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

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.  

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

Nexus tablet sales: not many

Google doesn't say anything about Nexus sales. However, Asus, which makes the Nexus 7, has disclosed total tablet sales: 5.35m in the second half of 2012, when it sold the Nexus 7 as well as some other tablets. That gives us an upper bound for Nexus 7 sales, but what about the (Samsung-made) 10?

Well, both the 7 and 10 use relatively uncommon screen profiles, and these now show up in Google's development data for screen sizes:

  • Nexus 7 is 'large TVDPI' - at the beginning of April this was listed as 1% of devices hitting Play
  • Nexus 10 is 'xlarge XHDPI' - which was 0.1%

I've modeled active Android users (excluding China) based on interpolating between Google's announcements: my model says there were 680m Android users at the end of March. Assuming equal Play use across the base (a big assumption), that would imply:

  • 6.8m Nexus 7s in use (consistent with the Asus number)
  • 680k Nexus 10s in use

Rounding obviously applies to both of those numbers - '0.1%' could actually be '0.149%', which would be 1.01m. I don't believe there are any other devices on sale using either screen profile, but if there were that would obviously push the Nexus numbers down. 

That compares with probably 10m iPad Minis sold in the last 2 months of Q4, and 36.9m iPads sold in the second half of 2012. 

Given that both Nexi (?) are perfectly good devices on their own terms, this points to the continued importance of both distribution and ecosystem for Apple tablet sales versus the competition.

Incidentally, the rumour is that Microsoft's Surface tablets have only sold 1.5m units. On this basis, that would still be more than the Nexus 10.

Forecasting and tablets

Forecasting phone sales is relatively easy. We know roughly how many people with mobile phones there are on earth (3.2bn), how fast that is growing, how often they replace their phones (a little under every two years) and how that is changing. So, you can do a five year forecast with a pretty high degree of confidence that you won't be too far wrong. 

Forecasting smartphone sales is then a subset of that. You know how many phones sold now are smart (just under 50% in Q4 2012), you know how fast that is changing and roughly how many of those 3.2bn people cannot afford to pay more than, say, $50 for a phone, and assume that in 3-5 years all of the rest will be buying smart phones. There's a little more variability in those numbers, but again, you're not going to be very far away from the right answer. 

Tablets are a different matter. Three years ago people though it was a 5-10m-unit a year market - Apple sold 65.7m in 2012, and Chinese OEM/ODMs sold tens of millions more. Well over 100m will be sold in 2013. But where is the ceiling? Three years in, we're a little adrift. The line points up to the right, as it does for smartphones, but for smartphones we have a good idea where it will stop: with tablets we don't. 

Which of these proxies is most relevant? We can only speculate. PCs are an obvious match, but are bought only every 5 years and are a 'one per household' product, neither of which is true of tablets. Tablets themselves, as the definitions blur, start to cannibalise, not just PCs, but also smartphones, especially high end ones. An iPad Mini plus (to give an extreme example) Nokia's 105, which costs €15 and has a 35 day standby time, might be a good combination for some, while people in Asia do make phone calls from 7" tablets. And then 'tablet' itself encompasses devices priced from $75 to $600, which don't really compete with each other.

To me, though, the most interesting benchmark is not PC sales, which is where people tend to look to see what tablet sales might be, but more towards the right of the chart. After all, that's the number that tells you how many people have $100-$300 to spend on a magic box connected to the internet. Maybe they'll all buy a big one and a small one. In that case, tablet unit sales might be 10x what they are now. 

Nexus 7 maths

Update

As promised, Asus gave a few more numbers yesterday.

Though the Taiwanese press had widely reported the company as giving a figure of 6.3m tablets for 2012 (which was also the internal target and external guidance), implying 2.4m tablets in Q4, in the actual investor presentation the company said Q4 tablet sales were 3m. Ah well. The CEO also said he wasn't allowed to give any Nexus-specific data. 

That means that Asus sold 5.3m tablets in the period the Nexus 7 was on sale, rather than 4.8m. Not all of those were the Nexus 7. It sold 920k (non-Nexus) tablets in Q2, and (as I said above) it is unlikely those sales just disappeared. 

Hence, Nexus 7 unit sales were a maximum of 5.3m units (total Asus tablet sales). Subtracting, say, 200k unit sales of other tablets (a very low number, given it sold 900k in Q2) in each quarter would reduce that to 4.9m. Allowing a higher figure of 500k for sales of other tablets would take that to 4.3m. 

Again, given distribution ramped up slowly in the period, this number is probably still growing.

Original post

Google doesn't say anything about Nexus device sales, but Asustek, the manufacturer of the Nexus 7, does. The chart below, from the Q3 IR deck, shows tablet unit sales for the first three quarters of 2012: today it announced that total tablet sales in 2012 were 6.3m units (in line with a target it stated in December). 

The Nexus 7 went on sale in Q3, and in October the CEO was quoted as saying: "at the beginning, it was, for instance, 500K units a month, then maybe 600, 700K. This latest month, it was close to 1 million." (link)

So:

  • Around 4.8m tablets sold by the company since the Nexus 7 went on sale
  • Verbal comments indicate 2.1-2.2m in Q3, which is consistent with the total figure
  • However, that would imply a collapse in sales of all other products (616k in Q2), and might perhaps include product ramp-up in June
  • 2.4m tablets sold in Q4
  • Therefore total possible Nexus 7 sales of say 2.2m in Q2/Q3, plus at most 2.4m in Q4, and probably a hundred thousand or so less (given sales of other devices)
  • Hence, total Nexus 7 sales of 4.5m to 4.6m, and no more than 4.8m

It's worth pointing out that Nexus 7 distribution was somewhat patchy - for example, it only went on sale in Japan at the end of September. 

Apple doesn't disclose iPad Mini sales separately, but going on the ASP, my estimate is that it sold 10m in Q4, despite the fact that it wasn't available until the beginning of November. 

Kindle Fire sales numbers aren't much better than guesswork, given that Amazon doesn't disclose anything, but my guess is that it outsold the Nexus 7 as well.

I'll update this if and when Asus gives more precise unit sales (the investor conference is on 5 March).


$37 tablets

It's always worth browsing Alibaba, for all sorts of reasons. This gem is an eight inch tablet on offer for $37 wholesale (link). The design looks strangely familiar. 

This isn't a terribly new story, though this is the lowest price I've seen yet. The spec is vaguely plausible for the price: 8 inch 2-point capacitive touch screen, VIA8650 CPU, Android 2.2, 256MB RAM, 2GB ROM, WiFi, 1.3 MP camera. The promise of 'internal Word and Excel' is a nice selling point, though. 

I suspect the performance for this would be horrible at best, and good luck getting many recent Android apps to run (did 2.2 have the Fragments API?), though it will do fine for web and video. Indeed, video is a major use case for such things. The battery life is quoted as 5-6 hours and that probably means standby life. But in emerging markets, if you only HAVE $50 to spend, this might be your first internet experience outside of an internet café. And depending on who you talk to, there could be well over 100m similar devices being made in China this year. 

However, it hardly needs pointing out that including such devices in global 'tablet' sales for the purposes of calculating the market share of Apple, Samsung or Amazon products will create a rather misleading impression.

Incidentally, you could get 100 of these (the minimum order) for the price of four Surface Pros. 

How Many Tablets Are In The USA? And Does It Matter?

Another day, another number for tablet market share. Pew has released its latest survey for the US market, suggesting (amongst many other things) that Apple now has ‘just’ 52% share of the US tablet install base.

So, do we believe this? And what might it mean?

The tablet market is problematic to analyse because there is an almost complete absence of real data. Apple gives global quarterly unit shipments (indeed, it is by far the most open company in this market), as does RIM (but its numbers are too small to be meaningful) and Motorola used to, but otherwise we’re groping in the dark. Google gives data for the share of the devices connecting to Google Play that have large screens, but this is global, may not be a good sample and is contaminated by poor reporting (for example, at least one Samsung device changed the screen size it reported after a software update). Then there are the industry data firms, which generally base their pitch on aggregating data from the manufacturers, but I rather doubt Amazon is telling them anything. That leaves surveys (if you believe them) and triangulation: in other words, analysis.

We know from the Apple/Samsung patent lawsuit disclosures that Samsung sold just 1.4m Android tablets in the US through June 2012 (excluding the 5″ ‘phablet’ models and some newer models that weren’t subject to the lawsuit, though) where Apple sold 34m – 20m in the last 12 months.

Then, Amazon says the Fire has ’22% share in the USA’, but gives no indication of how it calculated this, or even if it is cumulative or for the most recent quarter (and it has been suggested it comes from… an industry data firm). Meanwhile Nook business unit revenue was $200m in Q2 (including tablets, ebooks and ereaders), so B&N must be selling well under 500k Nook units a quarter. For context, B&N claims 25% or so ebook market share versus over 60% for Amazon.

So…

It looks like there are 30m iPads in the USA (depending on how many you think have been replaced by newer models but not handed on). If one assumes 10m Fires, 2.5m Nooks and 5m ‘Pure Android’ tablets (i.e. excluding the Android-based Fire and Nook), that gets 47.5m total, Amazon to 21%, Apple to 63% and gives Samsung, say, 30% of those pure tablets, all of which is internally consistent. However,the Fire number seems a little high and it also leaves ‘Pure Android’ looking rather small compared to the Pew number. Indeed, the only way to match Pew’s number (while keeping the other numbers the same) is to assume that there are fewer iPads (say 25m) and at least 10m ‘Pure Android’ tablets. I’m not sure I believe that. Incidentally, this would also imply that Samsung has well under 20% share.

Of course, only Google knows the answer to this one, and with customary opacity they’re not saying. But whether Android has 5 or 10m tablets in the USA is relatively uninteresting – the important question is what those tablets really look like and how they’re used. How many are the Nexus 7? How many are cheap generic plastic Chinese units at $150 or below? And with Amazon ramping up its Fire proposition and going down to $160, will people keep buying those generic units or even the Nexus or will they turn to a brand with a clear content proposition? Which devices are likely to sell themselves best as an impulse purchase in a supermarket bay in early December?

I suspect Android tablets face an even bigger self-selection issue than Android phones. Given you can get a great app and content experience from Apple for $400 (or lower if the iPad Mini exists) and a great content experience from Amazon for $160, what sort of person with what sort of use case will buy the pure Android tablet, and will they be the kind of person that would install cool new apps and buy stuff? Or are they buying a ‘web tablet’ at Walgreens? Certainly, UK retailers are ramping up for a ‘cheap Android tablet Christmas’.

That doesn’t really matter to Google, of course – all of these devices, even the iPad, are expanding the inventory for Adsense. But they’re probably not a great target market for anything other than generic web use – even less than Android phones have proven to be. 

(Cross posted from my Forbes.com blog)