Amazon’s (Eventual) Tablet 0

I’ve written in the past about Amazon’s (eventual) entry into the tablet world.  Some interesting research from Retrevo consistent with points I’ve made in the past. First, consumers have grown quickly comfortable with Amazon as an OEM. You’ll recall that the original Kindle was panned heavily by critics, but consumers have warmed quickly to Amazon devices. As you can see from the chart, 55 percent of respondents interested in a tablet say they would seriously consider buying a tablet from Amazon.

The results of the study are also consistent with a point I’ve made repeatedly on differentiation.  In order to compete in a quickly crowded segment one must differentiate.  It isn’t just that OEMs are competing with Apple in this space  – in order to succeed in the tablet segment, OEMs must bring to market something different.  They can differentiate by screen size, form factor, feature set, or price.  Until now there has been minimal differentiation and I’m not sure there is enough flexibility to compete by differentiating form factor or feature set.  There might be large enough segments of the population interested in screen sizes less than (or more than) 10 inches that there is still room to compete by screen size. Ultimately, I think the most likely place to compete will be price (assuming the user experience is comparable). The results of the study suggest half of those interested in a tablet would consider an Android tablet over an iOS tablet if it was priced below $300.

How Might Apple iPad Shipments Change Over the Next Year 0

Much has been written about the relationship between iPad supply and demand.  I’ve added to that discussion here. What I haven’t seen discussed much is how iPad sales might change now that supply and demand are finding equilibrium. As I wrote, I don’t believe supply constraints have defined aggregate unit volume.  But I do think it might have influenced allocation across models within that aggregate volume.  Nielsen recently suggested about half of iPads are of the 3G variety.  This seems consistent with the fact that Apple has to-date sold most of what they’ve made available for sale and I’ve heard that they are spreading supply roughly equally across their models.

In fiscal Q2 (calendar Q1) Apple sold roughly 4.69 million iPads.  If roughly half were 3G models – then Apple sold about 2.35 million 3G models during the quarter.  But examining the financial releases from ATT and Verizon suggest they collectively activated only about 700k tablets during the same period. If these stats are close, then many who are buying 3G-enabled tablets are not actually using the 3G service.  Sure, some are buying it “just in case” and some will perhaps activate it at some point.  But there appears to be a large pool of owners who aren’t and likely won’t be using the 3G service unless usage patterns/scenarios change significantly.

As GigaOm reports, in their recent quarterly conference call “Cook went as far as to say that in some markets they (Apple) had actually caught up and were able to be in some sort of an equilibrium with demand and supply they had actually caught up and were able to be in some sort of an equilibrium
with demand and supply.”  If supply and demand are finding an equilibrium then buyers will presumably be able to buy the exact model they are interested in.  Taken together with the relatively low activation figures suggests the tablets to sell in the future will be predominately Wi-Fi models.  This suggests a lower average price point.

Are Apple’s Strong iPad Numbers Just a Supply-Chain Story…. 0

Last week Apple blew away (nearly) all expectations for fiscal Q3 iPad sales.  I hate saying, “Apple always exceeds expectations” because that just suggests estimates are consistently and systemically biased downward but they did far exceed fiscal Q3 iPad estimates after not accomplishing that feat in fiscal Q2. Analysts estimates for fiscal Q3 iPad sales ranged from 6 million to 9.5 million with an average estimate of roughly 8 million. Apple ended-up shipped 9.25 million iPads during the quarter.

A recent GigaOm article implicitly suggests the strong growth seen in fiscal Q3 is a result of supply chain dynamics:

” Apple admitted earlier this year that it couldn’t make iPad 2s fast enough to keep up with demand. Now Apple is still selling “every iPad 2 it makes,” but it also said it was able to make more iPads 2s during the most recent quarter than it did in the same period a year ago. So while demand is still ahead of supply (“Sales of the iPad 2 have been absolutely a frenzy,” said Cook), they’re getting closer to meeting it. Cook went as far as to say that in some markets they had actually caught up and were able to be in some sort of an equilibrium with demand and supply. He did not, however, expand on which markets.”

In other words, Apple out-clipped expectations because the supply chain finally caught up.  This has been common rhetoric throughout the lifespan of iPads. Demand has been strong, supply has failed to keep up, and unit volume would be much higher if supply could have kept up with demand.  Certainly this rhetoric was made by many after fiscal Q2 iPad sales failed to meet expectations.  After selling 7.33M in fiscal Q1 (which includes the ever important holiday season) most analysts (myself excluded) expected sequential growth for fiscal Q2. When Apple shipped only 4.69M in the quarter, many analysts blamed a lack of supply.

But would unit volume really higher had supply been more robust?  Does this logic make sense?  I don’t think it does.

There has definitely been strong demand for the iPad. This was true for the first generation as well as the second generation (iPad2) models.  Throughout the last year+ buyers have on occasion had to wait to receive their iPad. At times, they even had to wait 2-3 weeks for their purchase to ship. Others, wanting a specific model, opted to buy a different model so they wouldn’t have to wait. Some bought a 3G model or a black model or a 64GB model even though they wanted something else – simply so they wouldn’t have to wait.

So yes its true supply hasn’t perfectly kept up with demand.  This is true with any successful product – especially a nascent device. Its even possible that some delayed making any purchase until they were able to immediately get what they wanted.  But I doubt we had millions of potential customers delaying their purchase.  It seems to defy logic to suggest some waited to buy an iPad because they didn’t want to wait 2-3 weeks for it to arrive.  In order for fiscal Q2 to show sequential growth, Apple would have needed to have sold an additional 3M+ iPads in the quarter.  Its tough to believe 3M people opted to delay this purchase because they didn’t want to wait.  Moreover, evidence suggests delays of 2-3 weeks at most.  3M+ individuals waiting in line would have resulted in months of delays (remember they only sold 4.69M during the entire quarter).

Another inconsistency.  In the same conference call Apple discussed supply shortages, it also discussed opening new geographic markets to iPad sales.  When supply is extremely curtailed, OEMs typically delay opening new geographic markets.

In short, I don’t buy the argument suggesting supply “shortages” are driving these quarterly results. Calendar Q1 (Apple’s fiscal Q2) is a seasonally slow period – especially for new technologies.  Strong growth in Apple’s fiscal Q3 is a result of the natural laws of adoption.  More individuals have been exposed to the technology and they’ve now had multiple exposure points.  More markets are now open to iPad sales. Supply constraints have perhaps influenced results on the margin, but they aren’t driving the uptake of iPads.

When eReaders grow-up to be Tablets 0

What happens when eReaders grow up to be tablets? This morphing is already well underway. Barnes & Noble has always referred to the Color Nook as a tablet eReader – with tablet being the operative word. At their event this week. B&N claimed the Color Nook is the top selling android tablet in the market. Amazon – the current king in e-ink eReaders – is getting set to launch potentially two new tablet-oriented devices.  E-ink is actively working to bring to market color e-ink screens and other eReader players are treading towards tablet-like devices.  But this evolution has important implications.

First, network economics for text are very different than they are for video and more data-intensive applications. One of Kindle’s opening hallmark features was the ability of the user to download books via the cellular connection without having to independently contract with the service provider.  In fact, at one point Amazon switched Kindle cellular service from Sprint to ATT and users never took notice.

This won’t be the case as users gain access to more data-intensive offerings. These services are more bandwidth intensive (and therefore costly) than delivering text over the network.  Even though our research has constantly shown most tablet users primarily connect via Wi-Fi, the existing service contracts can’t work when devices are more than books. This will be a key element in the new tablets being launched by Amazon.

App usage on apps-enabled devices will crowd out book usage.  This has ramifications for device pricing.  In the early days of Kindle, Amazon subsidized the content instead of the hardware. This changed as Apple moved into the book business and subsequently eReader OEMs began selling ebooks at the publisher price and subsidized the hardware prices (or atleast began selling them at very low margin).  If the margin is made on the ebooks and their are less ebooks sold as a result of changing use-case scenarios – OEMs will be in search of a new business model to driven margin. 

Evolutionary Currents: Adding Context to the Nook Color Upgrade 0

This week Barnes & Noble upgraded the software running on their Nook Color e-reader tablets. Users can now access apps, have email pushed to the device and watch flash videos.

There are a variety of reviews on the web (see: here, here, and here) discussing the anticipated update so here I’ll take a differ tack and discuss two things: what we learn about the evolution of technology in the Nook and what it means for adjacent categories like tablet computers (as opposed to tablet e-readers).

While their initial foray into personal electronics with the original nook might have been more than just an experiment, B&N moved relatively quickly onto the Nook Color. The original Nook was launched in November 2009 and while it was largely sold out during that introductory holiday season, there was likely very little opening stock available. By June 2010 the price had been cut consistent with pricing cuts across the entire e-reader category. Within a year of the initial Nook launch, B&N had a higher-end, full color screen e-ereader tablet and the Nook line collectively was “the company’s biggest bestseller ever in its nearly 40-year history.”

Estimating iPad Second Quarter Unit Sales 0

Through the first three quarters of iPad availability, Apple sold 3.4 million, 4.3 million, and 7.33 million iPads respectively for a total of 15.03 million units through the first nine months.   The estimates for Apple’s second quarter iPad sales are all over the board.  For example, JP Morgan is expecting 5.3 million, RBC Capital is expecting 7 million, some are calling for something comparable to the 7.3 million sold last quarter, and Credit Suisse is estimating 7.84 million for the quarter.  Estimates of 13 analysts compiled by Bloomberg averaged 6.1 million units for the quarter.

My personal forecast of around 4 million for the quarter – made in December 2010 – is clearly on the low side.  At the time I expected a quarter-to-quarter sequential decline because the first calendar quarter is seasonally weak and that trend has been more pronounced in recent years.  More, I expected a new iPad launch that would slow gen one unit sales while at the same time production shortages would limit sales of gen two unit sales. 

2011 CES Tablets 0

In October I said I expected 80+ tablet launches at 2011 CES.  AS CES approached it was clear 2011 was going to be the year of the tablet and a few days before the show I said that my 80+ estimate was looking conservative.  I updated my expectations and said I wouldn’t be surprised by 100+ tablet launches at CES and by my count we saw over one hundred launches. Here is a draft list of the launches we saw:

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