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Tablet Owners: Who They Are And Where The Next Wave of Growth Will Come From

Tablet Owners: Who They Are And Where The Next Wave of Growth Will Come From

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    Tablet owners who they are Tablet owners who they are Document Transcript

    • Tablet Owners: Who TheyAre And Where The NextWave Of Growth WillCome FromAlex Cocotas | December 27, 2012
    • 2 Copyright © 2012, Business Insider, Inc. All rights reserved.Tablet Owners: Who They Are AndWhere The Next Wave Of GrowthWill Come FromAlex Cocotas | December 27, 2012Tablets are the fastest ramping computing device in history.Shipments have grown from a relatively paltry 17 million shipments in2010, to 65 million shipments in 2011, and are on pace to hit 122 millionin 2012.However, despite that breathtaking pace, ownership remainsconcentrated in a few markets and— within those markets— consolidatedin a few demographics.Within the U.S. market, tablet ownership skews heavily towards high-income households. Surprisingly, however, tablets owners are relativelyolder, which is a significant divergence from how smartphone growthplayed out.In this report, we will revisit our tablet forecast and update ourprojections where necessary, examine who is currently using tablets, andtake a look at where the next wave of users may come from. Tablet shipments will reach 122 million this year. We forecast 442million shipped by 2016. Our estimate is considerably higher than that ofother services, but we believe many projections underestimate the boostfrom mini-tablet launches and emerging market growth. In a similar vein, we believe the current estimates of 13 million tabletsactive in China undercount the many pirated and low-cost devicesmanufactured by local companies.
    • 3 Copyright © 2012, Business Insider, Inc. All rights reserved. Unlike smartphone penetration, tablet ownership has skewed towardolder users. In the United States, the top age demographic for tabletpenetration is 30 to 49-year-olds. There are nearly as many 55 to 64-year-old U.S. tablet owners as 18 to 24-year-olds with tablets. However, the tablet market will be constrained by the fact that largecompanies and educational institutions are not likely to adopt tablets ona massive scale. Its far from clear that attempts to market tablets asproductivity tools will gain traction.Click here to download all the charts and data associated with this reportin Excel→Tablet Shipments Will Top 120 Million This YearWe have slightly altered our tablet shipments forecast for this reportWe have revised down our forecast for tablet shipments this year to 122million based on historical trends. This implies fourth quarter shipments
    • 4 Copyright © 2012, Business Insider, Inc. All rights reserved.of 56 million, a 90 percent increase over the same quarter a year prior,and almost double the previous record for quarterly tablet shipments.While this forecast may seem aggressive, there are a couple ofconsiderations that support it.First, shipments through the first three quarters are already up 89percent.Additionally, the tablet market historically sees a disproportionateamount of its sales in the fourth quarter. In 2010, the fourth quarteraccounted for 55 percent of annual sales (the iPad was introduced in thesecond quarter of that year). In 2011, the fourth quarter accounted for 44percent of total sales and saw a 111 percent increase in sales compared tothe same period a year prior.Two factors explain the historically high proportion of tablets sold in thefourth quarter. First, tablets make great gifts. But more significantly,tablets have a unique distribution model.There is no natural push, as there is with a smartphone at the end of atwo-year wireless contract, to trigger tablet purchases. Although carriersdo offer data plans and contracts for tablets, with a subsidy on thetablets sticker price, it is not necessary to go to a carrier to activate aniPad. Given that most tablet use is in the home, it is not even advisable toget a contract— tablet owners can turn on a wireless data plan for amonth at a time through carriers (if they are traveling, for example).Regardless, the point is tablets dont have a natural life-cycle built intothe product like smartphones because most users are not on a contract.Thus, holidays and the fourth quarter tend to play a disproportionaterole in tablet penetration. Not coincidentally, we saw a slew of new tabletreleases this September so manufacturers could have their latest andgreatest on the market in time for the holidays.In developing markets, however, this paradigm will not hold. To beginwith, China and India do not have heavily commercial traditional
    • 5 Copyright © 2012, Business Insider, Inc. All rights reserved.holidays in the fourth quarter. But also, as we discuss in our report onthe BRICs, carriers play a vital part in the mobile ecosystem. Becausecredit card penetration is low, carriers usually handle billing forcustomers, not just voice and data, but mobile app payments as well.Since Internet connections, Wi-Fi and otherwise, are not as ubiquitous inthe developing world, carriers are going to play a crucial role incultivating tablet distribution and penetration.Finally, falling prices, accelerated by the influx of mini-tablets such asthe Nexus 7 and the iPad Mini, are going to give the market a naturalsales lift. Not only will mini-tablets accelerate the decline in tabletsaverage selling price (ASP), but, according to McKinsey, will account for60 percent of cumulative sales through 2016.We are still forecasting that tablet shipments will reach 442 million by2016. Our estimates are above those of other research services. Webelieve that extant estimates underestimate developing world demandand the supercharging effect of low-cost mini-tablets.
    • 6 Copyright © 2012, Business Insider, Inc. All rights reserved.Ownership Is Heavily Concentrated In DevelopedMarketsTablet owners are primarily western and wealthy. But, as happened withsmartphones, the market will soon open up.According to Morgan Stanley, the U.S. is by far the largest tablet market,followed by Asia-Pacific (excluding Japan), Western Europe, and asmattering in the rest of the world.According to Pew, 25 percent of Americans over the age of 18 owned atablet in November 2012. Using data from the 2010 census, thistranslates to roughly 59 million American tablet owners. Thats half thenumber of American smartphone owners, which numbered 121 million inOctober, according to comScore.(Forrester puts tablet penetration lower at 19 percent penetration, or 44million adult Americans with tablets.)
    • 7 Copyright © 2012, Business Insider, Inc. All rights reserved.Lets assume there are approximately 60 million U.S. tablet owners.Since the introduction of the iPad, there have been approximately 150million tablets shipped worldwide. That means the United Statesaccounts for at least 40 percent of global tablet ownership.According to comScore, 16 percent of smartphone owners Europes fivelargest markets—France, Germany, Italy, Spain, and the U.K.— own atablet. That translates to roughly 20 million consumers.Beyond the U.S. and Europe, tablets are thinner on the ground.If we make the conservative assumption that Asia and Europe each haveabout 30 million tablet owners, that leaves only 30 million tablet ownersin the rest of the world— and thats assuming all tablets shipped to dateare still in circulation.In any case, this means that tablets have barely broken through in thedeveloping world, which is very possible. Alternately, it could be thattablets are undercounted in these countries, especially devices shippedby local manufacturers.
    • 8 Copyright © 2012, Business Insider, Inc. All rights reserved.There is some evidence that both these conclusions are true.In China, approximately 13 million tablets have been sold since thebeginning of 2011, according to data we compiled from AnalysysInternational, iSuppli, and IDC.In a country of 1.3 billion, thats a drop in the bucket.However, we have heard from sources that Chinese consumers arealready tablet crazy, but many of the models and makes they are buyingare from local manufacturers, or pirated, and fly under the radar of datacompilers.Regardless, theres still enormous room for growth. Consider thesmartphone market, where China accounted for 28 percent of globalshipments last quarter (almost 50 million units in the third quarteralone).Tablet ownership may be heavily concentrated in the developed world atpresent, but this state of affairs may not last for long.Owners Are Wealthy, But Not Necessarily YoungThe adoption curve for tablets is similar to smartphones, but not quitethe same.Like most new technologies, initial owners tend to be wealthy.In the U.S., tablet penetration is substantially higher in households withincome over $75,000, according to Pew. Forty-seven percent of thesehigh-earning households own tablets.Using U.S. Census data, approximately 32 percent of U.S. householdshave an income over that threshold in 2011.
    • 9 Copyright © 2012, Business Insider, Inc. All rights reserved.Penetration has lagged in less wealthy households, especially those withincomes under $30,000, which account for about 30 percent ofAmerican households. Only 10 percent of households in this incomerange own tablets.comScore found a similar concentration by income in April: 56 percentof tablet owners had a household income over $75,000.While U.S. smartphone penetration also favors the moneyed, it skewsheavily young as well (a pattern that seems to hold in the rest of theworld too).With tablets, this does not seem to be the case. Pew found that tabletpenetration was highest among Americans aged 30 to 49. Thirty-onepercent of Americans in their thirties and forties owned tablets, as did 27percent of 50 to 64-year-olds. The penetration rate was lower, at 25percent, for consumers aged 18 to 29.
    • 10 Copyright © 2012, Business Insider, Inc. All rights reserved.This is corroborated by comScores findings in April that three separateage ranges— 25 to 34-year-olds, 35 to 44-year-olds, and 45 to 54-year-olds— each had more tablets than the 18 to 24-year-old set.In fact, comScore found that there are nearly as many 55 to 64-year-oldtablet owners as there are tablet owners aged 18 to 24.There are two possible factors driving older consumers to buy tablets.First, tablets are not as vital to 18 to 24-year-olds with minimaldiscretionary income. For all their other cool features, smartphones canstill make calls and text. Additionally, college students need a laptop;they dont necessarily need a tablet.Second, because tablets are not essentially different from smartphones,older Americans who already own a smartphone were alreadycomfortable with the technology. Not to mention they are more likely to
    • 11 Copyright © 2012, Business Insider, Inc. All rights reserved.have the means to purchase a tablet especially since iPads— still themarket-leading tablet line— are fairly expensive devices.The Next Buyers: Down The Income Scale AndMass DeploymentsWhile tablet ownership is mostly confined to wealthier, older consumersin the developed world, the market will soon open up down the incomescale. Tablet ownership will also grow in emerging markets, driven by theprice disruption of mini-tablets.This pattern follows the smartphone playbook: start in wealthycountries, penetrate the most attractive market segments. After a time, ahuge price disruption occurs, and penetration subsequently spreads toadjacent demographics and emerging markets, where the process repeatsitself.
    • 12 Copyright © 2012, Business Insider, Inc. All rights reserved.In the case of smartphones, the price disruption was Android and itsdiversity of product offerings. For tablets, it is the mini-tablet.Apples release of the iPad Mini is a tacit acknowledgment of where themarket is heading. The average sales price of iPads was already fallingbefore the release of the Mini, which will only further accelerate the fall.The iPad Mini, starting at $329, will accelerate adoption inunderpenetrated segments of developed markets.In emerging markets, however, a $300 tablet is still out of reach for amajority of consumers.As we discussed in our report on mobile in the BRIC countries, the sweetspot for handsets in China and India are approximately $170 and $100,
    • 13 Copyright © 2012, Business Insider, Inc. All rights reserved.respectively. These numbers can also be taken as proxies for tabletsthreshold price in these markets.With the cheapest Kindle Fire now $159, major manufacturers havecrossed into that territory. However, it will most likely be localmanufacturers that step in to meet market demand. As we discuss in theBRIC report, there is already a boom in China for low-cost, 7-inchAndroid tablets from manufacturers like Onda, HKC, and Lenovo.However, because of tablets unique distribution model and the lack ofubiquitous fixed Internet connections, lower prices alone wont cut it.Manufacturers will need to team up with carriers as marketing partnersto increase tablet dissemination in the developing world.There is one noticeable divergence between smartphone and tabletadoption: No single natural agent or vector exists for mass tabletdeployments.
    • 14 Copyright © 2012, Business Insider, Inc. All rights reserved.In smartphones, for example, the enterprise provided a huge boost tosmartphone sales and adoption as handsets became ubiquitous in thecorporate world.Tablets are and will be deployed in the enterprise and education, but itsnot clear it will be on quite that level.A Morgan Stanley survey of CIOs in April found that 65 percent werepurchasing tablets for their employees.Still, these are selective deployments and its difficult to imagine a futurewhere tablets cannibalize desktop PCs for many thousands of employeesat large companies.McKinsey believes that the enterprise and education will drive 4 percentand 3 percent, respectively, of expected tablet growth through 2016.While Microsoft and other tablet manufacturers may be betting ontablets as productivity tools, and not just consumption devices, its farfrom clear that tablets will successfully make the transition from leisureto work uses.THE BOTTOM LINE Tablet ownership is really confined to a few markets, with the U.S. aloneaccounting for as much as 40 percent of global ownership. Owners tend to be wealthy and— in a departure from smartphoneadoption— a bit older. There is going to be a huge demographic shift in ownership as the marketexpands, from less-wealthy consumers in established markets to newmarkets in the developing world. This shift is going to be driven by mini-tablets, which are accelerating thedecline in tablet prices and making them financially attainable for newmarket segments. Mass deployments will also play a role in driving future tablet growth,but probably not to the same extent as smartphones.
    • 15 Copyright © 2012, Business Insider, Inc. All rights reserved.About BI IntelligenceBI Intelligence is a new subscription research service from Business Insider thatprovides in-depth insight, data, and analysis of the mobile industry. We publish notesand in-depth reports about the business of the mobile industry as well as anexhaustive library of charts and data that will help you stay on top of the key trends inthe mobile ecosystem. We help our subscribers make smarter strategy decisions.To learn more or to sign up for a free trial of the service, please visitintelligence.businessinsider.com.AnalystsBI Intelligence has an experienced team of analysts led by Henry Blodget, CEO &Editor-in-Chief of Business Insider. BI Intelligence’s team of dedicated analysts havedeep analytical and industry experience, and work with the Business Insider’s 50+journalists covering specific verticals, such as technology, advertising, and strategy, toproduce unique insight and analysis on the mobile ecosystem.Copyright © 2012 Business Insider, Inc. All Rights Reserved.Proprietary and Confidential Property of Business Insider, Inc.Licensed for Use By BI Intelligence Subscribers Only.Access to and use of this proprietary and confidential information is limited by theterms of conditions.