Segmenting the UK tablet market

I just finished listening to another fine podcast from the 361 Degrees crew, and their tablet topic got me thinking about what a hard time UK consumers are going to have trying to pick the right tablet to put under the Christmas tree this year.

Pads, iPad Minis, Nexus 7, Fire HD, Surface - what a minefield!

Naturally Apple, Amazon, Google and Microsoft will have their fingers crossed that consumers will choose their entry in the Christmas present beauty pageant.

So who will be the winner at Christmas?

To answer this question, you first need to segment the mainstream tablet buyers into categories (note mainstream tablet buyers - not tech enthusiasts / early adopters. These guys have already bought for themselves and won't be gifting a tablet under the tree!)

Here's my take on how the mainstream (not early adopter!) tablet customer base is segmented.

The market used to be pretty straightforward.

Last year:

  • If you wanted a tablet and had £400+ to spend, you got an iPad.
  • If you wanted a tablet and had less than £400 to spend, you didn't buy a tablet. You saved up £400 or played around on other people's iPad. In the mean time you gestated an internal need to get a tablet.

This year the market is a little more complex. It's broken down as follows:

  • If you have £400+ to spend, you get an iPad.
  • If you have £270-£400 to spend, you get an iPad Mini.
  • If you have <£200, you choose between a Nexus 7 or a Fire HD

Nexus 7 / Fire HD customers then start accumulating digital content via Google Play or Amazon that will act as a switching barrier for them moving to the iPad platform at a later date.

By locking these customers in before they can afford iPads, Amazon and Google hope these customers will evolve their future hardware through their Amazon and Google eco-system rather than Apple's.

Next year will be even more interesting.

iPad Minis will be huge, and people with £400+ to spend will start choosing the Mini over the full iPad - especially once the Retina version is launched.

For the lower tier of people with <£200, Amazon and Google will be desperately hoping that the feedback from their 2012 first time Nexus 7 / Fire HD customers will be positive enough to drive adoption by new customers in 2013. However if the Amazon or Google tablet gifted at Christmas 2012 turns out to be a dud for the recipient, word will quickly spread and 2013 tablet buyers with <£200 will save up for an iPad Mini.

Of course at some time in 2013, Apple will likely introduce the iPad Mini Retina at the current iPad Mini price, then drop the price of the current iPad Mini to compete head to head against the Nexus 7 / Fire HD - at which point life becomes very difficult for Google and Amazon to sway customers away from Apple. Hence they need to grab a tablet customer base now whilst they have a price advantage.

What about the Microsoft Surface? It's a non-starter. Mainstream consumer customers will be too busy getting their heads around iPad Minis, Fire HD and Nexus 7 to contemplate considering a Windows 8 RT Tablet. This is not a consumer product, regardless of how many dancing people are in the advertisement.

I've made the point before that I think Microsoft made a strategic error branding consumer facing phones and tablets under the "Windows" brand. If you believe the rumours, they now see this error too and are planning their own entrant into the consumer 7 inch tablet space for next year under the more consumer friendly "Xbox" brand. This is a better move by Microsoft, and is likely viewed internally by them as a defensive measure in the event that Surface flops.

Apple's big problem next year is containing the iPad Mini juggernaut. There's going to be a lot of people willing and able to pay for a full iPad next year, but will take a Mini instead due to a preference for the smaller form factor. Apple will need a good story in 2013 as to why people should buy a full iPad over the mini.

So who will win at Christmas 2012? I think iPad Minis and Fire HDs will come out on top. I can see the Fire HD triumphing over the the Nexus 7 despite the latter having an arguably a better fusion of hardware and software, and a larger app eco system. The reason is psychological - I think many mainstream consumers will be resistant to allowing Google via their Play store to hold their credit card details, whereas they have no such reluctance to let Apple and Amazon access their credit cards.  

Google need to do a bit more work to educate consumers about the merits and safety of the Play ecosystem.

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