New research by The Boston Consulting Group points to the continuing segmentation and fragmentation of the fast-growing tablet market. Consumer demand, combined with the early success of Amazon’s Kindle Fire, likely presages a period of expanding choice as users seek different combinations of size, features, price, software, and services. BCG partner Dominic Field, one of the study’s coauthors, talks about the latest trends in tablets.
How is the tablet market evolving?
Tablets are becoming mass-market devices much faster than we predicted just 18 months ago. Sales are expected to reach some 370 million units in the first five years—the fastest consumer-electronics-device ramp-up ever. Some 30 percent of respondents in our U.S. survey own a tablet or an e-reader—that’s almost double the 16 percent of a year ago—and half of nonowners say that they intend to buy a tablet or an e-reader in the next year. Even if you discount for intention versus actual purchase, these are huge numbers. Ownership rates are lower in other countries, but the pace of increase is even higher—nearly fourfold in the U.K., for example, and the numbers have tripled in both France and Spain.
Growth is only part of the story. Consumers are also driving segmentation of the market away from one-size-fits-all models—such as the iPad—toward different devices for distinct purposes. You’re seeing this play out in the success of Amazon’s Kindle Fire—a $199 tablet optimized for e-reading and supported by a big content ecosystem. It can also do the other things people want—e-mail, Web browsing, and social networking. A number of new models introduced at the recent 2012 International Consumer Electronics Show are priced from $170 to $250.
How can Amazon sell the Kindle Fire for $199 while the cheapest iPad is $499?
Our survey results show that U.S. consumers are willing to pay from $140 to $240 for a multipurpose tablet, an increase of $35 (at the midpoint) since last year. In Europe, willingness to pay has jumped about $100 in the past year and is now generally in the $250 to $350 range. Consumers’ expectations on price may present a challenge for some manufacturers because the cost of manufacturing tablets is high. The Kindle Fire for example, is widely reported to cost Amazon more than $200 per unit to build. Companies have different pricing strategies based on device functionality and whether they can increase sale of content by selling more devices. Amazon is pursing a razor-and-blades strategy with the expectation that Kindle Fire users will generate sales for its ecosystem of content. Apple employs the opposite strategy, using its strong ecosystem to fuel device sales. Other companies will need to compete not just on the device functionality and price but also on the ecosystem of content.
How are tablets and e-readers changing the market for other media devices such as notebooks and PCs?
Tablets are taking—and will continue to attract—share from other devices. Approximately half of consumers are interested in purchasing a tablet rather than a netbook. A third are considering a tablet over a home PC or laptop. Moreover, between one-third and one-half of tablet owners think it likely that their tablets will replace their PCs, laptops, netbooks, and portable media devices. Overall, netbooks and portable media devices such as the iPod will feel the biggest loss, but PCs and notebooks are not immune to the cannibalization taking place.
What do consumers do with their tablets?
More and more, tablets are becoming consumers’ personal windows onto the Internet. More than 90 percent of U.S. owners use their tablets at home in the evenings—and 80 percent say that they use them in bed. Tablets are being used mainly for personal activities such e-mail, Internet surfing, and social networking. Although there is plenty of anecdotal evidence of people taking their tablets to work, several factors—in particular, speed and support for Microsoft Windows applications—appear to be holding back more widespread use for work-related activities. Faster performance was cited by more than two-thirds of all consumers as likely to increase their tablet usage for work. U.S. and Chinese consumers expressed the desire for a tablet running Windows when BCG surveyed them in mid-2011, and two-thirds of all respondents to this—our most recent—survey say that a tablet with Windows capability would likely lead to more work-related usage.
Do you see differences in consumers’ behavior in different markets, for example, between developed and developing countries?
Awareness and ownership are on the rise in all countries as is the intent to purchase. Tablet awareness is lowest in Continental Europe but is catching up. The willingness to pay for tablets is much higher in Europe and China than in the U.S. Optimal price ranges are 50 to 95 percent higher in European countries and 90 percent higher in China—at least among Internet users in major cities—than in the U.S. These differences may be the result of higher iPad pricing internationally and anticipation of the lower-cost Kindle Fire in the U.S. Chinese consumers are the most eager to purchase tablets but the least willing to pay for digital content. Japanese consumers have the lowest interest in tablets—at least for the time being.