Spillikins №164. Tablets for $200 or the New Price Wars
Sometimes events come and go every week with clear unpredictability. Last week was so intense I did not know how to pick the key events. Today you will read only about crucial tendencies, which will have a long-lasting effect.Samsung Galaxy Note: A Niche Product Breaking All Records
When Galaxy Note reached the US market its overall sales literally skyrocketed. Within one month Samsung shipped 1 million handsets to reach a total sales figures of 5 million items during 5 months. To put data into perspective compare it with Galaxy S2. Ironically after 5months sales reached 10 million. In other words Galaxy Note turned out not to be that niche, which is confirmed by sales figures. All Windows Phone 7 from Nokia in the final quarter of 2011 sold less than Samsung Note despite the almost 100% price difference between Note and much cheaper Nokia 800.
Price Wars Among Android Tablets Damage Smartphones
We have just finished discussing what Amazon Kindle Fire for $199 means for accessible tablets on the market as the rumors of Google releasing a similarly priced 7" Android tablet in June of 2012 emerged. What a Nexus tablet on Android 4 can do to rivals? Google tablet rumors are not just gossip, but a fact of life. At CES2012 NVIDIA highlighted this Asus tablet on Tegra3 together with its price.
The analysis is simple. Apple will keep the price of their solutions, because they clearly stand out and lead the way and the company can afford it. Rival Android flagships will battle it out between themselves and have to offer the same price. Nevertheless, we will see many cheaper alternatives from an array of companies. The same already happened in the smartphone market with Apple iPhone and Android handsets. The key point here is how cheaper tablets may influence the smartphone market ?
High quality mobile devices boasting a large screen and a low price of $200 are almost ideal for everyday use. The battery time comes to the fore and any tablets gives you 4 to 7 hours of intensive operation. Smartphones cannot work in the same mode, but their battery dies withing half a day. The advantage of a smartphone is in its size to fit a pocket. Many users carry two handsets, but if earlier it was a bundle of a phone together with a smartphone, then now we often have two smart gadgets at a time. Ironically we want all the features from every model, which are merely replaced as soon as the battery is dead.
The same scenario can be used with the external battery. We became the hostages of low battery life, though we became truly mobile and expect all services to be available everywhere. In this respect tablets can destroy the market by offering mobile and reliable gadgets. I am sure that with 7" tablets consumers will make calls from phones featuring decent battery life, while other activities will be carried out with the help of tablets. When such bundles appear in stores they will enjoy high demand. The only limitation now is that there is no such scenario in the market. The first generation of tablet users consists of pioneers and not mass consumers. The former need the latest technology at their fingertips, that is why they buy smartphones. The best union is a phone with a tablet. We will see it for the first time in the fall of 2012 before it becomes widely spread in 2013.
If it happens then any sold phone+tablet will eat into the market share of smartphones and the popularity of tablets may slow down the development of the smartphone market. There is no way the smartphone tide can be stopped, but its all-conquering march may be stopped, which is very interesting .
The downside of smartphones is low battery time, which is a stronger point for tablets. So far all attempts to boost the battery life run into a form factor limitation (for example, Apple iPhone is the best, but the leading Android contender in the shape of Galaxy Note is rather bulky).
I think all optimistic forecasts for the tablets market do not take into account that the pioneers niche is full and now we target the mass audience. Prices will tumble down, while the sales will rocket! Will tablets outnumber smartphones? In the next couple pf years the answer will be negative, because not all people need them, but it will happen in future. The only tablet limitation is its size. They may become more accessible though, but this may severely damage the smartphone market. In 2013 prices. I hope you did not get tired, because there are still several topic of note to come.
Additional reading:
Blackberry Loses Money and Hope
RIM has issued a financial report for the last quarter which had an immediate effect on the company’s stock value - it plummeted by 9%. for the last few year RIM’s shares have been depreciating steadily as this pioneer of the smartphone market cannot come up with an adequate response to iOS and Android. Thorsten Heins, who was promoted from inside RIM to the CEO in January (previously he worked for Siemens), during a phone call with investors said that RIM was not going to publish financial reports anymore. it means that RIM will not be giving the market any signals about what is going on inside the company. This sort of secrecy can only mean that RIM is preparing for some hard times.Funny enough, but back in January Thorsten Heins was denying that RIM was going on sale and said that he was misunderstood. But in March already he stated quite clearly that selling the business was not out of the question but also expressed the hope to set RIM on the right course. i think the news that the company might go on sale must be even more unnerving for investors than poor financial reports because RIM is going down fast and no one would want to buy it. North American corporate market, the most important market for Blackberry, has already begun to ditch RIM’s services. Carriers also cease to develop the Blackberry infrastructure because the outlook for it is rather grim. Last two years of flops and fails have now turned into a very unhealthy business environment for RIM. And there is no one to blame for this but the company’s management.
Blackberry closes the financial quarter on March 3 with a puny result of mere 11.1 million sold Blackberry devices. Mind that this quarter also includes Christmas and for the first time since 2006 Blackberry sales went down for this period. RIM’s losses amount to $125 million which is also a record high loss for RIM. Jim Balsillie, one of the former two CEOs, stayed as the only CEO but as soon as the financial outlooks became clear he resigned as a courtesy to investors who wanted to see things change. The management wanted the next CEO to look independent for the investors.
Bottom line, RIM is rapidly losing its market positions. The company’s investors have been building this failure up for several years. in the end, it was the stock market that made the future of RIM clear and pushed it down while RIM’s management failed to do anything that could stop the fall.
Additional reading:
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RIM: One New CEO Instead Of Two |
Online Retail is Killing the Traditional Chains
Best-Buy, the consumer electronics retail giant, has reported on March 3 (just as RIM) $1.7 billion losses for the quarter. The reasons for this is the growing competition imposed by online stores and Apple’s own retail chain. Best-Buy is planning to close down 50 stores and switch to smaller stores instead. This is a part of the trend on the US market: the book stores are already on the verge of oblivion as they have lost the competition with e-books and online sales.It is obvious that online retail is more profitable but many people don’t understand why and who benefits from online sales. A few days ago i came across a very interesting article that partially covers what I mean:
i want to highlight a few points from that article, most importantly, the inventory turnover i.e. the period of time it takes for a product to get sold. So, if your phones spend only a week in the warehouse it means they have an excellent turnover. Four weeks - normal turnover. It it takes longer than five weeks it means you have a problem.
Inventory stored in warehouse loses about 1-2% of its value every single week. this does not mean however affect the retail price. A hundred dollar phone may cost a $100 in retail for months. It is about paying for storage and staff. i personally think that for phones the figure is even higher and is about 5-10% a month. Small retailers often overlook this fact and set retail prices simply adding to wholesale prices.
Manufacturers can partially compensate their expenses in case of poor inventory turnover. But this compensation can only partly cover the 5-10% of the monthly value depreciation. And, naturally, the value for manufacturer sand retailers does not have any effect on the retail price the regular buyers sees.
Let us now have a look at how Apple does it - currently their model is the most efficient one. Apple managed to build their own retail chain that successfully sells and demonstrate Apple products. Apple stores are simultaneously traditional retail stroes and showrooms.
Why Apple products are so often in short supply? Partly because Apple uses short supply to attract public attention but mainly because it is a necessity. Apple only orders as many units as they can quickly sell - it is pointless to order more if your products are losing 5-10% of their value every month when stored. This also a reason to favor online sales.
By imposing online sales on their customers Apple are saving a lot of money. If you buy Apple online you purchase gets to you straight from a factory in China - it never gets to any Apple warehouse.
This stands for a higher efficiency as Apple is saving on logistics expenses. Other manufacturers will adopt this model very quickly and create an interesting situation when manufacturers are competing with retail chains and online stores just like Apple is doing already. Who is next? However, i am sure that retail chains will not die out but they will have to transform, of course. In the future, the most important role of retail chains will be to provide product support as modern devices are getting more and more sophisticated. The traditional retail chains cannot possibly compete with online retail and direct sales from manufacturers. This new trend will have a number of interesting repercussions for the market.
HTC Discontinues the Sense Service
Users of the HTC Sense online service have received letter notifying them that the service is to be discontinued on April 30. HTC did not explain why they decided to ditch the service but i think it is a part of the austerity measures they are exercising as last year HTC’s sales went down. However, Q1 2012 is showing improvements and I hope permanent ones.We should look into this story from the perspective of other similar projects. Apple, for example, failed to develop MobileMe into a mature service and it became a flop. Nokia discontinued all their online OVI services except for maps which now called Nokia maps. Unfortunately, none of the hardware manufacturers has been able o prove himself capable when it comes to cloud services. Google, on the other hand, has brilliant cloud services but is useless when it comes to hardware and has to depend on partners.
The market and the manufacturers are learning alongside. i think we will see more attempts to unite these two worlds and HTC will one day return to the online services issue. It is too bad that as a result of experiments regular users have to experience inconvenience. Too often we begin to use a service only to learn a few months later that it is about to be closed down. Unfortunately, the manufacturers will always go for saving money if the perspectives of a project are unclear.
Intel Metrics – What Happens in an Internet Minute
A very interesting piece of metrics - have a look:
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