TABLET MARKET FORECAST: Sales Will Reach Nearly 500 Million Units A Year By 2015Reported by Business Insider on Tuesday, 14 February 2012 (on February 14, 2012)
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 The post-PC era has arrived.
In 2011, smartphone sales exceeded PC sales for the first time. In the two years since Apple launched the iPad, meanwhile, the tablet market has exploded.
Apple alone sold nearly 60 million iPads in the first 7 quarters the device was on sale. And when one includes Android and other tablets as well as e-readers, nearly 100 million tablets were sold in 2011.
No, tablets and smartphones will not completely displace PCs. But they will quickly overwhelm them in terms of unit sales. Tablets, moreover, have already begun to cannibalize some PC sales. And over the next several years, this cannibalization will likely continue.
In this report, we are pleased to publish our forecast for the tablet market through 2015. Here are the highlights:
· *Tablet unit sales will reach nearly 500 million units by 2015.*
· *Sales will grow at an ~50 percent compound annual growth rate from 2011 to 2015.*
· *Tablets will be a $100 billion market by 2015.*
These forecasts compare to the following unit sales of smartphones, tablets, and PCs in 2011:
· *2011 smartphone unit sales:* 470 million.
· *2011 PC units:* 360 million.
· *2011 Tablet units:* 95 million.
**Here's the breakdown of our tablet forecasts:
-Overview And Assumptions-
Our tablet growth forecast is driven by three key assumptions:
· Greater penetration of existing markets, as tablets spread into the enterprise and education markets.
· Rapid adoption in emerging markets.
· Lower unit prices.
Importantly, we are including e-readers as a segment of the tablet market for this analysis. The Kindle has always been a low-end tablet (same form factor, same app dynamics, some advertising). After the introduction of the Kindle Fire, moreover, the low-end and high-end of the market have now become a continuum.
We believe tablet sales are going to explode over the next few years, driven by falling prices and the tablet's strength as a media consumption and communications device.
In addition, we see three more drivers of long-term growth for the tablet market:
· Enterprise sales
· Education
· Emerging Markets
Similar to smartphones, the average price of tablets will decline as market penetration increases. This will help boost unit sales: As tablets become more affordable, people will buy more of them.
The average price of smartphones, for example, has declined in four consecutive quarters amid rising sales, according to research firm NPD.
-Prices Will Fall-
While the average sales price of tablets (ASP) fell modestly from 2010 to 2011, it was supported by the iPad's continued dominance in the market (for 2010 we modeled the ASP of tablets to be the ASP of iPads since they represented the overwhelming majority of sales). However, the introduction of the Kindle Fire disrupted the tablet's pricing dynamics and will accelerate a huge drop in ASP over the next few years (see chart to the right).
The Kindle Fire was the first meaningful attempt to introduce a low price-point tablet. It seems to be working. Kindle Fire sales estimates have generally ranged in the 4-6 million region in the first quarter of launch.
The Kindle Fire shook things up, and *we think it's only the start of a broader price depreciation in the tablet market.* We believe that Google will release a $200 tablet after completing its acquisition of Motorola, which recently got approved by the U.S. Department of Justice. Furthermore, the expected release of the iPad 3 in the first half of this year will not only produce a bump in tablet sales, but we expect it will allow Apple to roll out one of the older models as a lower cost offering (as it did with the iPhone).
The price of e-readers, meanwhile, will continue to free-fall towards zero as companies recognize they can make more money selling consumers content off a free device than generating revenue through hardware sales.
-Form Factors And Functionality Will Shift-
In line with falling prices, the profile of the typical tablet will change, too. Up until now, tablets have been dominated by large-screen devices like the iPad or the Samsung Galaxy tablet. New smaller, low-cost alternatives, like the Kindle Fire, have opened the market to more consumers and will grab significant market share over the next few years. However, we believe this will ultimately be temporary as the larger screen devices will fall drastically in price as well, and the gap between the price points will close.
In developing our forecasts we consulted the growth curves for PCs and smartphones, making our own iterations based on conditions specific to tablets.
The PC, for example, was the first consumer computing device and as a result had a unique, longer route to mainstream penetration. Smartphones, on the other hand, came of age during the depths of the Great Recession and growth was slowed by the huge fall off in spending in 2008 and 2009. With a slowly improving global economy, tablets also have the paradoxical advantage of familiarity and novelty and, as such, will see a tremendous growth in adoption over the next few years.
-Tablets Aren't Just For Media Consumption — They're Disruptive-
The main knock on tablets when the iPad was released was that they were devices for the leisure class with no practical value, or something to that effect. Yes, much of what consumers use their tablets for can be achieved on a PC, but that misses a key point: It drastically improves upon the experience.
In other words, *tablets seem like a textbook example of a 'disruptive' technology:* They are worse than the incumbent technology for a lot of things (there's no question tablets are lousy for doing spreadsheets), but much better at some key things (media consumption), cheaper, and getting cheaper and better every day.
With 95 million tablets sold last year (including e-readers), it's safe to say that the disruption is well under way and should only accelerate from here as prices drop and applications multiply. Steve Jobs' vision of a post-PC era where PCs would be like "trucks" to the tablet's car — still around and still a big market, but no longer the default choice of most people — looks less and less like a fantasy and more and more like the future.
Tablets have enriched, enhanced, and simplified the digital media consumption experience, whether it be newspapers, magazines, or even TV shows. Consumers simply love the devices, and sales have been blowing past expectations. And tablets are now making inroads into the enterprise.
Even more than smartphones, tablets rely on the content ecosystem of the operating system to create value for users. With the Kindle Fire, Amazon opened up its expansive content offerings to consumers at a low price point — only $65 above the average price of a smartphone. Apple is still a giant in the market, but we expect that the Android and possibly even Windows platforms will continue to develop and capture a share of the huge market that lies ahead.
-Enterprise-
One of the biggest opportunities for tablet growth is in the enterprise.
Long the territory of Microsoft and the PC, tablets — the iPad in particular — have begun to break through in the $404 billion enterprise computer hardware market.
Apple, for example, announced in October that 93 percent of Fortune 500 companies were deploying or testing iPads.
While we do not believe the tablet will ever replace personal computers that run basic office spreadsheets and word-processing programs, there is nonetheless a strong case for the adoption of tablets in the workplace. Particularly compelling is that companies can customize tablets by developing function-specific apps to meet workers' needs. We expect the "consumerization of IT" will further accelerate enterprise tablet sales as well.
-Education-
During its big iBook announcement a few weeks ago, Apple revealed that there were currently 1.5 million iPads used in the education sector. While we were skeptical of that particular announcement's ability to upend the education market, we believe the tablet has a huge future in schools.
While education activists have long held the dream of "One Laptop per Child," *we think tablets offer the most promising long-term solution for bringing students online*.
Tablets offer all the essential computing power and capabilities needed for pre-college students, but at a more attractive price point. Furthermore, while no one has completely cracked digital textbooks yet, it seems inevitable that someone will do so. Tablets are the natural option to power that changeover.
-Emerging Markets-
Emerging markets are where tablets hold the greatest promise.
Internet access worldwide is not nearly as ubiquitous as many people often assume (see chart to the right). We estimate that only about one-third of the world's population currently has access to the internet and the vast majority of those coming online in coming years will be from developing nations.
What's more, the way people are accessing the internet is changing too. Only a few years ago, almost all internet users came online through a fixed access point. This has been changing with the increased adoption of smartphones, and now tablets.
In a few years a majority of Internet users will access the internet through a mobile device (see chart above). Internet access will no longer be beholden to expensive fixed access systems in developing nations. The promise of mobile internet holds out the possibility of bringing the world affordable access, and we think it will be tablets — which offer a richer and more powerful computing experience than smartphones at a comparable price point — that act as the impetus behind this change.
Simply stated: *we believe tablets will be the device that brings the world online*.
-The Bottom Line-
Tablets are not just a "leisure device" as many previously thought, but a potent mobile computing challenger to the PC market. We are very bullish on tablets and expect sales to explode in the next few years, for the following reasons.
· Tablets are a disruptive media consumption device.
· The average price should fall precipitously as more viable low-cost models enter the market.
· Tablets offer a low-cost alternative to the PC for bringing emerging markets online.
· Tablets have huge opportunities in the education and enterprise markets.
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*See Also:*
· The Concern That Facebook Could Destroy Zynga Overnight Is Overblown
· PUBLICIS: Mobile Ads Are At A Tipping Point, Apple's iAds Were Too Expensive
· Why The Kindle Fire's Tepid Reviews Won't Affect Sales
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