In April, Baird attended the annual Channel Advisor e-commerce conference (Catalyst), along with roughly 800 industry professionals. Many of those professionals expressed enthusiasm about growth opportunities for e-commerce, even beyond the acknowledged secular shift away from traditional brick-and-mortar store shopping. For many online retailers, mobile devices – and increasingly tablets – are seen as key drivers of that future growth.
Senior Research Analyst
Senior Research Analyst
Tablets moving the needle
Tablet computers are not as new as you might think. Several commercial products with the essential characteristics of tablets have existed since the 1980s, and major computer manufacturers have introduced numerous tablet devices to varying degrees of disappointment since the early 2000s. But it wasn’t until Apple combined the user-acclaimed experience of its then-revolutionary iPhone interface with the dimensions and sensibilities of a tablet PC that the idea really caught on with consumers – to the tune of 300,000 units sold the day it was first launched in April 2010.
Fast forward to the 2012 Catalyst Conference, where participants indicated tablets are stimulating e-commerce as consumers access the Internet in more places and during more leisure activities. What this translates into is more users being on their tablets when they actually have time to make purchases. The trend is pronounced enough that it has sparked a new phenomenon called "Couch Commerce.” Online retailer eBay has already developed an application that can connect with local cable providers to determine what tablet users are watching on TV. The retailer can then advertise items (such as clothing or furniture) that might be appearing in that program directly to users’ tablets during the show.
By contrast, smartphones are being used more often for price checking, locating stores and finding products – not necessarily for completing transactions.
This anecdotal evidence seems consistent with recent statistical device ownership trends. According to the Pew Research Center’s Internet & American Life Project, 19% of American adults owned a tablet computer at the end of January this year. That figure was up from the 10% ownership of tablets shown in a similar survey from Dec, 2011. And that data comes from before the launch of Apple’s iPad 3 in March.
The Apple Effect
For the last two years, Baird has conducted its own tablet ownership survey. The 2012 results, published in March, showed the iPad in a strong position of market dominance both in the United States and internationally (see charts below).
Source: Baird Survey Data
Of course, this data did not account for the iPad 3’s launch, which helped Apple sell 11.8 million iPads (including first and second generation units) in the first quarter of 2012, or the iPad 3’s official international rollout in April. But the Baird survey did ask about consumers’ feelings on the device, and the answers indicate it will continue to increase Apple’s slice of the tablet pie.
Of U.S. respondents 24% said that they plan to purchase a new 3rd generation iPad in the next three months. Among international respondents, 29% said that they plan to purchase an iPad3 in the same period. Another 15% and 22%, respectively, indicated they plan to purchase a discounted iPad2.
The implications of these trends for e-commerce are significant. According to information gleaned at the Catalyst conference, more than 90% of e-commerce on tablets comes from iPads, excluding Amazon’s own business on the Kindle Fire, which emerged last year as a competitive iPad challenger in the U.S. tablet market.
While fragmentation and lack of sales have been major impediments to most of Apple’s Android-based tablet competition to date, the recently introduced Kindle Fire bucked that trend and seemingly caught – for lack of a more suitable metaphor – fire with tablet consumers.
The charts below demonstrate the Fire’s recent increases in market share relative to other Android-based tablets.
The unit’s rock-bottom price ($199 vs. $399 for the discounted iPad 2 and $499 for a new iPad 3) was at least partially responsible for the surge this past holiday season, though Amazon reported that Kindle Fire sales dropped significantly in the first quarter of 2012 (coincident to and likely impacted by the timing of the iPad 3 launch).
One thing worth noting: Even though the Fire markets itself as an iPad alternative, it is technically an e-reader (with overtly tablet-like sensibilities and functionality), which could skew the picture of the competitive landscape somewhat. The Pew study cited at the beginning of this article indicated that the number of consumers who own e-readers also effectively doubled from 2011 to 2012, and the demographic data suggested women were more likely to own e-readers than tablets, making it entirely possible that a household could own both.
An apples-to-rutabagas comparison
Regardless of market share, however, the Fire’s e-commerce model is different from the iPad’s. While the latter hosts shopping apps from all the major e-tailers (including Amazon), the former is a direct conduit for consumer purchases from the well-fortified Amazon marketplace. Additionally, because users need an Amazon Prime membership to take advantage of many of the Fire’s most popular entertainment features, they receive free two-day shipping on most material goods purchased from Amazon. That and the comparative ease of accessing Amazon’s marketplace on the home screen versus competitors’ sites through the Fire’s Web browser are likely to drive online revenues from Fire users to Amazon. Meanwhile the iPad is making waves across the e-commerce market space and with significantly more users.
A window for Windows?
The two questions on many tech investors’ minds are: “Can anyone challenge Apple’s tablet market dominance?” and “How has Microsoft not managed to break into the space yet?” Microsoft is hoping the answers lie in its planned rollout of Windows 8, an operating system it claims will be optimized for both tablet and PC use, this fall. And while the company has not officially announced a hybrid product that would combine the processing power and battery life of a PC with the convenience features of a tablet, Apple CEO Tim Cook has already responded discouragingly to rumors that one might be in the offing.
Cook would have to admit, however – just based on Apple’s recent experience – that innovation can definitely change the competitive landscape. While functional differences between iPad generations have been described as minor and few by users and reviewers, the newer models have consistently outsold the old ones and increased the size of the tablet market. The implications of this dynamic, particularly if it sustains itself, are significant for the companies that will increasingly rely on tablets to sell their goods and services in the future.