Growing tablet market means more choice, confusion for gadget-lovers

October 30, 2012

This holiday season is turning into a battle among tech giants for the hand-held computer that every tech geek, executive, student and child will be carrying around next year.

Analysts expect tablets to be a top gift this year as the appeal of the devices grows to a wider audience looking to move up from e-readers or down from laptops. It will probably be a make-or-break few months for new market entrants, including Best Buy, Barnes & Noble and Google, as consumers wade through the myriad choices.

When Apple introduced the iPad in 2010, it was not clear whether tablets — occupying a strange space between the smartphone and the laptop — were here to stay. But now analysts predict sales of at least 117 million tablets by the end of 2012, the majority in the final quarter of the year. In a survey, 15 percent of tablet buyers told the Maritz Research firm that, if given the chance, they would purchase a tablet before buying a computer, a smartphone or even a television, making it a potential all-in-one replacement device.

“People coming in at this point are a wide cross section of society,” said Rhoda Alexander, a tech analyst at IHS iSuppli. “They held back initially to see if it was a fad but are now seeing these devices everywhere they go.”

The rising interest means there are tablets aimed at all segments of the market — from the businesslike Microsoft Surface, with a full keyboard on its cover, to the Toys R Us Tabeo, meant for children as young as 5.

Apple added two tablets to its lineup last week — a revamped full iPad and the more portable iPad Mini. Google announced two new tablets Monday, an updated version of its Nexus 7 and a larger, 10-inch tablet. Meanwhile, Amazon.com has expanded its line of low-cost Kindle Fires, and retailers Barnes & Noble and Best Buy now have their own offerings. Then there are companies such as Samsung, Asus and Lenovo — all of which are taking a second crack at the market.

This holiday season could establish a pecking order for the various tablets cluttering the market and provide insight into what consumers value — price, functionality, or app and entertainment options. The most vulnerable, Alexander said, are companies that make “white box” tablets and have no brand recognition. Those devices compete solely on price but have no unique content or hardware that distinguishes them.

The $29 billion tablet market is attracting new competitors looking to offset flagging revenue in the personal-computer industry, which is expected to shrink this year for the first time in a decade. Others see an opportunity to leverage the devices to reach consumers more directly.

“The value proposition for a retailer is to drive additional sales of their physical goods or to build brand recognition,” Alexander said.

Toys R Us’s Tabeo gives the retailer a way to build credibility with safety-focused parents who want a tablet with only child-friendly content and software. The toy store began exploring the idea after seeing the success tablets had last holiday season.

It wanted to introduce something that was “differentiated in the marketplace and hit on what our customers are looking for,” said Troy Peterson, a company vice president.

Likewise, users who pick up a Barnes & Noble Nook tablet are likely to turn to the bookstore chain when they want to get their hands on the next hot novel.

That strategy usually includes making little or no profit on the tablets upfront. Companies can always make money later, Alexander said, by introducing tablets with new features in the second generation — as Amazon has with its Kindle Fire line. The important thing is getting a foot in the door.

But so far, Alexander said, no one has managed to hit pay dirt with that business model.

Only Apple has shown it can make a profit in this increasingly competitive market. It prices its tablets at a premium and cashes in on the thousands of apps developed for them.

Yet the company reported that profit margins will take a dive because of high costs for the iPad Mini, raising some questions about whether the company can keep up its red-hot performance. The iPad has more than 60 percent of the market, but that is down from 80 percent in 2010.

Apple introduced the iPad Mini to get a new piece of the market but barely downsized its price. The eight-inch tablet’s cheapest model is $329, while Google and Amazon are offering comparable tablets for $199.

Apple’s pricing strategy has left the door open for others to grow, said Tom Mainelli, a tablet analyst for the research firm International Data Corp.

“A couple of years from now, if Android and its variants . . . have a larger market share than they do today, we’ll say this was the moment in time when Apple could have relegated them to niche status and opted not to,” Mainelli said.

More tablet options may be good for consumers, but that will require them to do some research as well.

“There’s going to be an awful lot of choices on the market,” Mainelli said. “That’s great for consumers but could be confusing.”

His advice? Go into your nearest store and get a feel for your top choices.

“Even spending five or 10 minutes with a device will probably go a long way toward making an educated decision,” he said.

Hayley Tsukayama covers consumer technology for The Washington Post.
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