The Invasion of Cheap Tablets

Fotolia_42210115_Subscription_Monthly_XXLGiven the massive market demand for tablets and the fundamental shift in consumer sentiment from PCs to tablets, it was only a matter of time before the tablet race to the bottom took place. I wrote about how this was happening in China at rates hard to fully comprehend. It looks like 2013 will be the year cheap tablets start showing up in numbers at retail in mature markets like the US and Europe.

The precedent for these products was already set by the Nexus 7, which has likely been the most successful Android tablet to date. The last data checks I saw at the end of 2012 suggested that the Nexus 7 was selling around 1 million units a month. That may have slowed as of late but I’m sure it is still selling well.

It seems that the sweet spot for Android tablets has been in the sub 8-inch screen size and I don’t see that changing in the short term. At MWC 2013, Samsung and HP have just added more flame to the fire of Android tablets. Samsung is coming out with an 8-inch version of their Note product line and HP is bringing their first Android tablet to market with a 7-inch device called the Slate 7. Pricing and availability is yet to be disclosed on the Samsung Galaxy Note 8.0 but I expect it to be in line and most likely slightly less than the iPad Mini. If it costs more, it’s DOA. HP on the other hand chose to be very aggressive with the pricing of the Slate 7 and will bring it to market at $169 and will be available in April. These are the first of many Android tablets I expect to see in 2013 with 8-inch or smaller screens and at lower cost price points.

The Role of Cheap Tablets

Believe it or not, I believe these products have an important role to play. They will help mature the market for tablets and they will bring low-cost entry points to the Internet into the home.

The market for tablets is still immature. Even though there are now well more than 150 million tablets (mostly iPads) out in the wild, there are still many consumers who have not owned a tablet nor have they deciphered what their needs, wants, and desires are with such products. This understanding is a critical part of the adoption cycle and it requires an understanding of what a product means to a consumer. This is also something that only comes with ownership. Having a plethora of choice around tablets, from small to large as well as varying price points, is a healthy part of product market maturity.

The other role I think these devices play is one of low-cost Internet access points. I’ve stated in previous columns my belief that some tablets in the home will not be personal but will be communal. They will be products anyone can pick up and use and will be likely not tied to one person but perhaps more tied to general entertainment, media, automation, or other general cloud services relevant to the household as a whole rather than one specific person.

Last Friday I pointed out how I am doing this now with more than a dozen tablets in my own home. Everyone has their personal one, which they have customized but since we don’t carry them around with us everywhere, we have communal tablets one can use for web browsing, streaming media, playing games, etc, lying around the house for free access. Low-cost tablets will make experiences like this more a reality.

Winners and Losers

The arrival of low-cost tablets from major brands (especially legacy PC ones) will certainly impact many players in the technology industry–some more than others. In the case of HP, I found this strategy interesting because one of the things a low-cost sub 8-inch tablet does is it continues to emphasize dependence on a traditional PC form factor. By keeping this particular tablet in the low-end both in terms of price and experience they are not in danger of cannibalizing their PC sales, even still, others may cannibalize it for them. Regardless, I actually think this is a smart move for HP in the short term. They need to figure out their software and services add value on top if they want to stay relevant in the long term.

Samsung will keep doing what Samsung does, which is offer a wide range of devices in all shapes and sizes and price points.

The real loser in an invasion of low-cost tablets, in my opinion, is Microsoft. They are just getting started and they have no intention of allowing their customers to compete in the lower end of the tablet spectrum (they don’t even have a 7” tablet offering near coming to market). I expect these low-cost tablets to hurt the adoption of Windows 8 tablets initially but not necessarily in the long run.

Of course that leaves Apple. I’m sure the Apple naysayers and critics will look at all the cheap tablet buzz and assume that this means danger for Apple. I certainly don’t believe that is the case. Apple has no intention on competing with the lowest end of the market. They chose to compete on experience and have proven they can do it extremely well. I also believe they don’t want to price themselves out of the market and will do anything necessary to keep their products affordable. There is a market for cheap but there is also a market for high-value products which are affordable. There is a big difference between cheap and affordable. This strategy alone for Apple can keep their profit share high even if they have smaller market share.

We will see how this all plays out. I’m not sure the degree the current tablet forecasts took into consideration the size and scale of the potential cheap tablet invasion. My gut tells me all the current tablet forecasts for 2013 are still much too conservative.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

15 thoughts on “The Invasion of Cheap Tablets”

  1. I don’t see winners emerging from cheap tablets. This is like the commodity netbook business, with margins so low, it is almost pointless to be in it.

    The “Winners” in the cheap tablet business are those who refuse to play that game.

    1. The “Winners” will be the people living in developing countries who will have access to more inexpensive computing and internet access. This is what this business is really aimed at.

  2. “Apple has no intention on competing with the lowest end of the market.”

    Agreed. Like the Mac and the iPhone, Apple will attempt to take the high end of the market.

    “The real loser in an invasion of low-cost tablets, in my opinion, is Microsoft.”

    Agreed. I think Microsoft is in genuine danger of being isolated, then marginalized, in the personal computing sector.

    “I’ve stated in previous columns my belief that some tablets in the home will not be personal but will be communal.”

    I’m going to disagree, but not strongly. I think that we appear to be heading for an era where every individual owns a personal computing device. That device may be the phone. But it looks to me like tablets are also becoming personal. I readily admit that I could be wrong.

    “It seems that the sweet spot for Android tablets has been in the sub 8-inch screen size”

    Agreed. This seems to be the limit that one can “stretch-the-phone-operating-system-to-fit-the-tablet”. The flip side of that coin is that Apple DOMINATES the 10 inch form factor. We don’t have any hard numbers (that I’m aware of), but I’d be willing to bet that Apple has 90+ percent of that market.

    1. “Microsoft is in genuine danger of being isolated”

      I don’t think it is quite that dire. I still think they essentially own the desktop/laptop business. Upgrades have slowed, but I still see a healthy business there.

      But Microsoft will be one of the more interesting companies to watch, for their actual entry into the real media tablet market. It seems at some point they must build(allow for) more affordable Sub 8″ tablets that are likely to be the biggest part of the market going forward.

      It would seem this would be a WinRT play, likely separated from Office. Office will be much less useful on a Sub 8″, and the combined license cost of WinRT/Office as it is now is too high( rumor ~$100) to be competitive.

      It seems like a relatively simple fix. Just a new WinRT Skew for small tablets. Can they not sense the direction of the wind? How long to turn in that direction?

      The other interesting player to watch will be Samsung. They have low margin commodity tablet business that they can’t care that much about, but they are trying to stand out with higher margin Stylus tablets (Like Galaxy Note 10.1). Can they succeed in making this into a must have, high margin feature? They even bought a small stake in Wacom. This seems to be their play for a premium margin, but I really can’t gauge this one. I would only be interested in a stylus if it was essentially a free addition.

      1. “I still think they essentially own the desktop/laptop business.” – Defendor

        That’s like owning the record franchise in the age of CDs or the CD franchise in the age of digital. Traditional PCs aren’t going away but they are quickly becoming marginalized. Quicker, perhaps, than any technology in the history of technology.

        1. I don’t consider that an appropriate analogy. I remember the LP->CD transition. The LP did nothing better than the CD. Most people I knew abandoned LPs fairly quickly, sold their LPs/turntables.

          Laptops/Desktops do many things better than tablets. I don’t know anyone abandoning their Desktops/Laptops in favor of going only Tablet.

          Are you planning to sell off all your desktops/laptops? Doubtful.

          I see a stagnation in the Desktop/Laptop market, but it is a market that will continue to exist with purpose into the foreseeable future.

          1. Well put, Defendor. I think it’s informative to look at two transitions in the music business to get a full analogy. When prerecorded cassettes came along, they made a considerable dent in LP record sales but the two formats coexisted. Tape had some considerable advantages, mainly in what passed for mobile use in those days, while vinyl retained other advantages, such as audio quality and durability.

            That all changed when CDs came along and were superior to both tape and vinyl in every respect–and quickly dispatched both of them. (Some audiophiles will argue vinyl is still better sound. I won’t. In any event, the quality difference between tape an vinyl was apparent to anyone with ears, even with bad earphones.)

  3. I know you can get a cheap tablet for $169 dollars, but I don’t think you can get a good one. Maybe it doesn’t really matter because most tablets are so integrated with the cloud that it doesn’t matter if they crap out. In that respect, Google has done a great job of not just commoditizing tablets, but making them, more or less, truly disposable.Google is the new Microsoft… it doesn’t care if OEMs scratch and claw for pennies as long as it makes money from selling ads to advertisers. In the end, the consumer takes the hit or switches to Apple.

    An underrated aspect of Apple’s presence is that it forces OEMs to maintain at least a minimal standard of quality. The quality of PCs has been abysmal until very recently. I’ve had models from 3 major makers crap out within the first year of ownership. And these weren’t netbooks but PCs costing over $750 apiece. Strangely enough, my daughter’s 1+ year-old AMD Fusion powered netbook w/ SSD is still humming along. It would have been cheaper to buy a Mac. I expect the same dynamic with this cheap tablet movement.

    Caveat Emptor.

  4. Thanks for another informative and thought provoking article. As the 4th commenter I agree with all my predecessors as well as the gist of this article.
    When Apple comes into the conversation as to price, form factor, market share I, like many others I opine, cannot help but think about premium automobile manufacturers such as Porsche, BMW, and Mercedes as the analogs for Apple products. Each of the car companies offer lower priced vehicles, none of which are cheap, cover the various form factors, make above industry average margins, and are very profitable. Early on Mercedes and Porsche were market share leaders (can’t say about BMW other than their motorcycles) and these companies continue to sell all they produce with selling their products at a profit except in the rarest of cases when a dealership wants to blow out a leftover from inventory (known as addition by subtraction because of floor planning, etc).
    Yes, I know automobile analogies only go so far but they do seem to support Apple’s strategies, so far, and leave some ideas of how to improve and what road not to travel (sorry, couldn’t help myself)
    All the best…

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