The Smartphone Wars: Mystery of the Android tablets
<p>Some new market research says Android tablets have now taken <a href="http://www.businesswire.com/news/home/20120126005248/en/Strategy-Analytics-Android-Captures-Record-39-Percent">39%</a> of global market share. There are reasons to suspect that Nook and Fire tablets account for a bit more than half of that, but we&#8217;re still left with something of a mystery to explain.</p>
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<p>We know why people are buying the Nook and Fire; they&#8217;re media-consumption devices tied to strong brands &#8211; book and movie viewers with web access as an additional draw. The mystery is this: Who has been buying the general-purpose Android tablets, and for what uses?</p>
<p><em>Somebody</em> is buying them.  We know this because retailers and distributors keep restocking newer models; if the sell-through percentage on the older ones was bad, that wouldn&#8217;t happen. There&#8217;s a lot of talk of &#8220;channel-stuffing&#8221; which ignores a salient fact: electronics retailers aren&#8217;t in business for their health. Carrying inventory costs money, and non-performing product categories aren&#8217;t cut a lot of slack these days.  When you see vendor shipment reports rising as fast as they have been in this category, a hell of a lot of product has to be being bought off of retailers&#8217; shelves somewhere.</p>
<p>More generally: a sufficiently determined vendor can maintain an illusion of steady or only slightly declining sales by channel stuffing if they&#8217;re willing to pay enough marketing support that they are, in effect, covering the cost of goods and shelf space for the retailer. (Hello, Windows Phone 7!)  What they can&#8217;t do in the absence of actual sell-through is induce the retailer to <em>dramatically increase his exposure</em>. Android retailers have been doing that.</p>
<p>The mystery deepens because until quite recently Android tablets could be divided neatly into two groups: a handful like the Galaxy Tab that were acceptable designs at ridiculously high price points, and a bunch of shoddy crap with no obvious use cases at all.  It wasn&#8217;t like early Android smartphones; even the G-1, the very first, was a respectable design that was useful the day it shipped and is still useful today.  In the tablet category, &#8220;low-end&#8221; meant 4-to-7-inch Taiwanese devices with weak processors, streaky displays and only intermittently functional single-touch sensing. </p>
<p>Yet, the behavior of vendors and retailers tells us this shoddy crap actually <em>sold</em>, and sold in ton lots.  The handful of high-end Galaxy-Tab-like devices that were not crap were simply too pricey to be driving the market volume.</p>
<p>Only at the end of 2011 did this begin to change in a significant way.  I had predicted on this blog that it would, but was about two months too optimistic about the timing. Now we have a bunch of midrange designs that are no longer crap but I don&#8217;t think are <em>quite</em> good enough yet, and I&#8217;m still wondering &#8211; who is buying these things, and for what?</p>
<p>The afterlife of the HP TouchPad may provide a clue, if of a negative kind. When HP released the discontinued hardware to retailers in order to cut its losses. there was a popular run on the product that was frenzied enough to attract media attention.  I observed at the time that this suggested a large pent-up demand for tablets below the iPad price point.</p>
<p>Now it&#8217;s time to go back for another look at the TouchPad.  Because likely, it&#8217;s an index of the same demand that was grabbing crappy tablets off the shelf before the TouchPad, and is buying this month&#8217;s so-so tablets.  Thus, what those were being bought for is partly defined by the things that the discontinued TouchPad couldn&#8217;t do.</p>
<p>Internet over the cellular network? No. The TouchPad, and low-end tablets in general, are only useful as WiFi devices.</p>
<p>Privileged access to a trove of tied content?  No.  That&#8217;s what&#8217;s selling the Nook and the Fire, but the TouchPad sold without that kind of hook and low-end Android devices don&#8217;t seem to need it either.</p>
<p>The usage profile we&#8217;re left with is, basically, (1) web browsing, (2) YouTube, and (3) gaming. Or, to be even more concrete:  Facebook, LOLcat videos, and Angry Birds.  Do not underestimate Angry Birds &#8211; every time I&#8217;ve seen a tablet being used in public by kids, they&#8217;ve been playing Angry Birds on it.</p>
<p>If this is what&#8217;s been going on, what does it imply about the future?</p>
<p>I think the most obvious implication is cautionary for Apple, B&#038;N, and Amazon and even Google: the behavior of early adopters may be leading them to overestimate the mass-market value of their walled gardens. The mobs of people who bought out the TouchPad stock within a day of release were signaling a lack of interest in iTunes; likewise, whoever have been buying crappy Android tablets in mass quantities clearly don&#8217;t care much about Amazon or B&#038;N e-books or even the Google Android market (many of the low-end devices don&#8217;t license it).</p>
<p>It&#8217;s only going to get more interesting out there as the generic Android tablets improve.  The trends are clear; we&#8217;re probably no more than 5 or 6 weeks from general availability of Android 4.0 tablets with 10-inch capacitative multitouch displays at $250. </p>
<p>When that happens, I think life is going to get more than a bit precarious for the Nooks and Kindles of the world.  Those are being sold near or below cost because the vendors expect to make back the margin on tied media, but I suspect they&#8217;re fooling themselves &#8211; misreading demand for the generic abilities of the devices as demand for their particular gold-plating.  Until now the distinction hasn&#8217;t mattered much, but they&#8217;re going to be increasingly vulnerable to disruption from below.</p>
<p>Yes, that goes for the iPad, too.  We&#8217;re already seeing erosion of its share, 10% over the last year according to Strategy Analytics.  That&#8217;s more ominous than it might seem precisely because in most objective ways the iPad&#8217;s competition has been pretty weak sauce.  That&#8217;s changing <em>now</em>; in the near future, better hardware capacity than the iPad will be available at a lower price point.</p>
<p>At that point, we&#8217;re going to find out exactly how much tablet consumers are actually willing to pay Apple for its software and its brand.  Interesting times&#8230;</p>
