The Tablet market

Martin Garner Director, Internet 19th October 2011

Agenda
What is a tablet?
User behaviour is adapting around owning a range of connected devices The tablet market Conclusions

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CCS Insight

What is a tablet?

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CCS Insight

What is a tablet?

Living room Internet companion

Mobile Internet Device New Category

PC substitute

Tablets potentially have an impact on each of these markets

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What is a tablet?

What Would You Say A Tablet Is?

0%
Exactly what it is, a tablet Simple easy to use computer A laptop but with a smaller screen Super duper smartphone Other A mobile phone but with a bigger screen Portable TV with a smaller screen
Sample 4500 CCS Insight Tablet User Survey Oct 2011, EU5

Nearly half think of tablets as a genuine new category

10% 20% 30% 40% 50%

One third think of them in computing terms

Comparisons with mobile phones have much lower weight
Other Apple iPad

But the mobile market complicates the purchase with the 3G option

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CCS Insight

User behaviour is adapting around owning a range of connected devices

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CCS Insight

User behaviour is adapting around owning multiple connected devices

The PC has been the main device for using services on the web We now see the first signs of users expecting to change their behaviour

CCS Insight Mobile Internet User Report, July 11

Tablets and mobile phones are beginning to show as preferred devices for browsing and email, social networking and IM

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CCS Insight

Tablet market

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The tablet market is growing strongly

Western Europe Monthly Units, By Product, July 2010-August 2011

August a record month by unit sales, 261,000 units:

almost 20% up from July Continued trend since April

August result due to:

Further growth in iPad 2
Up 18% from July Apple share stable at 66% Supply constraints easing

TouchPad sales doubled to 31,000 units (12% share)

Share of Asus (7%) and Acer (6%) slightly down from July Samsungs P7500 10.1 inch tablet reached 2% share
NB: Distributor sales shown not total market

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CCS Insight

Apple dominates, but we see first signs of real demand for non-Apple

Q1 was seasonally weak Q2 saw 102% growth in W.Europe Apples dominance is clear Samsung, RIM and HP had disastrous launches But Samsung, Acer and Asus are now showing that there is an appetite for non-Apple devices

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Adoption across countries mirrors the pattern for cellular phones

UK continues to be the top selling country by volume, followed by Germany and France

Estimated 2Q11 Sell-in W.Europe (iPad K)

United Kingdom Germany France Italy Switzerland Spain Sweden Netherlands Denmark Norway Belgium Finland Austria Portugal Ireland Greece 468 407 370 224 167 152 147 118 112 86 76 46 38 19 16 12

Switzerland, Sweden, Netherlands, Denmark, Norway and Finland overindexing for their size UK, Germany, France middle-ranking for rate of adoption
Italy and Spain underindexing for their size

100 200 300 400 500

Supply constraints have reinforced this

Growth rate rose later in Q2
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The tablet market is important because it could be huge

The range of forecasts in the market is large
From: 22m in 2011 47m in 2011 To: 800m 2011-2015 >1bn by 2015 Qualcomm market potential, May 11 iSuppli, May 11 Major mobile vendor, Nov 10 CCS Insight, Mar 11

Tablets could become the future of mass market computing If suppliers get the products and the software right Addressable market volumes would then be 2-4 bn worldwide

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Whos buying tablets?

Tablet Ownership by Age Group
35% 30% 25% 20% 15% 10% 5% Apple iPad Other

65:35 male to female

Tablet ownership is concentrated in older age groups

0%
13-17 18-24 25-34 35-44 45-54 Over 55
Sample 4500

Maps broadly onto wealth distribution

Likely to broaden as lower priced devices become available E.g. Amazon Kindle Fire

CCS Insight Tablet User Survey October 2011, EU5

Source: http://www.jchs.harvard.edu/publications/markets/w07-1.pdf Title of Presentation

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Brand and practical aspects guide choice of tablet model

Early market
Why Did You Choose Your Tablet Model?
0% 10% 20% 30% 40% 50% 60% Value of the brand

High perceived risk

Apple the safe brand

After brand, practical factors dominate

Number of apps available

The screen is big It feels light It had 3G Other Brand is the same as my The same apps as my phone Price was reasonable Software compatible with My friend/relative has one, The screen is small Other Apple iPad
Sample 4500

Apples other core strengths are less important as selection criteria

Especially among older buyers Match with phone brand two thirds do not have an iPhone

Software compatibility with other (Apple) devices

Same apps as my phone Likely impact of iCloud ??

Price is a stronger factor for nonApple buyers

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CCS Insight

Tablet purchasing is a collision between computing and mobile

Consumers think of tablets as a separate category or as part of their computing

WiFi France

But tablets may be sold with several key attributes of the smartphone market OS + App Store SIM card + Data plan This seems to affect the mix of devices sold in each country Bias to low end and Wifi-only in contract markets with subsidies and higher cost data plans, e.g. France Bias to high end and 3G in prepaid markets, with lower cost data plans, e.g. Italy

3G

Italy

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Some 60% of users have a 3G device, half of them do not use 3G

Current supply of tablets has favoured 3G
Apple has managed supply
40%

Have You Signed For A Separate 3G Connection For Your Tablet?

0% No, I bought a Wi-Fi only model Yes and I pay a monthly amount No and I probably wont No, but Im considering it Yes and I pay as you go Apple iPad No, I use a MiFi device No, I tether it via my phone
Sample 4500

10%

20%

30%

But WiFi is the most popular way of connecting Two thirds of respondents favour this Just over one third of all respondents use 3G either on contract or pre-pay Although tethering is now easy, it is not popular

Other

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Domestic mobility is important, and brings new Internet usage patterns

Using Tablets for Work and Leisure

0% I use my tablet mainly for leisure I use my tablet for work and leisure I use my tablet mainly for work
Sample 4500

Where Do You Use Your Tablet?

0% Bedroom Other Apple iPad Kitchen Out and about At work
Sample 4500

20% 40% 60% 80%

20%

40%

60%

80%

100%

Other

Tablet usage is heavily consumer focused, leisure usage dominates 40% use their tablet for work to some extent
Current products are clearly not geared towards enterprise use

Domestic usage outweighs wide-area usage generally

New patterns of Internet usage around the house are enabled by tablets
Couch surfing - using tablets in the living room is more sociable than in a separate room Bed browsing

Holidays are a primary use case; free Wi-Fi in many places supports the connected lifestyle
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Operators need to invest in data plans

Operator data tariffs appear to lag demand in the devices and services markets by about 18 months
The current iPad tariff model is not durable Users resist another data plan Especially in countries where these are expensive Significant numbers of users are already carrying multiple data devices Paradoxically users may also resist a pooled data plan For fear of having no allowance left for their phone Services are evolving to run across multiple devices, including tablets iCloud, Google Music, Kindle, Evernote Operators need to review data tariffing creatively and quickly

We expect this will remain as a road block for some time

This will have a significant impact on billing systems

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Conclusions

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Tablet market conclusions

We are in the very early stages of a whole new market
Tablets are not seen as a mobile device But mobile market conditions complicate the purchase decision User behaviour is already adapting to the new category Current products do not serve the full range of use cases Wide area usage is a valid use case, but operator tariffs are a roadblock We see the first signs of real demand for non-Apple devices In order to realise the full potential we need multiple suppliers to be successful The addressable market could be measured in billions of units if suppliers get it right
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Martin Garner Martin.garner@ccsinsight.com Mobile: +44 788 757 1496

CCS Insight
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Twitter: @ccsinsight info@ccsinsight.com