A Deep Dive Into The Morgan Stanley Holiday Quarter Survey

On December 16, 2012, Morgan Stanley issued the results of a consumer survey.

We surveyed 1,010 US adults between November 26 and December 3 2012. The sample is representative of US individuals (18+) by gender, age, income and geographic regions. Conclusions based on total sample have a maximum margin of error of +/- 2.5% at 90% confidence level.

(NOTE: All quotations are sourced from the Morgan Stanley report.)


The first and most obvious result of the survey was that tablets, as a whole, were going to be clear winners of the 2012 holiday quarter.

One-third of respondents own tablets today, compared to only 8% a year ago.

While this can come as no a surprise to anyone following the tech industry, it is important to note that, in terms of gift giving for this holiday quarter, the growth of the tablet has come at the expense of notebooks, desktops and especially e-readers.


Among consumer electronic gifts, tablets are the most popular, followed by smartphones, while e-readers experienced the largest decline.

— Tablets (50% in 2012 vs. 31% in 2011)
— Smartphones (26% in 2012 vs. 17%)
— E-readers (9% in 2012 vs. 31%)”

Tablets are the number one gift idea in consumer electronics this year, while it was a tie between tablets and e-readers last year.

iSuppli seems to concur with this sentiment, indicating that general purpose tablets are harming e-reader sales.

It appears that they e-readers may well be relegated to niche status as general purpose tablets – which also serve as e-readers – become lighter, smaller and lower-priced.


While the Kindle Fire is not strictly an e-reader, it too seems to be suffering this holiday season.

Kindle Fire appeal seems to be waning as 16% of potential tablet buyers would pick the device vs. 21% in last year’s survey

Lower end tablets may be suffering from the effects of increased competition. While the Amazon Kindle Fire was the a hot holiday gift in the fourth quarter of 2011, it now has to compete with the Nexus 7, Windows 8 tablets and the iPad Mini. As a result, Kindle retention numbers dropped from an already low 40% to and even lower 36%.

If these numbers bear out, this has to be terribly dissapointing for Amazon. Last year, there was a burst of enthusiasm for the Kindle Fire line during the holiday quarter but that enthusiasm seemed to all but evaporate as soon as the quarter ended. This year, Amazon introduced several new lines of tablets and vastly improved the quality of their hardware offerings. Surely they anticipated increased, rather than decreased, enthusiasm for their products.

It is too early to tell for sure, but it is possible that we’re seeing a trend away from single purpose tablets and a trend towards higher quality, general purpose tablets instead.


Samsung phones made an impressive leap in rate of retention from 37% to 63%. (Note, however, that this still does not match the iPhone’s stellar 83% rate of retention.)

While Apple’s retention rate is by far the highest, iPhone users who plan to buy a Samsung device increased slightly from 3% to 8%, though this share came entirely from other Android vendors who saw less interest from current Apple users compared to a year ago. This reflects Samsung’s dominating position in the Android ecosystem and success in marketing itself as an iPhone alternative.

You simply have to be amazed at what Samsung has accomplished and in such a short time. But ironically, Samsung’s growth is not only coming at the expense of competitor’s like RIM and Nokia, but it is also coming at the expense of other Android manufacturer’s as well.

One of the strengths of a licensed operating system like Android is supposed to be diversity of hardware manufacturers. That simply hasn’t happened. While Microsoft distributed its software licences to thousands of hardware manufacturers, Samsung has become the one and only hardware manufacturer that matters to Android. We’ll have to save the discussion of the consequences of this unexpected development for another day.


The survey contains two interesting points regarding Microsoft’s recent tablet efforts.

First, Microsoft Surface is preferred by 12% of those planning to buy a tablet.

Second, while 81% of iPad users plan to stay with Apple, 8% plan to purchase Microsoft’s surface.

Additionally, a different survey indicates that Windows 8 is a very distant third, to iOS and Android, when it comes to developer’s platform preferences.

I think these results have to be terribly dissapointing to Microsoft. Some pundits were expecting a flood of defections from the iPad once Microsoft debuted its tablet offerings. That clearly is not happening.

Further, I had anticipated an initial burst of enthusiasm for Windows 8 tablets. The real question, in my mind, was whether Microsoft would maintain that initial enthusiasm. Instead, sales of Windows 8 tablets has been tepid, at best. Having 12% of consumers intending to buy your products is far better than having 0% able to buy your products, but I believe that it is far, far less than Microsoft was hoping for or expecting.


It seems as though the bad press for Apple has been endless of late, but that negative view is not supported by the Morgan Stanley survey. They point to at least four reasons why Apple can be optimistic about sales this holiday quarter.

First, more survey respondents want to buy the iPhone 5 today than the iPhone 4S a year ago.

34% of consumers plan to buy an iPhone in the next 6 months, compared to 30% in last year’s survey

If I recollect, the iPhone 4S was pretty popular last year. And one would assume that even more enthusiasm for the iPhone 5 should lead to even more sales this holiday quarter.

Second, analysts keep opining that Apple needs to sell a cheaper phone but customers keep disagreeing.

More respondents plan to buy the newest iPhone model today than a year ago (86% vs, 82%), likely due to key hardware improvements in the iPhone 5: LTE, brighter screen, and lighter and thinner phone.

Third, the iPad Mini does not appear to be cannibalizing the larger iPad but it does appear to be bringing new customers into the Apple ecosystem.

We believe iPad Mini’s cannibalization risk to iPad 9.7” is manageable. 47% of iPad mini purchasers are new to Apple, according to our survey. This is only slightly lower than 56% for the larger iPad 9.7”, suggesting the smaller iPad is attracting new users to the platform in addition to some incremental or replacement purchases from the existing 9.7” iPads.

Fourth, Apple actually INCREASED its already industry leading retention rate.

Apple’s iPhone retention rate improved 10 points over the last year, and 83% of iPhone users today plan to buy another iPhone.

I find it hard to believe that Apple’s sales are going to suffer this quarter when both purchasing enthusiasm and retention rates are going up.


There is definitely going to be a shake-out in the mobile sector. There are just too many entrants with too little differentiation.

In phones, not only are Samsung and Apple rapidly increasing their sales numbers but their RETENTION numbers are also rapidly rising. This bodes ill for the likes of RIM and Windows 8 contenders like Nokia and HTC.

In tablets, Apple seems to be maintaining its grip on half the market while Amazon, Google, Microsoft and Samsung battle it out for the other half. Again, in the long run, retention numbers may be what matters most but it is too soon to measure retention for newly minted products like the Google Nexus 7 and the Microsoft Surface.

We’ll know far more in January when (some of) the numbers come out. But until then, the Morgan Stanley survey may give us a peek at what we should expect.

Is there a future for dedicated eReaders?

When Amazon introduced their first Kindle eReader, there were a lot of articles that suggested that this device represented the future of books. Many wrote that thanks to the Kindle, eBooks would go mainstream and be the most popular way people would read a book in the future. To some degree, there was a lot of logic and truth in this idea. eBooks can be downloaded instantly and in that sense they are much more convenient then having to go to the local bookstore and pick them up or order them online and wait for them to arrive days later.

The Kindle also had another thing going for it. It had an extremely long battery life and you could read it in direct sunlight. Not too long after the Kindle was released, other eBook readers came out from Kobo, Barnes and Noble and many more and even publishers started to jump on the eReader bandwagon and began releasing thousands of books in eReader formats. Over the last two years, prices have also come down so that you can get some eBook readers for as low as $79.00 today.

While eBook readers have had solid sales up to know, the entry of Apple’s iPad and other tablets are set to challenge their need to exist. Amazon, Barnes and Noble, and Kobo all realize this and have apps to their eBook stores on almost all tablet platforms today and in the case of Amazon and Barnes and Noble, they are also embracing tablets in a big way and, in a sense, starting to downplay their dedicated eReaders and pushing their customers to their tablet versions instead.

Do Amazon and Barnes and Noble think that demand for dedicated eReaders will completely disappear? Not necessarily. But they do know that something big is going on with tablets and that these types of devices will soon become the major platform for reading eBooks. In fact, Amazon is leading the way with their Kindle Fire and adding a key ingredient into their mix that has the potential of really shaking up the entire tablet market and potentially doom the eReader in the future.

The key ingredient is something called subsidization. The Kindle Fire sells for $199, but sources tell us that the bill of materials (BOM) for the Kindle Fire is at least $215.00. But Amazon is willing to sell it at this price because they expect a Kindle Fire buyer to purchase perhaps at last 10 ebooks, rent at least 5 movies and buy various products through the Kindle Fire from the Amazon store that they can amortize against the actual cost of the Kindle Fire and actually make a profit on it.

But Amazon does not have a patent on this idea. Indeed, Walmart has all of the things needed, included an eCommerce store for all of their products along with a real interest in renting eMovies, selling eMusic, etc online to do something similar. And in their case they also have the storefronts to back this up. They may count on the fact that their users will buy even more products from them if they own a Walmart tablet and make it really easy to buy eBooks, eMusic, download eMovies and buy products from their online store. They can use it also as an advertising vehicle for special Walmart offers. And in Walmart’s case, maybe they sell their subsidized tablet for $99 or in some cases, even give it away with special promotions. Although Walmart has shown no interest in doing this, they are the one major retailer who could map Amazon’s model and do something very interesting in the tablet space if they wanted to.

Take Proctor and Gamble as another example. They have over a hundred products they would like to sell you through their retail partners. What if they can get a reasonably priced P&G tablet built and branded for them and then uses it to drive promotions to the users and subsidize part of the cost of the tablet for their customers. From the users standpoint, the Web apps drive their broad content and app needs. But P&G now has a captive audience who is willing to get their ads in return for paying a very low price for this tablet.

If you add the subsidization equation to tablets, you might be able to see that the future for tablets may be where families could have four or five scattered around the house at their disposal and some could be subsidized by various vendors so that owning more than one is the norm. While the OS may still be important to handle localized apps for some, the most used feature will be the Web browser and Web apps, tied to the cloud where most of your personal digital life will reside. And since the Kindle app could be on all of them, your entire library could be in sync and you just pick up the tablet closest to you at the time and start reading where you left off.

The bottom line is that today’s tablets are great and thanks to Apple, the role of tablets in our lives is being flushed out now. But I believe that the tablets of the future will just be screens that use a browser to connect us to everything we need from the cloud and be cheap enough thanks to subsidization so that each room in our homes might have one and when you need one, you just pick up the one that is closest to you. Although there may be some people who would still want to buy a dedicated eReader, it seems to me that subsidized tablets could become so ubiquitous within the home that it could some day become the eReader of choice and the need for dedicated eReaders will disappear.