One of the big puzzles in trying to understand the tablet market is data. Apple is pretty much the only large manufacturer giving unit sales, and not only are Samsung and Amazon saying nothing, but there are hundred of Chinese companies making Android tablets, and few if any say anything publicly. In the phone business the story is rather easier, since Google says roughly how many Android devices are being activated outside China, and give a screen size breakdown, and the Chinese mobile operators have a good sense of smartphone sales inside China. But in tablets there is no-one with an overall view of sales.
This means that analysts have to fall back on component makers. Though there are hundreds of companies making tablets, they almost all use more or less off-the-shelf chipsets from a handful of companies. These companies have a good sense of the overall number of tablet chips that are being sold into the manufacturers. So too do the screen markers - they have a good sense how many 7” panels are being sold. So you take an estimate of tablet chip sales and an estimate of tablet screen sales (and take into account people using ‘phone’ chips in tablets) and you estimate tablet sales, both inside and outside China.
The obvious problem with this is that these devices are being used in very different ways. It seems clear that most of the huge numbers of sub-$150 Android tablets now being sold do not have anything like the web or app usage that is seen on an iPad, Nexus or Galaxy Tab, and that many are mainly used as substitutes for TV sets, with maybe some gaming on the side.
The deeper issue, though, is that estimating tablet sales in this way is a little like trying to estimate global car sales by working out how many internal combustion engines are being made, and how many tyres, but not adjusting for motorbikes, cranes, outdoor generators or 18 wheelers. Lots of ‘tablet' chips and ‘tablet' screens do not actually end up in tablets.
Consider this device, one of thousands of similar products on offer on Alibaba - an in-car video player running Android, complete (if the screenshot is to be believed) with the phone app. This probably doesn’t activate with Google, but it certainly looks like a ‘tablet’ to LG or Rockchip.
Then there’s this TV dongle - no screen, but does it have a ‘tablet’ chip? A ‘phone’ chip? If you used it to watch Youtube, what would Google think it was? (Note also the memory card slot, used for side-loading pirate movies.)
Now what about this, from Steelcase? An meeting room door with a 7” capacitive touch screen. To a component maker, this is also a tablet. I have no idea if it runs Android today, but if it doesn’t, it probably should. And if Nest doesn’t, the copies of it will.
The important dynamic here is that a combination of very cheap off-the-shelf chips and free off-the-shelf software means that Android/ARM has become a new de facto platform for any piece of smart connected electronics. It might have a screen and it might connect to the internet, but it’s really a little computer doing something useful and specialised, and it probably has nothing to do with Google.
As should be obvious, this makes counting total ‘Android' devices as though they tell you something about Google or Apple’s competitive position increasingly problematic. But to me, pointing out that ‘Android’ doesn’t necessarily competed with iPad is rather boring - what’s really interesting are the possibilities that these new economics might unlock.
A good example is this - a 2G Android phone wholesaling for $35 (just one of hundreds).
Now, stop thinking about it as a phone. How do the economics of product design and consumer electronics change when you can deliver a real computer running a real Unix operating system with an internet connection and a colour touch screen for $35? How about when that price falls further? Today, anyone who can make a pocket calculator can make something like this, and for not far off the same cost. The cost of putting a real computer with an internet connection into a product is collapsing. What does that set of economics enable?
There are other interesting hardware trends that overlap with this as well. Bluetooth LE is the obvious one - you can make a widget that broadcasts a location ID for $50 or less, stick it on a wall, and the battery will last for years. EInk is also interesting here: it needs no power to show something, only to change, and you can pass enough power over an induction touch point to cycle the screen. The problem here is cost, but why doesn’t my Oyster card show the remaining balance? Why wouldn't Coin (a product I'm rather skeptical of, mind) show the cards loaded onto it on one side with an eink display? How do these trends interact with cheap Android computing?
Marc Andreessen famously coined the phrase 'software is eating the world’ to describe the way that functions that used to be served by dedicated hardware are now being subsumed by general purpose devices - mostly smartphones. But there’s also the beginnings of a trend in the other direction - devices that weren’t smart and didn’t get merged into the phone gaining a digital presence of their own, and creating a new set of opportunities.
Apple's iPad event was pretty unsurprising. It was obvious that the large one would be speed-bumped and get lighter. It was also obvious that the Mini would get retina at some point - the only question was whether the supply chain could deliver enough panels now (with some well-informed people suggesting it could not), and the late-November ship date and $400 price point to how close it was.
The lack of fingerprint scanning in both the new models was a surprise - it may again be a supply problem, but it means that any platform play Apple has in mind (ie payment) will have a smaller install base to launch onto.
However, the big puzzle is the price the now old Mini is discounted to: $300. This compares poorly to a new Nexus 7, with comparable resolution to the retina Mini, at $230. The Nexus 7 is of course being sold at very low margin by Google, but does the old Mini really need to be $300 rather than, say, $275 or $250? What is Apple thinking?
On a simplistic level, Apple's tablet market share is clearly shrinking. The chart below, taken from a presentation I've been giving in the Bay Area this week, shows my estimates of tablet unit sales. (They're in increasing order of certainty as you go from top to bottom. Kindle Fire is not included, since I lack the grounds to do quarterly estimates, but obviously it is not relevant outside the USA and a few other markets).
Apple's recent sales decline is largely a product cycle issue, but clearly, sales of other tablets are growing fast. And yet Apple is allowing the price window underneath the iPad to become meaningful. Why?
To me, the really interesting thing about this chart is how small Nexus sales are. Here is a good device with a nice clean Android install, sold at a very aggressive price. On Google's own numbers, almost no-one buys it. Why? Why do sales of the Nexus 10 appear to be under 1m units?
Meanwhile, every single data set shows iPad with at least three quarters of tablet use, be it app installs, web use or any other third-party engagement metric you want. Where are all those other, non-Nexus Android tablets? What's being done with them?
What seems to be happening is that if you want the post-PC vision that Apple and Steve Jobs created, you probably buy an iPad, and Apple has a large majority of that market, and hence of the use of devices for that purpose. This isn’t very surprising: the Android tablet app offer remains far behind the iPad in a way that the Android phone app offer does not.
But there's also another proposition, a $75-$150 black generic Chinese Android tablet, half the price of a Nexus 7. That proposition is also selling in huge numbers, but it appears to come with a very different type of use.
Why are people buying these? What are they being used for? They're mostly in China (that’s the pink bar above) and emerging markets and in lower income groups in the west. And it seems that they're being used for a little bit of web, and a bit of free gaming. Perhaps some book reading. And a LOT of video consumption. In fact, one might argue that for many buyers, these compete with TVs, not iPads, Nexuses and Tabs. But regardless of what they’re being used for, they’re not being used the way iPads are used. In effect, they are the featurephones of tablets.
If this theory is correct, it suggests that Apple's $300 Mini really isn't a competitive problem, because the iPad doesn't yet face a strong competitive threat (quite unlike the iPhone). Rather, there are actually two quite different markets: the post-PC vision, where Apple is dominant, and a ultra-low margin product that’s also called a tablet but which is really a totally different product.
Looking at the Chinese mobile market today reminds me a lot of looking at the Japanese model in 2000 or 2001 - lots of very interesting stuff is going on, but getting reliable data is very tough.
One triangulation point comes from app analytics platforms. You need to have some caution as to how representative they are, but the big ones give a good directional steer. Umeng (think Flurry for China) is one of the biggest. It puts out statistical reports every quarter or so - these are some of the key charts in the latest.
First, platform size - this is their estimate of active devices that are using apps (not total devices), including tablets.
Both iOS and Android are growing fast, and Android faster, as one would expect given the range of prices that Android devices are offered at. However, on this data there are probably more iOS devices in China than smartphones in the USA.
Second, handset brands. Apple is the largest single brand in this data set, but shrinking. This of course is users, not ongoing sales, so some recent suggestions that (for example) Xiaomi outsold iPhone in the run-up to the iPhone launch may be compatible with this.
Finally, and perhaps most interestingly, a window into the state of Android in China. As most people know, the great majority of Android devices sold in China are built on AOSP and have no Android services pre-installed (indeed, I've used a Motorola phone with no Google services present) - instead they have a range of apps from the local internet giants.
This means that most Android phones have no Gmail, Google Now, Google Maps or, of course, Google Play, and most apps are installed form third party app stores or side loaded, either pirated or downloaded directly from publishers' sites. Some handsets do have these, either because people added them afterwards (which is not easy) or because they're using grey market imports. Estimates of the total with Google apps on them are mostly in the 20-30% range. However, on Umeng's data, Google Play amounts to just 5.6% of Android app installs in China. OEM app stores are 8.5%. This, for example, is why Baidu paid $1.8bn to buy a couple of app stores earlier this year.
At this stage it looks as though everything about Apple's 'cheaper phone' has been leaked - plastic casing, choice of colours, '5C' name, same screen as the current iPhone 5, and a transparent box to help retail sales. Everything, of course, except the price - which is all that really matters.
What price would Apple choose for a genuinely cheaper phone? There are four brackets worth looking at:
- $100-$150 – this is where budget Chinese manufacturers are starting to deliver usable dual-core 3G Android phones
- $150-$200 – the upper end of what is possible to sell to the unsubsidised prepay market - which is half the planet
- $200-$400 – almost certainly out of reach without subsidies but a solid mid-range smartphone price range
- Over $400 – similar price to the existing discounted two-year-old model, but with more up-to-date technology, possibly higher margins and probably an easier marketing sell than the ‘old’ phone
The first of these price points requires too many product experience compromises from Apple, while the leaks we've seen so far seem to show a device that would not be priced $200 or under, ruling out most prepay.
So, the decision is where to sit in the mid-range. The interesting dynamic in this is the tension between the USA and China.
The US contract phone pricing structure today effectively puts a lower limit on the viable price for a contract smartphone. The ($450) iPhone 4 and similar high-mid range Android phones are sold as 'free' on contract'; phones whose list price is actually much lower are sold at the same price. A $200 phone is sold to consumers at the same price as a $400 phone - and hence is very uncompetitive.
One effect of this is that the iPhone 4 and 4S made up a quarter of Verizon Wireless contract smartphone sales in Q4 2012 and Q1 2013, a much higher share than they appear to have elsewhere. In the USA they're as cheap as any contract phone on the market - everywhere else they're cheaper than the iPhone 5 but still relatively expensive. The Android ASP, after all, is $250-300. Everywhere else $200 and $300 Android massively outsells $400-$600 iPhone: in the USA much of that price advantage is removed.
So, a $300 or $250 iPhone is a tough sell in the USA. But a $450 iPhone is a tough sell in China. Xiaomi, after all, just announced a very compelling new phone, the M3, at $330, and that may not be staying in China.
Hence the tension: which is more important to Apple? It already has 40-45% share of smart sales in the USA, which was just 12% of the global smartphone market in Q2. But it can't launch a phone that doesn't work at all in the USA (nor is it likely to persuade the US operators to drop their pricing to remove this distortion) - which points to a higher price, higher spec model. The further you go below $400 the more you get a phone that's tough to sell in the USA.
But too high, and the current dynamic may not change - Apple remains camped out in the top 10% of the global handset market while all the rest converts to Android - and this is a problem.
The true unknown in this, of course, is that while we know that any $300 iPhone would sell very well, we don't know how much better a new $400 or $450 iPhone would sell than the current "two year old" $450 iPhone. How much difference would the screen, coloured plastic casing and 'newness' make?
Another useful data source: Umeng's periodic reports. Umeng is something like a Chinese Flurry.
A lot of the work of analysis is triangulation. What pieces of imperfect data can you put together to point towards the right answer?
Flurry just gave a very nice set of triangulation points: figures for iOS and Android devices, both phone and tablets, that it's seen in China (i.e. using apps with Flurry's analytics software installed). The total is 260m.
This is pretty much consistent with the data I put together in a previous post here, suggesting well over 200m smartphone users.
So, the chart below shows how the Flurry numbers look in comparison with the US market. Again, the data is imperfect. The big US operators report unit activations and iPhone share of those, which allows us to compute an install base, and Comscore gives survey data, but the survey arrives at a slightly different number than that implied by the operators. And while Comscrore gives a specific Android number, the operators only give iPhone and smartphone activations. (Also, I don't have tablet numbers for the USA -or rather I do, but they come from yet another survey.)
Be that as it may, the sense of scale that this triangulation points to is pretty accurate. China probably has roughly as many iPhones as the USA and a lot more Androids.
China now is a little like Japan in 2000 or so - it's where a lot of the most important and interesting things in mobile and tech are happening, and it's also something of an information black hole if you don't speak (or more accurately read) the language or have an office there.
There is some basic resource readily available, though. Most obviously, the CNNIC, a quasi-governmental organisation, produces a twice-yearly statistics report: the 32nd issue was just released. So far it's only out in Chinese - an English version will follow. These two charts show first internet users and then mobile internet users, both in 10ks.
So, 590m internet users and 436m mobile internet users. This latter number, interestingly, is a fair way ahead of 3G users, as provided by the mobile operators, which stood at 280m at the end of March. Lots of wifi in that use.
There's lots of other interesting data, but this chart really stands out. It shows the means by which people access the internet. The first group is desktop computers, the second laptops and the third mobile phones.
The implication of this chart is that a little over 30% of Chinese internet users only have mobile access, and close to 80% use mobile at some point.
The proportion of these mobile users that have smartphones is a little less clear, at least if you prefer to rely on primary sources. Baidu reported that 46% of its mobile page views came from iOS or Android in Q3 2012, up from 16% at the beginning of the year; one would expect these devices to have disproportionately high page views, but by now it seems clear that they've passed 50% of the base. That would imply well over 200m now - perhaps three quarters of that is Android. There are more solid estimates out there - I'm still gathering data to make my own.
These are (obviously) big numbers. To put this in context, there are only a little over 300m total mobile users in the USA, of which around 150-160m have smartphones, depending on which survey data you use. China already has significantly more smartphone users than the USA. Unlike the USA it's dominated by Android, but of course most of those Android devices have no connection to Google.
This is why Baidu bought 91 Wireless, which runs two of the biggest Chinese Android app stores. With limited access to Google Play (and no Play payments), there are dozens of alternatives. In fact, there are also alternatives to Apple's app store - partly for piracy and partly because until recently downloads across the Great Firewall were very slow. These stores only work on jailbroken iPhones, but around a third of Chinese iPhones have been jailbroken. Overall, Baidu claims 91's stores have had over 10bn app downloads (probably including iOS) - for comparison, Google Play downloads recently passed 48bn.
It's also worth tracking companies like Wandoujia. It's another of the dozens of stand-alone Android app stores, and it's started doing a stats deck to boost awareness amongst foreign developers. It claims 120m mobile users, of which 12m open the app store app every day, and 26m app downloads a day.
Top 20 Android phones in China, as per Baidu. Samsung at the top (with about 30% total share), but lots of domestic brands in there too.
For future reference, this is what at least one Motorola Android phone on sale in China looks like. No Google services at all. Hardly news for anyone paying attention, but I thought it was striking that this phone was on the Motorola stand at MWC in Barcelona this week.
This is, of course, extremely common - the great majority of Android phones sold in China are in this state. No Google services (or buried if they're there at all) and Baidu search instead of Google Search.
Amongst other things, the absence of Google Play means that they generally do not feature in Google's Android activation numbers (which in any case have not been updated since early September 2012).