What is Happening?
Saugatuck believes that 2012 will likely be pivotal in the tablet ecosystem, specifically related to the enterprise and IT buyers. A recent survey from the Pew Internet & American Life Project indicated that the ownership of tablets by adults in America nearly doubled over the holiday season from late November 2011 to early January 2012. Ownership of tablets rose from 10 percent to 19 percent over that 2-month period, and e-readers performed similarly as well.
Even so, Saugatuck research indicates that Apple remains dominant in tablet sales, with most market share estimates still over 60 percent – and no decline in sales over the holidays due to new or emergent competition.
Saugatuck believes that 2012 looms as a watershed year likely to spotlight the next direction(s) of tablet computing, especially in the US. Apple’s next device will be released, likely with expanded business/enterprise capabilities; RIM should finally release their impending update to the Playbook, bringing email and calendaring to their tablet device for the first time; and the Microsoft ecosystem should deliver Windows 8 tablets, which can be expected to dovetail into Microsoft’s vast enterprise and SMB presence. The Kindle and the Nook (and similar e-reader-oriented tablets) will enjoy more growth among consumers, but will fall to the back of the business user portfolio. Android tablets will remain on the market, but fragmentation of the operating system and poor control of the hardware specs will make these tablets difficult to group together or predict.
Why is it Happening?
The initial competition to the iPad in the tablet market was late in arriving in part because Apple had established a substantial lead in design, OS, and manufacturing. As the first competitive, often Android-based, devices hit the market, it was clear that many were released as knee-jerk reactions to Apple’s success. These devices have not (yet) strategically focused to serve either business or consumer needs, nor tactically focused to solve specific problems, or target specific users. The initial shakiness of the marketplace led to early, incomplete, and basically unpopular devices such as HP’s ill-fated TouchPad, and RIM’s Playbook, which lacked basic functionality for its first year of existence.
The second critical factor for Apple’s success, initially in the consumer market, has been the ecosystem of content and applications on which it was introduced, and which Apple has continued to grow. The iTunes / App Store platform that Apple had already created and curated through the Mac and iPhone proved to scale well to the iPad and provided a familiar process to allow ease of entry. Though the initial reviews of the device suggested that it was best suited for content consumption, the popularity of the platform rapidly drew developers from both business and consumer companies to release creative / productive apps.
Apple’s content / media consumption model was followed to a great extent by Amazon’s Kindle Fire and the Barnes and Noble Nook Color, both of which compete favorably on two fronts with the iPad: price and content. However, both are small-form-factor tablets (7-inch screen format), which diminishes their suitability to many, if not most, business productivity uses, placing them between touchscreen smartphones for messaging and mobile apps, and large-format tablets for interactive, forms-based and similar business apps suited for tablets.
Meanwhile, almost all signs seen by Saugatuck (including this recent press release from Good Technology), point to Android tablet adoption as being distinctly behind iOS deployments in the enterprise. While the breadth of Android phones and tablets compared to Apple’s few offerings may explain some of the difference, total Android tablets appear in a relatively small percentage of enterprises so far – which may explain the discontinuation of several devices in the last year.
While HP, RIM, and Dell were all able to join the market relatively early, they have all seen disappointing sales with their tablet offerings, as they were able to provide neither software / usability differentiation, nor content differentiation over Apple. As a result, none have been able to attract enough developers and content providers / partners to tip the balance in their favor. And that combination of software differentiation and content/media will be the determining factor for tablet maker growth in 2012.
The New Year offers more disruption to the tablet market as Apple and Amazon continue to develop their content ecosystems. Apple is widely expected to release an iPad 3 during their traditional release month of March, which will set the standard for higher-end tablets from other providers.
Saugatuck does not see RIM being able to establish and build significant sales for its next-gen Playbook tablet. The company’s repeated delays in software and hardware releases have reduced confidence in their own developer ecosystem to such a degree that RIM has begun now touting their new OS’s ability to run apps from the Android ecosystem. And though RIM is taking steps to build a content ecosystem of their own, they are unlikely to find success down that route against the firmly-entrenched incumbents. RIM also must contend with diminishing relevance in the enterprise IT market. RIM grew successful due to their ability to be managed successfully by enterprise IT shops, but solution providers have arisen to provide similar features on handsets and tablets running iOS and Android. Finally, the advent of Cloud IT makes the self-hosted management of a BlackBerry-only ecosystem relatively less attractive than more device-agnostic SaaS device-management solutions and providers such as Good Technology.
Amazon can be expected to dominate the market for low-cost media tablets, as they have built up a lead over the last few months that positions them well to roll out additional media services and generate even more revenue. It remains to be seen how well Amazon is able to monetize the content being sold through their platform, as those content sales are necessary to subsidize the cost of the hardware. But as noted above, Saugatuck does not see the Kindle, nor its several 7-inch-sized cousins, competing for enterprise IT and business use on a wide scale. The form factor is simply too limiting for the vast majority of business needs and uses.
Saugatuck believes that the biggest wild card in the 2012 tablet market will be Microsoft, Windows 8, and related tablet devices built and released within the Microsoft ecosystem. If Microsoft can deliver an OS that runs well on low-power devices, is backwards compatible with a majority of existing Windows OS instances, and builds and improves upon what it has done with Windows Phone 7, then Microsoft may well become the first tablet platform that does not need a content-based ecosystem to back it up. In the immortal words of Steve Ballmer: “Developers. Developers. Developers.” As long as Microsoft enables them and keeps them intrigued and involved, its developer ecosystem can, and should, deliver a tablet presence for Microsoft within the enterprise.
The distinction in the Microsoft offerings will likely hinge on how Microsoft’s hardware partners, and the OS itself, are able handle the ARM / Intel differentiation. As the ARM-based processors will likely only handle the newer Metro apps, but not the legacy Windows 7 apps, these tablets may prove to be a harder sell for Microsoft, which will be setting its developer ecosystem against the established Apple and Android. The Intel-based tablets, which will be capable of supporting versions of the Microsoft Office Suite along with other legacy windows applications, will bring with them the existing ecosystem of Windows desktop applications, though these will likely be more expensive and sacrifice battery life or form factor slightly.
The Windows 8 tablet faces key challenges from within its own Windows ecosystem. A great deal of the appeal of Windows 8 is the promise of OS unification across devices, phone, laptop, desktop and tablet. Given that most enterprises put a waiting period of some time on the deployment of a new internal OS for company machines, until the inevitable first security patches and service packs are delivered, the initial interest of IT organizations in Windows 8 devices may be reduced to accommodate the break-in period customary of large Microsoft deployments. This will not be as relevant an impact to consumers, who have fewer reasons to forego upgrading, but are more hardware conscious and will take greater interest in content packages.
Fortunately for Microsoft and its tablet-making partners, if Apple releases the iPad 3 in March it will have a prime-mover disadvantage in hardware specs, so Microsoft should be able to tailor their initial tablet offerings to be competitive on hardware specs, and should be able to secure favorable content deals due to their market position and expertise in the gaming industry gained through their Xbox division.