Later today, Apple will report Q1 figures. We know much has changed in the tablet market over the last three months. Earlier this week, Pew Research Center’s Internet & American Life Project reported tablet and eReader ownership (unsurprisingly) surged during the 2011 holiday season.
This is consistent with what I expected (and subsequently reported) following Black Friday and the (unofficial) start of the holidays. Starting with Black Friday (but really through the entire holiday season) several things too place to help drive tablet sales. First, prices came down significantly. Prices for many of the “high-end” tablets were marked down significantly and lower priced tablets entered the market in calendar Q4. A declining price helps up-take. Secondly, both devices have been in the marketplace for 18+ months and are moving quickly into mass market appeal. We are moving into the fat part of the adoption curve. Finally, tablets were the loss-leader for many retailers on Black Friday. While the volume wasn’t high on a single-store basis, in aggregate there were a plethora of tablets (from a variety of OEMs) bought during the weekend across a myriad of retailers from Best Buy to Big Lots to Radio Shack to Staples, to ToysRUs. CEA estimates 14 percent of those who purchased tech over the weekend bought a tablet – up from six percent in 2010. eReaders also did well over the weekend with an estimated 15 percent of tech shoppers buying an eReader. This figure is up from 13 percent in 2010 and two percent during the 2009 Black Friday weekend.
According to Pew, both tablets and eReaders are now owned by about roughly 1/5 of the US population. More than a third of those living in households earning more than $75,000 (36%) now own a tablet computer and almost a third of those with college educations or higher (31%) own tablets.
While the delta between ownership rates among these household segments and other household segments isn’t as pronounced for eReaders the eReader ownership rates for these two household segments are similar to that of tablets – 30 percent with college degrees own an eReader and 31 percent of those with households income over $75,000 have one.
Perhaps most interesting, tablet and eReader ownership rates increased significantly in just the last 45 days. When Pew surveyed consumers in mid-December 2011 roughly 10 percent of households owned a tablet and about the same percentage of households owned an eReader. By mid-January ownership rates for both devices had increased to 19 percent – suggesting many of the tablets and eReaders purchased during the holiday season were gifted at the end of December.
The big question for the tablet and eReader segment is where we go from here. I fully expect the sale of both devices to grow in 2012 and this is evident in CEA’s recently updated annual forecasts. No surprise the consensus call is for growth. However there is starting to be large breaks in the respective forecasts of a variety of research firms. It is reminiscent of netbook forecasts I saw in the fall of 2009. In the 4th quarter of 2009, netbooks represented about a quarter of all mobile PC sales. At that time, many forecasters were predicting netbooks would grow to dominate the entire PC food chain, but by the first quarter of 2010 – just a few short months later, netbooks were down to just 20 percent of mobile PC sales in the US. The figure has continued to decline since then and below I’ll talk a bit more about what most forecasters missed. Many recent forecasts I’ve seen suggest tablets will dominate all PC categories and represent the bulk of the PC market by 2015.
After growing 185+ percent in 2011, expect tablet volume growth to slow precipitously in 2012 – especially in relationship to forecasts suggesting tablets are all the traditional computing well have by 2015. A few market characteristics are still well positioned to help tablet growth over the next 4 years:
- declining average price will increase quantity demanded – downward sloping demand curve
- time function – tablets have been in the market for 18+ months now. Adoption is a function of time and additional time allows individuals outside of early adopters to acquire the product. I expect adoption in 2012 to skew towards individuals with late adopter characteristics – age, income, interest in tech, etc.
- gifting is a positive for ownership rates. CEA research finds (unsurprisingly) that consumers like to give (and get) new products. As a product matures, gifting declines significantly.
Now for some of the headwinds:
- PC ownership in the US is only 85 percent. Yes, you and I might say tablets are a very different device experience, but I don’t believe they trump traditional computing – especially for current non-computer users. Moreover, roughly only 62 percent of US households own a laptop or notebook computer so mobile computing in the traditional sense is still building.
- Tablets don’t have a short replacement cycle. I don’t know this with certainty. But this is what I argued in the days of high netbook forecasts. We need to understand the upgrade path and life cycle to truly understand at what rate these devices will be replaced. The average mobile phone is replaced every 18 months – one of the shortest life cycles. For TVs, the average life is 10 years – one of the longest life cycles in consumer tech. We are only 18+ months into a mass market cycle so while we can model it, markets haven’t yet let us know what the true upgrade cycle for these products looks like it.
- Demand hasn’t changed significantly so what is really helping up-take is a decline in price. When looking at demand, one needs to ask if tablets have fundamentally changed enough through availability of additional (unique) apps and form factor changes (inclusion of camera, etc) that the demand curve can/will/did shift out. I’m not convinced tablets today are different enough from when they became commercially successful in 2010 to suggest we are facing a different demand curve. In other words, we probably aren’t looking at a significantly different audience of potential owners than we were say 18 months ago. Said another way, tablets aren’t likely to be adopted by 100 percent of US households. I think the actual number will be much less. While I don’t currently have a forecast on peak tablet adoption, I’d bet the under on 60 percent market adoption in the US over the next 5 years.
I think estimates are already getting too high. I still see sales estimates for the Kindle Fire of 5 million for calendar Q4 floating around, despite the fact Amazon released figures reporting suggesting a run rate of about a million total Kindle devices sold during the holiday season. I think Kindle probably sold closer to 3 million Kindle Fires – not 5-6 million as many are propagating.
Here are the “wisper numbers” for today’s Apple announcement as assembled by Fortune Magazine. They peg iPad sales for Q1 2012 – which includes the holiday season – at 14.17 million. The table of independent and institutional analyst iPad estimates ranges from a low of 11.73 to a high of 19.47.
As Mashable points out, “iPad sales over the 2010 holiday season were 7.3 million, up from 4.2 million the previous quarter — a 73% increase. Last quarter Apple sold 11.1 iPads, so to match that the previous year’s spike, Apple would need to have sold 19.3 million iPads.” If Apple sold 19.47 million iPads in the quarter then the year-over-year growth rate (166%) would also match that of last quarter – which was down from 183% year-over-year growth during their fiscal 2Q11. Headed into the holiday season my personal estimate was for 13.4 million iPads to be sold during 1Q12 – a year-over-year growth rate of 83 percent. While that might be on the low side and I wouldn’t be surprised by 16 million, I do expect the growth rate to continue to slow. A slowdown isn’t just about Apple – this is a broader tablet story and more about the evolution of a product than the execution of a single company.
