Will tablet devices hurt sales of other devices? Not much
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Will tablet devices hurt sales of other devices? Not much

A new study by Rethink Technology Research found that about three quarters of the sales of tablet devices, such as the iPad, will be at the expense of the purchase or upgrade of another device in many case one with higher price tags and margins than the tablet.

Vendors will hope these will be companion products, acquired in addition to a phone or notebook, but that means the prices have to be keen, to encourage consumers in a recession to invest in a non essential item, says the research group. Even Apple has come in with an iPad entry price far lower than most had expected, and a recent research note from Credit Suisse points out that Apple management noted that it will remain nimble (pricing could change if the company is not attracting as many customers as anticipated). Remember, Apple slashed the price of the iPhone by $200 two months after it went on sale.

Apple stands to make margins of almost 43% on the new tablet, so has plenty of room for maneuvering, but this will be less true of many other players as competition mounts. Freescale is already gearing its smartbook platform at sub $199 devices.

The emerging device category will fall into three broad subsections, plus the ereaders. Although these are single function, they have established many of the norms for the broader market, such as embedded wireless connectivity and integrated content stores. And some vendors, like Amazon, will extend their ereader platform into more general purpose products.

The three multifunctional categories, which will overlap, are the tablet (single sided, large touchscreen product heavily geared to content consumption, from video to ebooks); the smartbook (often hinged, like a tiny netbook, with some local storage but optimized for web services as well as some downloaded content); the cloudbook (the newest category, to be pioneered by Google for its Chrome OS, and offering an ultrathin client with little or no local data and apps, doing everything online via the browser and attached to the cloud).

Squeezed prices and margins may be acceptable if these hybrid devices are incremental purchases, but even worse for the suppliers, this will not generally be the case, especially in the first few years. Until at least 2013, consumer spending will remain under pressure, and there will be insufficient confidence in the thin client/cloud usage model for many people to rely on a cloudbook or tablet as their only computer. As I've said before, devices such as the iPad are, for the majority of people, supplementary devices, not replacement devices.

These devices will total about 60 million unit sales by 2014 according to the Rethink survey, with a market value of US$13.5 billion in hardware terms alone, plus about half that much again in directly related content/app sales. Rethink says about three quarters of their sales will be at the expense of users investing in new computers, netbooks or phones, or upgrading the ones they have. But I disagree -- except in regard to netbooks.

-- Dennis Sellers


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