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Tablets, Smartbooks and Cloudbooks: First Battlefield in the PC Phone Wars - Forecasts to 2014
Rethink Research, Feb 2010, Pages: 51
This year, the Consumer Electronics Show turned the spotlight on the new wave of hybrid devices, falling between the phone and the PC. Qualcomm and Freescale pushed their smartbook platform, while ereaders and netbooks continued to gather pace. Then Apple stamped its mark on the emerging segment, launching the iPad.
On one hand, they are highly attractive to vendors and operators, providing a new market where users’ affections, and even the look of the device itself, is up for grabs. But there is a dark side to this cloud – for operators, tablets and smartbooks could overload the network even more than smartphones did. And for vendors, these products will be cannibals. A new study by Rethink Technology Research found that about three quarters of their sales will be at the expense of the purchase or upgrade of another device – in many case one with higher price tags and margins than the tablet.
Vendors will hope these will be companion products, acquired in addition to a phone or notebook, but that means the prices have to be keen, to encourage consumers in a recession to invest in a non essential item. Even Apple has come in with an iPad entry price far lower than most had expected, and a recent research note from Credit Suisse points out that “Apple management noted that it will remain nimble (pricing could change if the company is not attracting as many customers as anticipated).” Remember, Apple slashed the price of the iPhone by $200 two months after it went on sale.
Apple stands to make margins of almost 43% on the new tablet, so has plenty of room for manoeuvre, but this will be less true of many other players as competition mounts. Freescale is already gearing its smartbook platform at sub $199 devices.
The emerging device category will fall into three broad subsections, plus the ereaders. Although these are single function, they have established many of the norms for the broader market, such as embedded wireless connectivity and integrated content stores. And some vendors, like Amazon, will extend their ereader platform into more general purpose products.
The three multifunctional categories, which will overlap, are the tablet (single sided, large touchscreen product heavily geared to content consumption, from video to ebooks); the smartbook (often hinged, like a tiny netbook, with some local storage but optimized for web services as well as some downloaded content); the cloudbook (the newest category, to be pioneered by Google for its Chrome OS, and offering an ultrathin client with little or no local data and apps, doing everything online via the browser and attached to the cloud).
Squeezed prices and margins may be acceptable if these hybrid devices are incremental purchases, but even worse for the suppliers, this will not generally be the case, especially in the first few years. Until at least 2013, consumer spending will remain under pressure, and there will be insufficient confidence in the thin client/cloud usage model for many people to rely on a cloudbook or tablet as their only PC.
These devices will total about 60m unit sales by 2014 according to the survey, with a market value of $13.5bn in hardware terms alone, plus about half that much again in directly related content/app sales. But about three quarters of their sales will be at the expense of users investing in new PCs, netbooks or phones, or upgrading the ones they have. By 2014, only 18% of hybrid purchases will be as additional products, ie incremental revenue to the industry. So this will be a game of protecting margins by reducing costs, and of stealing share from rivals with innovative designs, usability features or content deals. About 16% of the potential netbook market will have been lost to smartbooks by 2013, and 5% of the smartphone segment.
In some cases the hybrids will represent a larger revenue or profit to the vendor than the more traditional gadget, or may steal a customer from another brand. But in others, as the PC world has already seen with the netbook, there will be a direct transfer from a higher value to a lower value product. This will put massive pressure on most vendors to push the cost base down quickly.
The key point to make about these new device categories is that, unlike the more specialized ereaders, they are cannibals. They will rob vendors of sales of other products, in some cases higher value or higher margin products such as smartphones or even notebooks. And they are starting at a lower average price point than many had expected. Even Apple’s iPad, widely rumored to be launching with a price tag of $900 or more, has a Wi-Fi only option at half that tag, and that model is likely to account for 75% of sales. And while Qualcomm envisages smartbooks based on its designs to be around the $400 to $700 mark, similar to high end smarpthones, Freescale is targeting its own reference platform at the $199 category, as soon as the sector hits scale, which it believes to be late 2010.
This means that vendors will be replacing up grades or new sales of notebooks and smart phones, with devices that are not even in the premium category.
The impact on netbooks is rather different. These are also companion devices, but have had a cannibal effect on higher end notebooks already, providing a lower cost alternative for people who do not really need a fully fledged PC. Like the smartbook, about one fifth of netbooks have been completely additional purchases, while the rest have been in place of the purchase of another product, usually a notebook or notebook upgrade, or have at least delayed the upgrade of that notebook. Smartbooks will be a viable alternative to netbooks, and for some applications and behavior patterns, they will be superior.
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