The Great Tablet Segmentation

on July 23, 2014
Reading Time: 2 minutes

The tablet category is getting quite a bit of press lately. Apple’s iPad is a solid barometer for the category. With Apple’s latest few quarterly results showing the slowing of the growth of the tablet sector, many are left scratching their heads as to what is happening with this product category. There is still a tremendous amount of growth potential for the tablet. The problem is, Apple is the only one driving the class in a meaningful way. Which isn’t all that surprising given Apple makes nearly 80% of the profits in the segment. With such little revenue to fight for, more OEMs have focused on the smartphone segment not the tablet segment.

But I believe we are on the cusp of something new in the tablet sector that will hopefully drive growth back to it. I believe we are about to see the great tablet segmentation. This is a chart I’ve been using in our industry trend presentation over the last year outlining some of the first segments we saw.

Screen Shot 2014-07-22 at 10.32.42 PM

Inevitably, when markets mature, they segment. Consumers must be self aware of their needs, wants, and desires, in order for me to consider a market mature. They must know what they want and why they want it. Tablets, being so new, are just now reaching maturity. Most developed market consumers have had a chance to at least use an iPad or other tablet and what the product means to consumers, families, corporations, etc., is currently being defined. As consumers become more self aware, segmentation opportunities will begin to exist in the tablet market. Nabi, a company focused on making tablets for kids of different ages, sold nearly 2m units in the US in the holiday quarter of 2013 according to our estimates. Not bad for a specialized product. But perhaps the most interesting example of this segmentation opportunity is what NVIDIA is doing with their newly announced SHIELD tablet.

What makes the SHIELD tablet interesting is the way it was purpose built for gamers. Everything from the graphics engine, connection to Steam PC game portal, integration with Twitch, access to NVIDIA Grid technology, a custom controller, and access to multiplayer game engines, sets it apart from any other tablet in the eyes of any serious PC or console gamer. NVIDIA is hoping to appeal specifically to the gamer niche, which is not necessarily high volume but is extremely lucrative. The NVIDIA SHIELD tablet is an excellent example of a segmentation opportunity in the tablet form factor. This product also leverages NVIDIA’s strengths and highlights another trend of companies getting into the hardware businesses they weren’t in before because it is a natural extension of their existing products and business model.

The iPad, as of now, owns the crown of “general purpose tablet”. It can cover the most ground for most consumers’ use cases.
At this point, we must conclude that segmentation opportunities like the nabi kids tablet, or the NVIDIA SHIELD tablet, present the more lucrative opportunities for vendors since competing with Apple in the general purpose form factor appears to be a waste of time.

While the nabi and SHIELD tablets present some of the more interesting segmentation examples to date, I still expect more experimentation by vendors to attempt to discover what other segmentation opportunities may exist. All of this is a key part of the tablet market maturing.