Tablets

Tablets, PCs and Office

The whole ‘tablets and PCs’ discussion today reminds me a great deal of similar conversations we used to have a decade ago about ‘laptop or desktop’. 

That is, someone would ask a vaguely technical friend whether they should buy a laptop or a desktop. And the answer would be “well, how much money do you have and what do you want to do with it?” Laptops were portable but had smaller screens, less power and were more expensive. Which trade-off depended on how you planned to use it. 

Over time that break point shifted: laptops got less expensive and much more powerful - today there are very few tasks that need the power a desktop can give, but the screen size point remains (though of course external screens are cheap). And so laptops grew to roughly half the PC market by volume. The desktop market didn’t go away - mostly for screen size or cost reasons (if you’re outfitting an office of 10k people, none of whom take their work out of the office, why buy laptops?)

Much the same analysis applies to tablets today - "what are you going to do with it?" Are you going to do sophisticated, complex, multi-app computing? Lots of keyboard work and detailed manipulation that a mouse is better for? Apps that are only ON a PC? Then get one (whether desktop or laptop). Mostly web, email, games, video, social networks and you’re walking around all the time? A tablet might suit you very well. You probably have a PC too - there’s very little actual substitution right now, but there is an impact on the PC replacement cycle (as well  as expanding the pie massively, especially in emerging markets, which is another conversation). 

And of course this break point will move as well, just as the laptop/desktop break point did - tablets will get faster and more sophisticated and capable of substituting more tasks. And so we should expect to see tablets taking a growing chunk out of the PC market.

(The other way to slice this is that the PC market is split very roughly half and half between consumer and corporate - corporate boxes will remain longer than consumer PCs, but there’ll be erosion in both.)

Another very important lens to look at this through, though, is Microsoft Office. Office is extremely good (tautologically) at the things it’s good at - there is no credible alternative to Excel for making large financial models and no credible alternative to Powerpoint for making 150-page pitch books, for example. Free alternatives nibble around the edges, and specialised use cases such as statistics have been carved out long ago, but the real threats come from use cases where you shouldn’t really be using Office at all. 

This ‘shouldn’t use’ comes from both above and below. Someone said to me on Twitter (I now can’t find who) that their consulting business spent half its time telling people to stop using Excel and use a database and the other half telling people to to stop using a database and use Excel. That is, Excel is used as a business information system in a huge number of companies. It’s a powerful and flexible IDE on its own terms, and this is sometimes a good use, but it often isn’t, and specialized SAAS services will probably carve out an increasing number of these use cases. When I worked at Orange there was a multi-megabyte Excel file on the network drive called, I believe, ‘sum_of_x.xls’ containing complex macros and every major operating metric for the entire company, there for anyone who needed to analyze high-level data. That should probably not, really, be in Excel today. 

The same applies to Powerpoint - it’s a very good tool for that 150 slide deck, but what if you’re making a 10-slide deck each week that consists entirely of operating metrics pulled out of a back-end system, manipulated in Excel and pasted into slides, plus commentary, that are emailed to 25 people? Shouldn’t that change from a 2 hour task to a SAAS dashboard and a 30-second task? And would it still need a mouse and keyboard?

(This point also bears on the future of email itself, but that's another topic.)

This carving out comes from below, too. One of these is the Google Docs story, about there can be much debate, but to me the interesting challenge is embodied by this screenshot - the ‘new file’ menu in Excel. 

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How many of these are actually smartphone or tablet apps providing custom lists or databases? Or Mint (another SAAS)? How many presentation templates might also be something like Storehouse?

This is, of course, all about unbundling and specialisation. Office apps (generically) are very broad and deep and general purpose. Critics tend to focus on the depth and talk about how few people need all those features, but miss the breadth - of how many things a general purpose ‘table’ app or ‘make pages’ app can be used for (including what look to technical people like misuses - the classic example being the person who pastes a screenshot into a Word document and emails that). I'd suggest that a meaningful proportion of Excel use doesn't involve formulas, for example, just lists and tables and page layout - IDE as DTP. New routes to market and new interaction models provide new ways to challenge that hegemonic interaction model, just as smartphones allow the unbundling of Facebook's interaction models - SAAS changes Office and so do app stores. 

This brings us back to the mouse and keyboard that you ‘need for real work’, as the phrase goes. Yes, you really do need them to make a financial model. And you need them to make an operating metrics summary - in Excel and Powerpoint. But is that, really, what you need to be doing to achieve the underlying business purpose? Very few people's job is literally 'make Excel files'. And what if you spend the other 90% of your time on the road meeting clients and replying to emails? Do you need a laptop, or a tablet? Do you need a tablet as well as a smartphone? Or a laptop, or phablet? Or both?

Well, what do you want do with it? it’s all just glass - the only real different is the size and the input mechanism that suits your task. 

The meaning of really cheap Android

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. 

iPads, price and self-selection

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).

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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. 

Children, mobile phones, tablets and games

Ofcom, the UK's media regulator, has published a fascinating research report on UK children's use of media and digital devices (PDF here). It's long and covers a wide range of topics, from TV consumption and awareness of advertising to use of games consoles (which is falling), but there are a couple of data sets around mobile devices that I want to pull out. 

First, ownership and access. Over 70% of 15 year olds have a smartphone, and over half of 13 year olds (the notional cut-off for social networks).

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Tablets, for children, may remain rather more a shared device, with ownership even at aged 15 at 20%, but access (at home) at half.  (The wobbles in the lines are survey artefacts)

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Use of devices other than TVs to watch television programmes is growing strongly. 

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Dedicated games devices are in decline.

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And smartphones and tablets clearly on the way to replace them, but perhaps not as fast as one might think. 

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Meanwhile, over half of early teenagers use mobile messaging apps...

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But SMS remains the dominant form.  

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Finally, entirely unsurprisingly, boys like computer games and girls like talking. Interesting how girls appear to outgrow games, though - and boys don't.  

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On demand TV viewing in the UK

Every month the BBC releases a PDF full of usage data for its iPlayer catch-up product. iPlayer effectively makes all of the BBC's output for the last month or so available on demand, for free, to anyone in the UK. There's a website, smart phone and tablet apps and also apps on smart TVs and games consoles. Pretty much all devices with meaningful user bases can access it. This is what the iPad app looks like (click to enlarge). 

Hence, iPlayer stats give a good sense of what viewing looks like when premium quality content is available, on more or less equal terms, on all possible devices. What do people want to use, given use cases, screen size, interfaces and all the other variables, all of which are changing? 

The whole PDF is interesting, but I want to single out two charts. This one shows video consumption by device. Tablets are 25% of requests, almost as large as all on-TV viewing, which adds up to 27%. Mobile phones are another 15% for a total of 40% on hand-held devices. (Note that this is just share of iPlayer - live broadcast viewing is still vastly larger). 

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The second chart shows consumption by time. iPlayer TV viewing skews to the evening (as one would expect) but also rather later than broadcast viewing. I strongly suspect this reflects viewing on tablets and mobile phones in bed (the report doesn't break device use out on this basis, though).  

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Also, note the scale - iPlayer peaks at a 470k audience where TV is still peaking at 24m. And, as shown on the previous chart, there is growth but it's hardly exploding.   

The broader puzzle for the industry is quite what effect the flood of cheap tablets has on TV viewing. It is hard (though possible) to see mass-substitution from a large screen, especially for group viewing. But second sets, multi-room and teenaged viewing all seem like they might get split off. Equally, the spread of Airplay, Chromecast and similar might change large-screen viewing habits, since they effectively let you use a touch screen interface yet watch on a big screen. 

Android tablet numbers

As part of Google's event last night, it showed the following chart for Android tablet activations. The source is marked as 'IDC, Gartner and internal Google data' - which is odd, because you would think that Google's own data would be enough for this.  

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If I eyeball this chart and back out the numbers, the result looks something like this. 

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Clearly, there's an interpretation of this that says Android is eating iPad's sales. 

However, there are two problems with this. The first is the cyclicality issue I explored in a post yesterday (just before this chart was used).

The second, and bigger one, is usage data like this, from Chitika. I'm not, as a general rule, a huge fan of ad network traffic data, but this chart shows numbers that pretty much every web publisher also sees - iPad is 80-90% of tablet web use, and (in the USA) Fire is another 5%. Fire isn't included in Android activations. So Android is maybe 10-15% of use. 

 Yet Google claims there are 70m Android tablets. Apple has sold 155m iPads and probably only 125m of those are still in use. So those 70m Android tablets are 35% or so of the install base - but 10-15% of the traffic. 

There are three possible interpretations of this: 

  • These tablets are being bought in emerging markets (but not China, since Chinese devices generally aren't activated and so won't be in these numbers) and not using western sites
  • They're being bought in developed markets and being used much less, or not at all
  • They're being bought and not used for the internet - they're cheap kids' tablets, baby monitors, points of sale devices...  

The truth is probably a mix of the three. But this doesn't easily lend itself to a simple 'people are buying cheap Androids instead of iPads' narrative. In particular, the tiny share of Nexus sales suggests that people buying these devices are much less interested in a good experience than in the lowest POSSIBLE price. 

Falling interest in Kindle and Nook: the decline of ereaders?

I'm a big fan of Google Trends. It's partial, and you need to think carefully about what you're actually looking at, but used properly it can be very revealing of market trends.

So, caveats aside, this chart shows US search volume for Kindle, Kindle Fire and Nook. Three things stand out: 

  • A large and unsurprising spike at each Christmas
  • A really substantial decline for 2012 versus 2011 - close to 50%
  • The Kindle Fire, supposedly the future-proof successor to the Kindle, appears to be falling, not growing

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Amazon, of course, tells us nothing tangible about how the Kindle is doing, but Nook's numbers (as reported by Barnes & Noble) are looking terrible, which is consistent with this.

It seems to me that several things may be going on here:

  • General-purpose tablets (mainly the iPad) are more proving more compelling to consumers than special purpose tablets like the Nook and even the (rather more capable) Kindle Fire
  • Cheap general purpose tablets (which are very hard to capture in Google Trends, as an aside) have removed or reduced the price advantage the Nook and Fire had last year
  • These devices have quite long lives - especially ereaders (i.e. the Kindle). Maybe most of the addressable market bought one in 2010 and 2011 and those people didn't come back to the market in 2012

There's a broader story here, of course, in the way that the growth rate of ebooks seems to be slowing as they reach a third or so of the market.

The UK data shows a trend that's slightly different: Nook is MUCH weaker (reflecting the absence of real distribution or brand) and Kindle Christmas interest held up better in 2012, probably reflecting the later UK date - ebooks seems to be about 1 Christmas behind the USA. However, the drop-off seems to be sharper in the beginning of 2013 than in the beginning of 2012, just as in the USA.  

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The same point is even more clear if we look at search volume for 'ebooks'. The deceleration is clear.

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