Much has quickly been written about the just launched Amazon HTML5 "Cloud Reader." It's a "web app" that could be used to replace the native Kindle iPad and iPhone apps. It's being widely read as a response to Apple's more restrictive App Store terms about in-app purchases/subscriptions. (Amazon has removed the button linking to the Kindle store from the most recent version of its iOS apps.)
I agree with John Gruber and others who believe this has been in the works for longer than Apple's more restrictive terms around in-app purchases. Cloud Reader does, however, completely side-step Apple and its App Store terms. The Financial Times and Walmart's Vudu also recently did something similar. More publishers and developers will follow, who don't want to give money to Apple or simply don't want to worry about Apple's rules.
An added benefit is compatibility with all mobile platforms. However developing native apps is relatively easy these days because, unless/until Windows Phones break out or BlackBerry stops its slide, only two operating systems matter: iOS and Android.
In contrast to some of the rapturous reviews I've seen Cloud Reader is not as strong as the Kindle native app. It works well and allows users to read books offline (e.g., on the iPad). But it's not as responsive or fast the native app.
Yet for certain types of sites or publications HTML5 will be fine and quite usable. However for higher functionality a native app is better, even necessary (e.g., games).
But now that several companies have "validated" the HTML5 strategy will we see the migration from apps to HTML5 that the industry has always anticipated? Not exactly. I think what we'll see is continued development of native iOS, Android (later maybe Windows Phone) apps and HTML5 from everyone else. However Apple doesn't help its cause with all its rules and restrictions.
When I quickly looked at the Strategy Analytics tablets market share data yesterday it struck me as strange. The iPad had 61% of the market and Android 30%. The number seemed way too high for Android.
But as John Gruber points out the data are about shipments, not sales. Even though the word "shipments" is there as plain as day, I didn't focus on it. I just "bleeped" over it.
Many companies, including Samsung and Microsoft, have used shipments to argue market share; for Windows Phones in the case of Microsoft and for the original 7" Galaxy Tab in the case of Samsung. Yet shipments don't equal sales.
Here's the Strategy Analytics breakdown of "shipments market share":
In terms of actual devices sold to consumers and in actual use, it's a very different picture. Almost without exception sales of Android tablets have so far been disappointing. The RIM Playbook has also underperformed. There are a few Windows tablets on the market but none are selling (maybe in Asia).
In June comScore released some data that showed traffic generated by various mobile devices including tablets, for May 2011. According to the data, the iPad was responsible for "89% of tablet traffic across all markets." In the US, however, the figure was 97%.
Even though these figures don't claim to represent device market share, they're likely a more accurate reflection of devcies in the market than shipments. In my travels and interactions with people professionally I don't see any other tablets "in the wild" other than the iPad. I'm one of the few people I know that has an Android tablet. (I also have an iPad2.)
Apple has now sold approximately 34 million iPads globally.
Finally, survey data released a few weeks ago by Bernstein Research found that consumers were far less interested in rival tablets than the iPad.
The "totality of the evidence" thus suggests that actual sales of Android and other non-iPad tablets collectively represent less than 15% of the market and in the US less than 10%.
Tablets aren't taking off as fast as some analysts expected and the iPad is still the only tablet that matters. However Amazon is reportedly preparing a full-frontal assault on the iPad's market dominance. Unconfirmed reports suggest that Amazon has placed orders for up to 1.2 million Android-based tablets for sale in Q3 this year.
Meanwhile Net Applications reported earlier this week that the iPad now represents 1% of all Internet browsing globally; 2% in the US market. The same report shows that iPad-based traffic is orders of magnitude ahead of tablet competitors, which have so far foundered. Net Applications also says the iPad delivers 25% of all mobile Internet browsing and is the third largest source of mobile Internet traffic, after the iPhone with 35.2% and Android with 31.6%.
In June the Pew Internet Project reported that "8% of adults report owning a tablet computer such as an iPad," while 12% said they owned an eReader (e.g., Nook). Between November 2010 and May 2011 eReader ownership doubled and tablets saw growth of only 3% according to the Pew survey.
The difference in sales is most likely due to price, given the relatively lower cost of eReaders vs. Tablets. The ad-supported Kindle is just $114, while the iPad retails for $500. But for the first time Nook has dethroned Amazon's Kindle as the best-selling eReader, according to IDC. The firm also said that tablet shipments were coming in well below its previous lofty forecasts:
For 1Q11, the seasonal trends typically found in more mature consumer electronics and computing categories had a notable impact on the burgeoning media tablet market . . . The eReader market (which IDC counts separately) experienced similar seasonality, undergoing a sequential decline in shipments to 3.3 million units as the post-holiday season proved to be challenging for that category. However, eReaders enjoyed 105% year-over-year growth . . .
Apple's iPad and the recently introduced iPad 2 continue to dominate the media tablet market, as other vendors have had a more difficult time finding market acceptance for their products. But even Apple's shipments for the quarter were well below expectations . . .
The firm pegs Android-based devices at 34% of the overall tablet market. That figure is probably way off, however, and may suggest its other numbers are wrong too. The weight of other evidence points to Android tablets being a much smaller part of the overall pie.
For example, the chart immediately below shows Google's own data reflecting the different Android operating systems in the market and their relative shares. Android 3.0 (and 3.1), which are on the new Android tablets, represents less than 1% of all Android devices in the market.
The original 7" Galaxy Tab runs Android 2.2, which is the most common version of the OS and on almost 60% of all Android devices today. The 7" Galaxy Tab is also the best selling non-iPad tablet.
Apple said in May that it had sold 25 million iPads. If the iPad is 66% of the market (vs. Android's 34% per IDC) that means approximately 13 million Android tablets would have been sold globally. And the overwhelming majority of these would have to be the 7" Galaxy Tab given the chart above (and other data).
In January 2011 Samsung itself announced it had "sold" 2 million 7" Galaxy Tab devices. However these were not actual consumer sales but shipments to retailers. It's very unlikely at this point that the 7" Galaxy Tab has sold even 5 million units to consumers (as opposed to retailers). If anything sales of the 7" Samsung tablet have slowed because of a broader range of Android-based competitors.
Beyond this comScore data argue that Android tablet devices are not a significant source of Internet traffic compared to the iPad. According to comScore, in June, the iPad represented “89 percent of tablet traffic across all markets.” In the US the figure is 97 percent. Those figures suggest that Android tablets are much closer to 10% of the market, if that.
The "totality of evidence" thus argues that the IDC Android sales estimates are way off. In terms of the larger market, however, it's not hard for me to believe that tablet sales are down or, perhaps more accurately, not keeping pace with analysts' previously aggressive estimates. This may have less to do with the actual popularity of tablets than it has to do with analyst firms being too starry eyed about their sales projections.
We'll see what happens when Amazon, with its brand strength and marketing capabilities, introduces its iPad competitor. As I've argued before pricing with be a key driver of success or failure.
Right now Android tablet software and the overall UX remain inferior to the iPad; so until the OS catches up (which may or may not happen) and there are some Android tablet apps, which are still MIA, price will be the key success variable in Amazon's tablet effort.
As a final note, I have previously been an advocate of the 7" tablet as a segment where Android could shine, especially given that Apple doesn't have an entry. And while it's certainly more "mobile" than 10" tablets, I'm now of the view that 7" is not sufficiently larger than a smartphone to warrant buying one.
I spent some time with the HTC Flyer recently. And while I like the device a lot -- much more than the Galaxy Tab -- most smartphone owners are probably not going to buy it. Indeed, if you're going to carry around or own two devices the second one needs to be considerably different than your smartphone. Alternatively if you could use a 7" Android tablet as a phone it might make the devices more attractive. Right now you could use Skype with a carrier data plan but that's not going to be desirable for most people.
My guess is that over time we'll see smartphone screens get somewhat larger (4.5", 5") and all tablets smaller than about 9" will go away, unless they're purchased as mobile gaming devices.
All the iPad competitors thus far have been critiqued on one or more grounds: touch experience not as responsive, software not as good overall and/or not enough tablet-specific apps. Indeed this was the headline on Walt Mossberg's review of the new HP TouchPad: TouchPad Needs More Apps, Reboot To Rival iPad.
Mossberg says the following about the paucity of apps on the new tablet:
But the TouchPad will launch with just 300 tablet-optimized apps and only 6,200 webOS apps overall, most written for phones and only 70% of which can run on the tablet, in a small, phone-size window that can’t be expanded. That compares with 425,000 total apps for the iPad and 200,000 for Android tablets, nearly all of which can run on tablets even if they aren’t optimized for the tablet.
Yet there are now so many apps on the iOS platform that discovery is a massive challenge for users, which several companies are seeking to address. This is also true to a lesser degree with Android.
However, according to analyses by Horace Dediu and Nielsen, the average iPhone/iOS user has downloaded between 48 and 60 apps. This is a relatively modest number of apps, not thousands. Thus I don't believe hundreds of thousands of apps are required to be competitive.
With no survey or other empirical support for this hypothesis, I suspect there is a core group of apps (well under 500) that would satisfy most users if they were present. This includes, among some others, Facebook, Netflix, Pandora, Skype, Twitter, The Weather Channel, NY Times, USAToday, Google, Yelp, Mapquest, Amazon/Kindle, eBay, Groupon/LivingSocial and a host of popular games such as Angry Birds.
If this "core group" were optimized for the tablet in question and that tablet were cheaper than the iPad, I could imagine it doing reasonably well. The problem I see with the TouchPad (which I haven't used) is that it's the same price as the iPad and perceived to be inferior in several ways, including the lack of apps.
All the non-iPad tablets in the market save the 7" Galaxy Tab -- and we've yet to see what Amazon comes up with -- are almost totally derivative of the iPad. They're seem like imitators -- and some are more expensive (e.g., Xoom). Why would someone buy a more expensive "imitation"? And Flash does not a better iPad make.
If they're simply going to mimic the iPad they need to be "good enough" (as Android is to the iPhone) -- and cheaper. They also need to have the right mix of apps. For most people app content and availability is going to be about quality rather than raw quantity.
See related: So what happened to Kindle on the TouchPad?
The tablets keep coming but none of them -- including the RIM Playbook -- have so far seemed to affect the momentum of the iPad or had much of an impact on consumers. As I've said before I now have the Samsung 10.1" tablet (courtesy of Google) and found it lacking compared to the iPad2.
I do think that some of the 7" tablets may do well. And lower-priced 10" tablets may also see some success. But there are many who would now argue that the tablet market is becoming like the MP3 player market of the last decade: all about Apple. While there were lots of MP3 players there was only one visible product and brand: the iPod.
It's still too early to say that the tablet market is already won, but there are signs that despite the best efforts of Motorola, Samsung and RIM, the iPad remains the most desired tablet by a factor of 4X or more. Survey data released on Monday by Bernstein Research found that consumers were far less interested in rival tablets than the iPad.
The same survey found that the 7" tablet form factor wasn't very interesting to consumers either. I'm a bit surprised by this finding and continue to believe Android will see some success with the smaller size. By contrast the 10" tablets feel very derivative of the iPad -- although we haven't yet seen the HP TouchPad in action yet. But it too will probably be shunned by consumers.
As a consequence of rivals' disappointing tablet rollouts, they have scaled back sales estimates and reduced orders for parts. This includes Motorola's much hyped Xoom and the more recently released Playbook. There are at least a dozen companies bringing tablets to market now and later in the year. Most will probably fail because they seem like imitators of the iPad. (At a low enough price point, i.e., 250, clones can succeed.)
I've argued elsewhere that the most competitive Google device vs. the iPad is probably the recently launched Chromebook (from Samsung, Acer). However Amazon, which is poised to bring out full-blown color-screen Android tablets, could prove a formidable competitor to Apple over the long term.
According to a recent report in Taiwan-based DigiTimes:
Amazon is poised to step into tablet PCs and will launch models as soon as August-September, with targeted global sales of four million units for 2011, according to Taiwan-based component makers.
The timing of launch is to meet the peak sales period prior to Thanksgiving in the US and the year-end holidays in the US and Europe, the sources pointed out.
Amazon adopts processors developed by Texas Instruments, with Taiwan-based Wintek to supply touch panels, ILI Technology to supply LCD driver ICs and Quanta Computer responsible for assembly, the sources indicated. Monthly shipments are expected to be 700,000-800,000 units.
One can assume that Android will get better on tablets. Currently Android 3.1 offers an overall inferior user experience to the much more polished iPad software and environment. Improving software, combined with Amazon's Android appstore and the company's brand, distribution and marketing muscle could make Amazon the number two tablet player by early next year.
However success or failure will still largely depend on the quality of the device and how much it costs.
Last week Lauren Freedman's e-Tailing Group put out some interesting consumer data from sponsored research. The February consumer survey sought to assess attitudes toward shopping on smartphones and tablets. Respondents were screened on the basis of whether they owned one or both of those devices and spent at least $250 annually online:
Unfortunately the survey sample size wasn't revealed in the report.
There are two sets of findings, one that pertains to shopping experiences with smartphones and one that focuses on tablet-based shopping. I've copied a few graphics from the report (arrows are mine).
The first graph below explores what information people seek out on their smartphones before a store visit.
A significant minority of respondents, despite being comfortable with ecommerce, did not do any "shopping" or buying on their smartphones. Top reasons cited were "awkward shopping experience," "concerns over [security]," slow connection, and overall poor user experience.
Perhaps not surprisingly respondents rated the shopping experience on tablets, with their larger screens, quite a bit better:
These findings reinforce that smartphones and increasingly tablets are being used for product research within and without the retail store -- but much less for actual purchasing. Though the location of tablet use wasn't explored in this survey, the vast majority of tablet activity is at home currently.
While smartphone and tablet usage are complementary, tablet ownership generally results in diminished PC usage.
An article this weekend in the NY Times brings out some interesting data about the different composition of the eReader and Tablet audiences and magazine sales on the two devices. In short, men dominate tablets while women outnumber men among eReader owners -- especially Nook owners. Citing Forrester survey data the article says:
Late last year (pre holiday 2010) Nielsen found that 65% of iPad owners were male.
Women also buy more books than men do, by 3 to 1, according to research firm Bowker. And, apparently, magazine sales on the Nook are stronger than the iPad, in some cases much stronger:
The Nook Color has surprised publishers of women’s magazines like O, The Oprah Magazine, Cosmopolitan and Women’s Health by igniting strong sales that rival — and in some cases surpass — sales on the iPad . . .
Nook Color subscriptions are outselling the magazines Meredith publishes on the iPad, where only single-issue sales are available, by about 2 to 1. Hearst, which publishes O and Cosmopolitan, is selling tens of thousands of subscriptions on the device each month. Rodale Inc., which publishes Women’s Health, Runner’s World and Prevention on the Nook Color, is selling about five times as many subscriptions through Barnes & Noble as it is selling single issues on the iPad.
One of the cited factors behind the greater magazine sales on Nook is that publishers have a better and stronger relationship with Barnes & Noble (creator of the Nook) than they do with Apple.
According to recently Nielsen data only 5% of Americans own tablets, while 9% own eReaders.
As an aside, the chart above indicates continued growth in the netbook category which was thought to be dead because of tablets.
As a final note, AdAge published related data on connected device ownership among "affluents" ($100K+ income):
Source: Ipsos Mendelsohn (via AdAge)
The Ipsos Mendelsohn data above show 1.5X-3X higher penetration levels than the general population for all connected devices.
Non-iPad tablets are starting to proliferate and some of them are getting positive reviews. For example, ZDNet's Matthew Miller has given the new HTC Flyer 7" Android tablet a very positive review. It features the HTC Sense UI and some other proprietary software tweaks. However its main differentiator is a stylus/pen (sold separately) that works with the tablet.
This is unique in the market and could be a nice feature for artists and those who want to draw on the device -- or students making notes while reading or in classs.
Android Central gives the new Samsung Android 10.1" tablet a very positive review as well. However I find the 10.1 size, which favors the portrait angle, awkward. With a smaller form factor I would be more enthusiastic. Beyond this, however the software experience simply doesn't stand up to the iPad. My biggest pet peeve is that all websites are read as mobile, which doesn't take advantage of the larger form factor. In addition almost none of the Android apps have been optimized for tablets at this point.
If I'd never used an iPad the Samsung device would be impressive in many respects. However one must get used to the navigation, among other things, on the Honeycomb device. I've said this many times in the past but I think the winning Android tablets will be 7" especially given no Apple entry in that smaller category.
The RIM Playbook is 7" and appeared to be selling well according to some preliminary reports. However a new report suggests that the device is actually not selling very well and experiencing a high return rate. We'll have to wait until the next RIM earnings report to learn the truth. The Playbook is supposed to be able to run Android apps, which was a shrewd and critical decision by RIM. Otherwise it would be DOA. Even so, it may not survive.
The first Android "flagship" tablet, the 10" Motorola Xoom, is effectively a flop. And HP/Palm is making lots of boasts and claims about its forthcoming TouchPad (which will be priced at $499 and $599). However the 9.7" device also likely to fail if it tries to go head to head with the iPad.
Putting aside eReaders, by this time next year there will probably be three categories of tablets: 10", 7" and a smaller category that will include everything else: iPod Touch, Galaxy Player, Dell Streak, etc. Almost all non-iPad tablets (unless they're very inexpensive) will fail at the 10" level.
However there will be several viable mostly Android competitors at the 7" level, chiefly because Apple isn't present. Apple has said it's not ceding any segment but it's unclear if/when an "iPad Nano" will show up. This creates an opportunity for Android tablet competitors to control this 7" segment. Pricing is a big issue, however. Most of the "quality" 7" tablets remain too expensive (without a carrier subsidy) to drive mass adoption at this time. Most people don't want to buy another data plan as well. Amazon may change that; we'll see.
Below is data from Nielsen comparing how various connected devices are used. Smartphones are used relatively evenly throughout the day and in various locations; however tablets are used heavily during TV watching and in bed. By contrast eReaders are used most heavily in bed.
Those who would argue that tablets are a "fad" are simply mistaken. Ultimately 30% to 50% of PC usage will shift to smartphones and tablets in my opinion.
Handset maker Ericsson conducts research on consumer behavior and attitudes all over the globe with thousands of consumers. Not long ago it released findings from some early 2011 research about smartphones and tablets with a specifically US audience.
There are no dramatic findings or true surprises but each piece of research contributes to a more nuanced picture of the market and consumer behavior. The data reflect self-reported usage patterns with an emphasis on time of day. Here are two of the charts that show usage of smartphones throughout the day:
The following chart reflects the comparative "daypart" usage of the mobile Internet and GPS apps (probably maps in particular):
In terms of tablets, Ericsson found that demand was higher than for most other electronics and devices.
Finally the data show that tablet usage patterns parallel those of smartphones, rather than PCs, although tablets are "cannibalizing" PC usage to a degree. Other studies and data reflect different usage patterns for tablets, however.
In the non-iPad tablet category we now have RIM's Playbook, the forthcoming WebOS tablets, the Samsung Galaxy Tab(s) and a wide range of other Android-based tablets that are less well-known. Amazon is set to release multiple devices based on Android, according to a "stay tuned" remark made by Jeff Bezos in a Consumer Reports interview:
Asked today about the possibility of Amazon launching a multipurpose tablet device, the company's president and CEO Jeff Bezos said to “stay tuned” on the company’s plans. In an interview at Consumer Reports' offices, Bezos also signaled that any such device, should it come, is more likely to supplement than to supplant the Kindle, which he calls Amazon’s “purpose-built e-reading device.”
While Amazon could certainly build a terrific device (or devices plural) the truth is that, among the alternative tablets out right now, none rise above the level of iPad "wannabe" or imitator -- save the 7-inch devices. And that's all about the hardware not the UX, which also falls short. That's the inescapable conclusion of my informal experiences with each of them.
Somewhat paradoxically Google has made Honeycomb quite different than iOS. I would imagine this is partly a function of "organic" decisions about how Android should work on a tablet and partly a self-conscious effort to differentiate from iOS. But it makes using the new wave of Android tablets like learning a new language in a way; it's not very intuitive.
Generously Google gave away the forthcoming Samsung 10.1-inch Galaxy Tab to attendees of its developer event, Google I/O, which was held in San Francisco last week. I was there and excited to receive one and try it. I've since been attempting to use it regularly during my recent travels. I also have an iPad 2 with me, which often seduces me away from the Samsung tablet.
This isn't a review so I won't go into a lengthy discussion of features or compare the devices in detail. While the Samsung 10-inch "Tab" is quite thin and nice in many respects the overall user experience is weak compared to the iPad 2. Android tablets will become more competitive over time but currently they're not. However the 7-inch hardware makes for a differentiated form factor. (I also quite like the 5-inch Galaxy Player.)
As I've argued in the past, the smaller 7-inch devices are compelling because they're more portable than the 10-inch iPad or Android devices of comparable size. The 10.1-inch Samsung is long and wide (pictured above, right), making it perhaps good for watching wide-screen movies but otherwise "out of proportion" for viewing websites and many other uses.
Some proof of what I'm saying comes in the form of fairly strong 7-inch Galaxy Tab sales. That device, not yet equipped with Honeycomb, offers a large-screen version of the UX found on Gingerbread Android handsets. But people are buying it because they can take it with them in a way that they cannot with the iPad.
The iPad currently dominates the tablet market and because of its size most people use it at home:
But the smaller form factor, with potentially more aggressive pricing, is a perfect place where Android can play and establish a "beachhead." People will consider these smaller tablets because of their portability and right now Apple has no offering to compete with them and may not for the foreseeable future. We may see a larger iPod Touch come along at some point or a smaller iPad. But that's pure speculation at the moment.
Going directly after the iPad right now with comparably sized devices is fruitless because the overall Android tablet UX, though improved, is still not strong enough.
UK-based Taptu started as a search engine for mobile websites and has wisely evolved into a news reader-aggregator like Flipboard and Zite. Its tagline is "DJ the news."
Taptu offers iPhone and iPad apps. There's also an Android phone app and, as of yesterday, an app for Android tablets. The company says that it built the new Android tablet version "from scratch rather than just porting an iOS version to Android."
It has a number of features that the iPad version does not have. For example:
Using the Instapaper API, Taptu gives users the ability to archive articles to read later via their Instapaper accounts. With the new Taptu themes, users can also switch between dark font on a white background, or white font on a dark background—allowing customers a better option for reading during the day or at night. Taptu 1.4 also takes advantage of the larger tablet screens with the ability to full screen article cards.
Here's a screen from the Android app:
The iPad universe is already crowded with news readers -- Flipboard, Zite, Pulse, Apollo -- and there are still more on the way (Google, AOL, Yahoo). Taptu hopes that by being one of the first news readers on Android it can get out in front of competition as the Android tablet market grows.
The only problem with that logic is that right now is that Android tablets aren't really selling. According to a recent US-based tablet-owners survey by Nielsen 82% of tablets in market are Apple iPads.
Google has continued to maintain that smartphone usage is entirely complementary to PC usage and is not cannibalizing it. However studies by Google and now Nielsen are showing something different when it comes to tablets -- they're being substituted for PCs in a variety of cases.
Nielsen conducted a Q1 survey of tablet owners and found the following:
Here's a breakdown of the the impact of tablet ownership on usage of other devices:
Here's data from Google also showing reduced PC usage after buying a tablet:
Source: Google/AdMob, March, 2011 (n=1,403)
Barnes & Noble's Nook eReader is becoming a more tablet-like device with an update to Froyo, better web browsing, email and third party apps. The 7" eReader is already a success but it could become one of the most successful Android tablets because of one particular feature -- it's $249 price tag.
General consumer audiences will be reluctant to spend $499, the entry level iPad price, on smaller (and otherwise inferior) tablets. The 7" Playbook, for example, starts at $499 and the Motorola Xoom was a flop in part because of its higher entry level price tag.
However the $249 price tag for Nook is incredibly attractive. And as Nook becomes a more full-fledged tablet more people will buy one. The Nook will continue to represent itself as an "eReader" and not a tablet; it's an eReader with other features that just happen to include web (w/Flash), email and apps.
Many people have speculated about Amazon eventually offering a full-blown Android tablet. Bet on it. This only makes it more likely.
Amazon will need to respond to the Nook's challenge on the eReader front and so the next-gen Kindle will probably have to offer color, apps and a better overall web experience. But to really "hit it out of the park" -- unless Amazon is going to directly compete with computer OEMs at the high-end, which I doubt -- the Amazon tablet will need to be smaller than 9" and cost less than $300 (say $299).
The long-term threat to the iPad, just like the iPhone, comes from an army of cheap, "good enough" devices featuring Android. Two of those could come from Amazon and Barnes & Noble.
I was in a conference session yesterday when Apple's fiscal Q2 results came out. They've been widely covered but they're worth repeating:
Verizon said this morning that it activated 2.2 million iPhones during Q1.
By almost all measures this was a dramatic quarter for Apple. The mystery is the iPad, which "underperformed" (almost 5 million sold for $2.8 billion in revenue) in the context of the perhaps overheated expectations associated with the product.
Here are some iPad and Android-related comments from the earnings call. Regarding Android RBC analyst Mike Abramsky poses the question: isn't Android like Windows PCs and the iPhone like Mac?
Apple CFO Peter Oppenheimer:
We sold 4.7 million iPads during the March quarter, launching iPad 2 in U.S. on March 11 and in 25 additional countries on March 25. Customer enthusiasm has been tremendous for iPad 2 and we're working hard to get it into the hands of customers as quickly as possible.
Including both the original iPad and iPad 2, we had distribution in 59 countries by the end of the March quarter. Given the very strong customer demand and despite the increased geographic distribution, iPod (sic) [iPad] channel inventory declined by 400,000 from the beginning of the quarter, implying sell-through of about 5.1 million. This resulted in ending channel inventory of below 850,000, which was below our target range of 4 to 6 weeks. We sold every iPad 2 that we could make during the quarter and would have liked to end the quarter with more channel inventory. Recognized revenue from sales of iPad and iPad accessories during the quarter was $2.8 billion.
Employee demand for iPad in the corporate environment remains strong and CIOs continue to embrace iPad in an unprecedented rate. In just over a year since its debut, 75% of the Fortune 500 are testing or deploying iPad within their enterprises . . .
We're extremely pleased with customers' response to iPad 2 and are working hard to get it into the hands of customers as fast as we can.
Most financial analyst questions were directed at trying to figure out why Apple sold fewer iPads than they had forecasted. COO Tim Cook said that the company was backlogged with orders and it was trying to meet demand as fast as it could. Japan was not a factor.
Mike Abramsky - RBC Capital Markets, LLC:
It may not be a perfect analogy but just wondering with the rise of Android, what might be some of the similarities and differences you see versus the rise of Windows PCs in the 1990s versus Mac? And I'm just wondering if you think in the U.S., particularly Android, could become a possible headwind to your U.S. smartphone business, and how do you maintain such incredible growth in the space of that shift?
Apple COO Tim Cook:
On a worldwide basis, we just did 18.6 million iPhones, which is up 113%, which is materially faster than the market rate of growth. And we launched the iPad 2 and sold everyone of them that we could make. As we've said before, we're gaining traction in Enterprise on both the iPhone and iPad with astonishing 88% and 75%, respectively, of the Fortune 500 companies deploying or testing these. We've got the largest App Store with over 350,000 apps for iPhone and over 65,000 iPad-specific apps on iOS versus what appears to be fewer than 100 on Android. And so we feel very, very good about where we are and we feel great about our future product plan. We've also paid over $2 billion to developers, and we've had well over 10 billion applications downloaded. And so our business proposition is very, very strong.
As we've said before, we continue to believe and even more and more everyday that iPhone's integrated approach is materially better than Android's fragmented approach, where you have multiple OSs on multiple devices with different screen resolutions and multiple app stores with different roles, payment methods and update strategies. I think the user appreciates that Apple can take full responsibility for their experience, whereas the fragmented approach turns the customer into a systems integrator and few customers that I know want to be a systems integrator.
Cook's answer doesn't really address Abramsky's analogy. To many observers it does appear that Android will dominate the market vs. the iPhone just as Windows did vs. the Mac in the 1990s. However the iPad and iPod touch are two devices that extend Apple's reach and defy the analogy to a degree.
There has yet to be a really compelling Android tablet to challenge the iPad -- though eventually one or more will probably emerge. It will probably be smaller than 10" (probably 7" - 8"), "good enough" and priced at less than $400 (w/o carrier subsidy).
As you've read I'm sure the iPad2 is now on sale at US toy retailer Toys R Us. Whether or not this distribution moves large amounts of inventory is an open question but it certainly positions the device as a costly birthday or holiday gift for teens and tweens. The New Jersey retailer operates 866 Toys“R”Us and Babies“R”Us stores in the United States and almost as many stores outside the US.
On Wednesday this week we'll get to hear officially how many iPad2 devices were sold to date. The number has been the subject of considerable speculation.
The original iPad sold roughly 3 million units in 90 days at an accelarating pace. Demand for iPad2 is greater than the original according to various surveys published. Apple may have sold as many as 7 million (or more) iPads in its recent fiscal quarter. Meanwhile the news is very mixed for non-iPad alternative tablets.
The RIM Playbook, which was the subject of very mixed reviews last week, is now being called DOA by some. Though the smaller form factor (7") is smart vs. the iPad the price is pegged to the larger device: $499. That price for a smaller package plus the negative reviews will probably doom the Playbook in the consumer market -- unless substantial improvements are made quickly.
In addition, Android tablet makers are repricing their devices to try and undercut the entry level WiFi iPad:
A ViewSonic GTablet, originally priced at $499, is now available on Amazon.com for $279.99. Acer's Iconia A500 Tab is priced starting at $449 and will ship later this month. The starting price for Asus' upcoming Eee Pad Transformer was listed at $399.99 on Best Buy's website, but the page has now been removed.
However the falling prices of Android tablets may attract some buyers, according to a recent consumer survey by Compete. As an abstract matter, the survey found that 65% of smartphone owners wanted to pay $400 or less for a tablet and feature phone owners were even more price sensitive.
The Compete survey also found resistance to additional fees for connectivity from wireless carriers. Just over 80% of smartphone owners said they wanted to pay $25 or less per month for on-the-go internet access. And most of them wanted to pay considerably less; the largest single group said it would pay "nothing" and only use the WiFi version.
While Android tablets are not yet competitive from a UI/UX standpoint with the iPad, aggressive early pricing to win attention and consumer purchases may consign Android tablet OEMs to low margins over the long term because they'll condition users to expect inexpensive tablets.
It will be next-to-impossible for them to raise prices over the long term.
While there are dozens of forecasts out there, most of them with aggressive predictions of growth, no one knows really how big the tablet market will be. Much of that will depend on pricing. Regardless, tablets are not a fad and there's considerable evidence that they're starting to impact PC usage for their owners. (Smartphone usage still generally seems to be "additive" to PC usage.)
The latest tablet usage data to come out is from AdMob (Google), based on a March 2011 survey (n=1,430) in the US market. Google doesn't break it out by device, but respondents were probably more than 90% iPad owners.
According to the findings, "77% of respondents reported that their desktop/laptop usage decreased after getting a tablet" and 28% now call their tablet their "primary computer." In a related finding "43% of respondents spend more time with their tablet than with their desktop/laptop."
A majority (68%) of users spend at least an hour a day with their tablets, while most tablet usage is at home, at night, during the week. In terms of activities, here's what the survey revealed about most and least popular:
The 7" Samsung Galaxy Tab is the best-selling non-iPad tablet to date and it's basically a flop. Samsung inflated sales numbers and then had to recant when confronted by press. Apparently Motorola's much-hyped, full-sized Xoom is flopping too. One estimate argues that the tablet has sold only 100,000 units so far.
Samsung is due out with a next-gen 7" and 8.9" set of tablets. However their release dates are uncertain (later this year).
Meanwhile the 7" HTC Flyer, which will be available from Sprint (as the EVO View), is coming out in the next couple months. It will feature Honeycomb (rather than Gingerbread like the Tab) and uniquely has a pen/stylus that allows users to annotate screen captures. The pen feature is both interesting and awkward. I've only seen demos but not used it myself.
Apple has said it's not ceding any product category to competitors. But the 7" (or smaller than 10") tablet segment is where Apple has no product (though rumors persist) and where Android's tablet-related deficiencies are less obvious and compensated for by the more "mobile" nature of the form factor.
I predict the Flyer/View will be a success. However much depends on pricing.
Consumers generally don't want to buy additional data plans from carriers for their tablets, but non-subsidized pricing makes these smaller devices more expensive than the WiFi iPad. The right "unlocked" price for the 7" device is $299. But that's likely to be the two-year contract price -- unfortunately.
Investment firm Macquarie captured a bunch of mobile data presented, in part by Google, during and an AMA sponsored webinar on the mobile paid
search market. Most of this has been released or mentioned before but it's a nice collection of stats pertaining to mobile search and the mobile market in general:
The Wall Street Journal is reporting that Google has joined forces with MasterCard and Citigroup (in addition to POS provider VeriFone) on NFC and mobile payments. This follows up on a Bloomberg story last week about Google and VeriFone launching a limited test of NFC-enabled payments in which Google was paying for the installation of new POS hardware at selected stores:
The company will pay for installation of thousands of special cash-register systems from VeriFone Systems Inc. (PAY) at merchant locations, said one of the people, who requested anonymity because Google’s plans haven’t been made public. The registers would accept payments from mobile phones equipped with so-called near-field-communication technology.
According to the WSJ story, the Google effort is about much more than developing mobile wallets. It's equally about consumer analytics and ad targeting:
The Internet giant is aiming to make mobile payments easier in a bid to boost its advertising business. The planned payment system would allow Google to offer retailers more data about their customers and help them target ads and discount offers to mobile-device users near their stores, these people said. Google isn't expected to get a cut of the transaction fees.
The project, which is in its early stages, would allow holders of Citigroup-issued debit and credit cards to pay for purchases by activating a mobile-payment application developed for one current model and many coming models of Android phones. The idea is to turn the phones into a kind of electronic wallet.
These phone users also would be able to get targeted ads or discount offers, which Google hopes to sell to local merchants. They also could manage credit-card accounts and track spending through an application on their smartphone, the people said.
While advertising or couponing based on consumer purchase history is nothing new in the "offline" world, this "closed loop" capability would raise major privacy concerns simply because Google is involved.
The WSJ cites a Federal Reserve report (citing third party data) that estimates an existing infrastructure of 70 million "contactless devices" (cards) and 150,000 readers in the US. The WSJ report also says that Wal-Mart confirmed that it had discussions with Google about NFC payments but didn't say anything beyond that.
There's lots of jockeying for position right now among carriers, credit card issuers and to a lesser degree hardware makers as everyone tries to line up to get a piece of what is expected to be a very substantial mobile payments market.
More stories about mobile payments:
The huge error that the Motorola Xoom made at launch was its $799 price tag. RIM is coming out on April 19 at $499, which matches the iPad 2's entry level WiFI price.
What's not apparent to most non-tech-insiders is that RIM's Playbook is 7". In one way of looking at it the Playbook is more expensive than the iPad. No doubt, if the 7" version succeeds a 10" version will appear later.
Psychologically the $499 entry level price point is critical for iPad competitors, in the same way that smartphones priced above $199 (w/contract) are essentially DOA. Consumers will now be willing to consider the Playbook at $499 and then will discover it's smaller.
Somewhat paradoxically, though it makes the device more expensive in some respects, the 7" size gives the Playbook a fighting chance vs. the iPad because it's more portable. A 10" competitor from RIM out of the gate would likely fail in the same way that Xoom is failing to build momentum.
Many enterprises will probably give the Playbook serious consideration and the smaller form factor will be appealing to many consumers as well. The Galaxy Tab sold on the strength of its smaller size -- not the UI/UX, which was crappy.
Like a Hollywood movie the Playbook will get a wide release on April 19, going on sale at more than 20,000 stores in the U.S. and Canada. Among them are BestBuy, RadioShack and Staples, in addition to carrier stores.
Battery life has been a rumored issue for the Playbook. But given the strength of RIM's brand and its price point, I would imagine the Playbook will be a modest hit when it comes out.