Tablet owners who they are

Tablet Owners: Who They
Are And Where The Next
Wave Of Growth Will
Come From
Alex Cocotas | December 27, 2012

2 Copyright © 2012, Business Insider, Inc. All rights reserved.
Tablet Owners: Who They Are And
Where The Next Wave Of Growth
Will Come From
Alex Cocotas | December 27, 2012
Tablets are the fastest ramping computing device in history.
Shipments have grown from a relatively paltry 17 million shipments in
2010, to 65 million shipments in 2011, and are on pace to hit 122 million
in 2012.
However, despite that breathtaking pace, ownership remains
concentrated in a few markets and— within those markets— consolidated
in a few demographics.
Within the U.S. market, tablet ownership skews heavily towards high-
income households. Surprisingly, however, tablets owners are relatively
older, which is a significant divergence from how smartphone growth
played out.
In this report, we will revisit our tablet forecast and update our
projections where necessary, examine who is currently using tablets, and
take a look at where the next wave of users may come from.
 Tablet shipments will reach 122 million this year. We forecast 442
million shipped by 2016. Our estimate is considerably higher than that of
other services, but we believe many projections underestimate the boost
from mini-tablet launches and emerging market growth.
 In a similar vein, we believe the current estimates of 13 million tablets
active in China undercount the many pirated and low-cost devices
manufactured by local companies.

 Unlike smartphone penetration, tablet ownership has skewed toward
older users. In the United States, the top age demographic for tablet
penetration is 30 to 49-year-olds. There are nearly as many 55 to 64-
year-old U.S. tablet owners as 18 to 24-year-olds with tablets.
 However, the tablet market will be constrained by the fact that large
companies and educational institutions are not likely to adopt tablets on
a massive scale. It's far from clear that attempts to market tablets as
productivity tools will gain traction.
Click here to download all the charts and data associated with this report
in Excel→
Tablet Shipments Will Top 120 Million This Year
We have slightly altered our tablet shipments forecast for this report
We have revised down our forecast for tablet shipments this year to 122
million based on historical trends. This implies fourth quarter shipments

of 56 million, a 90 percent increase over the same quarter a year prior,
and almost double the previous record for quarterly tablet shipments.
While this forecast may seem aggressive, there are a couple of
considerations that support it.
First, shipments through the first three quarters are already up 89
percent.
Additionally, the tablet market historically sees a disproportionate
amount of its sales in the fourth quarter. In 2010, the fourth quarter
accounted for 55 percent of annual sales (the iPad was introduced in the
second quarter of that year). In 2011, the fourth quarter accounted for 44
percent of total sales and saw a 111 percent increase in sales compared to
the same period a year prior.
Two factors explain the historically high proportion of tablets sold in the
fourth quarter. First, tablets make great gifts. But more significantly,
tablets have a unique distribution model.
There is no natural push, as there is with a smartphone at the end of a
two-year wireless contract, to trigger tablet purchases. Although carriers
do offer data plans and contracts for tablets, with a subsidy on the
tablet's sticker price, it is not necessary to go to a carrier to activate an
iPad. Given that most tablet use is in the home, it is not even advisable to
get a contract— tablet owners can turn on a wireless data plan for a
month at a time through carriers (if they are traveling, for example).
Regardless, the point is tablets don't have a natural life-cycle built into
the product like smartphones because most users are not on a contract.
Thus, holidays and the fourth quarter tend to play a disproportionate
role in tablet penetration. Not coincidentally, we saw a slew of new tablet
releases this September so manufacturers could have their latest and
greatest on the market in time for the holidays.
In developing markets, however, this paradigm will not hold. To begin
with, China and India do not have heavily commercial traditional

holidays in the fourth quarter. But also, as we discuss in our report on
the BRICs, carriers play a vital part in the mobile ecosystem. Because
credit card penetration is low, carriers usually handle billing for
customers, not just voice and data, but mobile app payments as well.
Since Internet connections, Wi-Fi and otherwise, are not as ubiquitous in
the developing world, carriers are going to play a crucial role in
cultivating tablet distribution and penetration.
Finally, falling prices, accelerated by the influx of mini-tablets such as
the Nexus 7 and the iPad Mini, are going to give the market a natural
sales lift. Not only will mini-tablets accelerate the decline in tablets'
average selling price (ASP), but, according to McKinsey, will account for
60 percent of cumulative sales through 2016.
We are still forecasting that tablet shipments will reach 442 million by
2016. Our estimates are above those of other research services. We
believe that extant estimates underestimate developing world demand
and the supercharging effect of low-cost mini-tablets.

Ownership Is Heavily Concentrated In Developed
Markets
Tablet owners are primarily western and wealthy. But, as happened with
smartphones, the market will soon open up.
According to Morgan Stanley, the U.S. is by far the largest tablet market,
followed by Asia-Pacific (excluding Japan), Western Europe, and a
smattering in the rest of the world.
According to Pew, 25 percent of Americans over the age of 18 owned a
tablet in November 2012. Using data from the 2010 census, this
translates to roughly 59 million American tablet owners. That's half the
number of American smartphone owners, which numbered 121 million in
October, according to comScore.
(Forrester puts tablet penetration lower at 19 percent penetration, or 44
million adult Americans with tablets.)

Let's assume there are approximately 60 million U.S. tablet owners.
Since the introduction of the iPad, there have been approximately 150
million tablets shipped worldwide. That means the United States
accounts for at least 40 percent of global tablet ownership.
According to comScore, 16 percent of smartphone owners Europe's five
largest markets—France, Germany, Italy, Spain, and the U.K.— own a
tablet. That translates to roughly 20 million consumers.
Beyond the U.S. and Europe, tablets are thinner on the ground.
If we make the conservative assumption that Asia and Europe each have
about 30 million tablet owners, that leaves only 30 million tablet owners
in the rest of the world— and that's assuming all tablets shipped to date
are still in circulation.
In any case, this means that tablets have barely broken through in the
developing world, which is very possible. Alternately, it could be that
tablets are undercounted in these countries, especially devices shipped
by local manufacturers.

There is some evidence that both these conclusions are true.
In China, approximately 13 million tablets have been sold since the
beginning of 2011, according to data we compiled from Analysys
International, iSuppli, and IDC.
In a country of 1.3 billion, that's a drop in the bucket.
However, we have heard from sources that Chinese consumers are
already tablet crazy, but many of the models and makes they are buying
are from local manufacturers, or pirated, and fly under the radar of data
compilers.
Regardless, there's still enormous room for growth. Consider the
smartphone market, where China accounted for 28 percent of global
shipments last quarter (almost 50 million units in the third quarter
alone).
Tablet ownership may be heavily concentrated in the developed world at
present, but this state of affairs may not last for long.
Owners Are Wealthy, But Not Necessarily Young
The adoption curve for tablets is similar to smartphones, but not quite
the same.
Like most new technologies, initial owners tend to be wealthy.
In the U.S., tablet penetration is substantially higher in households with
income over $75,000, according to Pew. Forty-seven percent of these
high-earning households own tablets.
Using U.S. Census data, approximately 32 percent of U.S. households
have an income over that threshold in 2011.

Penetration has lagged in less wealthy households, especially those with
incomes under $30,000, which account for about 30 percent of
American households. Only 10 percent of households in this income
range own tablets.
comScore found a similar concentration by income in April: 56 percent
of tablet owners had a household income over $75,000.
While U.S. smartphone penetration also favors the moneyed, it skews
heavily young as well (a pattern that seems to hold in the rest of the
world too).
With tablets, this does not seem to be the case. Pew found that tablet
penetration was highest among Americans aged 30 to 49. Thirty-one
percent of Americans in their thirties and forties owned tablets, as did 27
percent of 50 to 64-year-olds. The penetration rate was lower, at 25
percent, for consumers aged 18 to 29.

This is corroborated by comScore's findings in April that three separate
age ranges— 25 to 34-year-olds, 35 to 44-year-olds, and 45 to 54-year-
olds— each had more tablets than the 18 to 24-year-old set.
In fact, comScore found that there are nearly as many 55 to 64-year-old
tablet owners as there are tablet owners aged 18 to 24.
There are two possible factors driving older consumers to buy tablets.
First, tablets are not as vital to 18 to 24-year-olds with minimal
discretionary income. For all their other cool features, smartphones can
still make calls and text. Additionally, college students need a laptop;
they don't necessarily need a tablet.
Second, because tablets are not essentially different from smartphones,
older Americans who already own a smartphone were already
comfortable with the technology. Not to mention they are more likely to

have the means to purchase a tablet especially since iPads— still the
market-leading tablet line— are fairly expensive devices.
The Next Buyers: Down The Income Scale And
Mass Deployments
While tablet ownership is mostly confined to wealthier, older consumers
in the developed world, the market will soon open up down the income
scale. Tablet ownership will also grow in emerging markets, driven by the
price disruption of mini-tablets.
This pattern follows the smartphone playbook: start in wealthy
countries, penetrate the most attractive market segments. After a time, a
huge price disruption occurs, and penetration subsequently spreads to
adjacent demographics and emerging markets, where the process repeats
itself.

In the case of smartphones, the price disruption was Android and its
diversity of product offerings. For tablets, it is the mini-tablet.
Apple's release of the iPad Mini is a tacit acknowledgment of where the
market is heading. The average sales price of iPads was already falling
before the release of the Mini, which will only further accelerate the fall.
The iPad Mini, starting at $329, will accelerate adoption in
underpenetrated segments of developed markets.
In emerging markets, however, a $300 tablet is still out of reach for a
majority of consumers.
As we discussed in our report on mobile in the BRIC countries, the sweet
spot for handsets in China and India are approximately $170 and $100,

respectively. These numbers can also be taken as proxies for tablets'
threshold price in these markets.
With the cheapest Kindle Fire now $159, major manufacturers have
crossed into that territory. However, it will most likely be local
manufacturers that step in to meet market demand. As we discuss in the
BRIC report, there is already a boom in China for low-cost, 7-inch
Android tablets from manufacturers like Onda, HKC, and Lenovo.
However, because of tablets' unique distribution model and the lack of
ubiquitous fixed Internet connections, lower prices alone won't cut it.
Manufacturers will need to team up with carriers as marketing partners
to increase tablet dissemination in the developing world.
There is one noticeable divergence between smartphone and tablet
adoption: No single natural agent or vector exists for mass tablet
deployments.

In smartphones, for example, the enterprise provided a huge boost to
smartphone sales and adoption as handsets became ubiquitous in the
corporate world.
Tablets are and will be deployed in the enterprise and education, but its
not clear it will be on quite that level.
A Morgan Stanley survey of CIOs in April found that 65 percent were
purchasing tablets for their employees.
Still, these are selective deployments and it's difficult to imagine a future
where tablets cannibalize desktop PCs for many thousands of employees
at large companies.
McKinsey believes that the enterprise and education will drive 4 percent
and 3 percent, respectively, of expected tablet growth through 2016.
While Microsoft and other tablet manufacturers may be betting on
tablets as productivity tools, and not just consumption devices, it's far
from clear that tablets will successfully make the transition from leisure
to work uses.
THE BOTTOM LINE
 Tablet ownership is really confined to a few markets, with the U.S. alone
accounting for as much as 40 percent of global ownership.
 Owners tend to be wealthy and— in a departure from smartphone
adoption— a bit older.
 There is going to be a huge demographic shift in ownership as the market
expands, from less-wealthy consumers in established markets to new
markets in the developing world.
 This shift is going to be driven by mini-tablets, which are accelerating the
decline in tablet prices and making them financially attainable for new
market segments.
 Mass deployments will also play a role in driving future tablet growth,
but probably not to the same extent as smartphones.

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