Why the tablet industry will inevitably segment into different markets

August 7, 2014

The problem is, Apple is the only one driving the class in a meaningful way. Which isn’t all that surprising given Apple makes nearly 80% of the profits in the segment. With such little revenue to fight for, more OEMs have focused on the smartphone segment instead of tablets.

But I believe we are on the cusp of something new in the tablet sector that will hopefully drive more familiar levels of growth. What is it? I call it “The great tablet segmentation.

The chart below that I’ve been using in our industry trend presentations some of the first segments we already see taking shape.

Inevitably, when markets mature, they segment. Consumers must recognize their needs, wants, and desires, in order for me to consider a market mature. They must know what they want and why they want it. By this measure, tablets being so new, are just now reaching maturity.

Will there be a separate class of business tablets? 

Microsoft and Samsung have marketed their tablets as great for business productivity. Samsung even has a "Pro" series of big screen Android tablets.

While these tablets have some distinct advantages over the more general purpose iPad (Microsoft offers a keyboard, Samsung's tablet has a bigger screen for working on documents), I don't think they've done enough to establish a separate category of business tablet, but that could well change in the next year or so.

For now, most developed market consumers have had a chance to at least use an iPad or other tablet and what the product means to consumers, families, corporations, etc., is currently being defined. As consumers become more self-aware, segmentation opportunities will begin to appear in the tablet market.

Nabi, a company focused on making tablets for kids of different ages, sold nearly two million units in the US in the holiday quarter of 2013 according to our estimates. Not bad for a specialized product. But perhaps the most interesting example of this segmentation opportunity is what Nvidia is doing with their recently announced Shield tablet.

What makes the Shield tablet interesting is the way it was purpose built for gamers. Everything from the graphics engine, connection to Steam PC game portal, integration with Twitch, access to Nvidia Grid technology, a custom controller, and access to multiplayer game engines, sets it apart from any other tablet in the eyes of any serious PC or console gamer.

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Nvidia is hoping to appeal specifically to the gamer niche, which is not necessarily high volume but is extremely lucrative. The Nvidia Shield tablet is an excellent example of a segmentation opportunity in the tablet form factor. This product also leverages NVIDIA’s strengths and highlights another trend of companies getting into the hardware businesses they weren’t in before because it is a natural extension of their existing products and business model.

The iPad, as of now, owns the crown of “general purpose tablet”. It can cover the most ground for most consumers’ use cases.

At this point, we must conclude that segmentation opportunities like the nabi kids tablet, or the Nvidia Shield tablet, present the more lucrative opportunities for vendors since competing with Apple in the general purpose form factor appears to be a waste of time.

While the Nabi and Shield tablets present some of the more interesting segmentation examples to date, I still expect more experimentation by vendors to attempt to discover what other segmentation opportunities may exist.

All of this is a key part of the tablet market maturing.

(A version of this article first appeared in Techpinions and is reprinted here with permission from the site)

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