to get songs for 15 cents on mp3panda instead of 99 cents on iTunes. Samsung tried to attract them with a Super Bowl commercial their peers found insulting. The introduction of iBooks allows every college professor who used to accept just a small royalty from a publisher to create iBooks sold directly to students. Result: hundreds of thousands of new advocates for the iPad platform to tomorrow's tablet customers.

Amazon wisely has generated a Kindle app that allows iPad users to access (purchase) Kindle books and programming. At some point, they'll probably recognize that Kindle hardware is a drag on profits - and focus on selling razor blades, not razors...at least until Apple decides to remove them from the App Store.

Maybe you should read your own analysis

"Whether it will or not, we think Apple should launch a smaller, cheaper iPad to ward off competition from Amazon."

Wow, that is some truly dreadful advice.

Take a look at your own analysis. "It’s about the services—what you can do with the device...." The Amazon Fire and the Nook are not providing the same services that the iPad is. They are expanding the tablet market down into the low end but they are not cutting into iPad sales or iPad margins. Why in the world would Apple want to create a lower margin product when they can barely meet the demand for their current high margin product?

What 'Tablet' Market?

Apple owns the space in more ways than one.
They have spent the last decade building the iTunes brand and as a result App revenues are significantly higher on iOS than the nearest copycat.
Also Apple enjoys a cache and brand loyalty that is second to none in any field. You can't just buy that, ask Micros**t...

Total Sales vs Users

I am interested to know how you considered the accumulation of users vs the accumulation of sales. You are assuming the multiple ownership of many devices per user. Further, you are assuming that as corporations continue to supply devices (generally iPads), that the consumer will also buy their own for personal use. How do you justify your number of users? What happens to old iPads? What is the amount of resale to non-tablet owners? Should this not increase the penetration by 2016? I think with the total number of tablet sales over the period, we should see more than 33% ownership. Additionally, the sale of laptops to have tablet-only owners should increase laptop ownership in the US.

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