Different strokes

Can tablet devices really experience the explosive growth that mobile phones have?

What comes to your mind when you hear names like VeeDee, Black Elemente, Zinglife, Swipe, Ice Xtreme, Kobian and Redd? Deodorants, maybe? Apparel brands or pubs? How about, none of the above? These are just some of the over 135 brands of tablet computers that have flooded the Indian market in the past year or so. Almost all the big brands — Apple, Samsung, Asus, Sony, Dell, BlackBerry et al — are already present in the country but, while they have their fans and aspirational value, apparently it’s the Xelectronics and Zyncs that are flying off the shelves. According to data from CyberMedia Research, over 63% of all tablets sold in India cost under ₹10,000. And boy, are they selling — 2012 sales are likely to have crossed 3 million, up six times from 500,000 in 2011; the research firm’s forecast for 2013: at least 6 million. 

Granted, that’s growth on a tiny base and is still nowhere close to the numbers seen in the US or even China. Recent reports predict that, with sales of over 65 million units, China will account for 27% of the global tablet market in 2013, while North America will continue to be the largest market, accounting for 85 million units. There’s also the inevitable, if unfair, comparison with mobile phones: during the July-September 2012 quarter, some 1.1 million tablets were sold across India; the same period saw sales of around 50 million handsets, of which nearly 4 million were smartphones (priced at around ₹15,000). 

But look at it this way: mobile phones have been around for nearly two decades; there’s a subscriber base of more than 900 million and several consumers have multiple handsets. On the other hand, broadband and 3G connectivity in India, essential for tablets, is still very patchy. Which begs the question: can India leapfrog its way in tablets and repeat the kind of explosive growth that it witnessed in mobile phones? If yes, is there anything that can hold it back? 

The cost factor

A June 2012 report by McKinsey & Co lists affordability as the first requirement for driving tablet growth worldwide. From the looks of it, Indian tablet brands have already got that covered. Of the 137 brands currently in the market, nearly 90 are in the sub-₹5,000 segment and about 35 cost between ₹5,000 and ₹10,000, according to industry estimates. Where the iPad3 32 GB retails at ₹38,000 and the smaller Google Nexus 7 (considered the best in class among Android tablets) is available at close to ₹20,000, also available are 7-inch, wi-fi enabled tablets for as little as ₹2,999. That includes little-known brands such as Sylvania, Vox and Zync. 

Certainly, cheaper tablets have the potential to open up the market to a whole new customer group — lower income households, those reluctant to invest in a personal computer or notebook, and those who will leapfrog to the latest technology. But how are they able to keep prices so low? “There is an increasing number of low-end devices being launched by OEMs, enabled by both hardware commoditisation driven by China and Taiwan-based suppliers, and OS availability [most of these devices run on Google’s open operating system, Android],” explains Jayantha Kolla, partner at tech consultancy Convergence Catalyst. That’s not all, says Suneet Tuli, founder of Datawind, the British company that’s making the Aakash 2 tablet for the Indian government (a non-subsidised version is marketed under the Ubislate brand). He says that the LCD touch panel accounts for as much as half the manufacturing cost of the tablet; to keep a lid on that, Datawind has its own LCD touch panel plants, one in Montreal with a second one coming up in Hyderabad.

The design of the tablet also plays a crucial role in keeping prices low. The Aakash 2 printed circuit board integrates components and costs Datawind under ₹900, compared with more than ₹1,500 for rivals. The devices are also assembled in Amritsar, saving on labour costs. “We have our own IP on the screens. And, we have a disruptive distribution model,” Tuli adds. Simply put, that means Datawind sells its products only online, doing away with a distribution network where it would have to share revenue. “That removes a lot of people from the chain, resulting in obvious savings.” And taking a cue from Google, the company also sells ad space on pre-loaded apps on the Ubislate, where it splits the revenue with app developers. 

Datawind’s desi counterpart, Micromax — it’s currently the No.2 tablet maker in the country behind Samsung, with a 15.3% marketshare in Q3FY13 (see: First mover advantage) — has a slightly different strategy to keep prices low. The company has five models in the market, with the cheapest costing less than ₹5,000, if bought online. Essentially, contract manufacturing in China and a wide, pan-India distribution network are helping the company achieve volumes. Adds Deepak Mehrotra, CEO, Micromax, “We don’t over-design our products. Features are added keeping customer usage and preference in mind.” The Funbook Alpha is targeted at students and comes loaded with educational apps and games, while the Funbook Infinity is primarily an entertainment device and, hence, has loud speakers. 

Obviously, then, manufacturers are working overtime to differentiate themselves. But who’s buying these tablets? While Datawind’s biggest customer is the Indian government, which has placed orders for 100,000 units of Aakash 2, the company has orders for 4 million pieces for the Ubislate, mostly from first-time computer users. “Consumption is bound to go up as there are so many people in India keen to get connected, but they don’t have a device,” adds Tuli.

The McKinsey report also estimates that new, less affluent customer segments “will fuel around 60% of the total cumulative sales through 2016”. It may be a while, though, before older customers and those from smaller towns and non-urban geographies in India take to the new technology as enthusiastically as they have accepted mobile telephony. For the time being, tablet sales are ticking all predictable boxes — younger consumers are early adopters of this relatively new technology and the maximum demand for tablets is coming from metros. Mehrotra says large format stores and experience retail outlets where consumers can touch and feel the devices are the biggest sales channels. “Currently, online accounts for 8-9% of our sales, while IT and mobile retail channels are seeing fast growth,” he says. But like Tuli, he recognises the importance of selling through the net. “One of my earliest orders for a tab, in April 2012, came from a customer in the North East. And it came online,” Mehrotra points out. 

 Marketing upfront

Still, most tablet makers seem to be focusing their marketing activities across three main planks — entertainment, education and enterprise — which they hope will cut across age and income categories. Samsung Mobile vice-president Asim Warsi says that his company has a “fairly clear enterprise focus” and within it, a key segment it is pursuing is education. Samsung is currently the leader in the tablets market, with a 24% marketshare for its three models, which are priced at the higher end of the market, ranging from ₹21,000 to ₹40,000. What make them popular in the enterprise and education segment, Warsi explains, are relevant apps. Samsung is also working with the government — Samsung tabs used by members of Parliament are loaded with apps that enable MPs to see details of the various sessions, starred questions for the day, parliamentary bulletins and other information. He adds that the tabs are being used by enterprises for sales force automation, which allows the head office to keep track of work being done by the sales team on a real-time basis. 

Another company that’s turned to the enterprise segment to push tablet sales is BlackBerry (earlier Research in Motion). When the company slashed prices on its Playbook tablets by nearly half in a special year-end offer in winter 2011, sales zoomed. So much so that Sunil Lalwani, director of enterprise sales at BlackBerry India, told Outlook Business at the time that the company was out of stock on one Playbook model due to huge demand. Given the BlackBerry connection, the interest is understandable. Explains Amit Mathur, director, channels, for BlackBerry India, “With the rise in bring-your-own-device as a trend, the lines between personal and professional lives are blurring and a tablet helps switch between functions effortlessly.”

The biggest push for tablet makers, though, is expected from the education segment. Several state governments — including Uttar Pradesh, Tamil Nadu, Punjab and Goa — have already made poll promises of providing high school students tablet computers, apart from the HRD ministry buying Aakash 2 in bulk for subsidised sale to school and university students. Some upscale individual schools across India, including Maharani Gayatri Devi School in Jaipur and Podar International School in Mumbai, are also offering students the option of switching from regular textbooks to iPads. Considering there are some 220 million students in India, if even a fraction of them move to tablets, we’re talking of a market of several million. As Bharti Airtel’s president, consumer business, K Srinivas says, these devices are a popular choice for most first-time internet users. “Tablets, as a category, are gaining huge market traction. I believe this will play a big role in data services going mass in India,” he says. 

Experience is everything

With so much going for it, what’s holding back tablets adoption in India? Essentially, user experience. How well a tab works is not only a function of its hardware and software quality; it also depends on telecom networks and the availability of apps. In India, both areas leave a lot to be desired. Mehrotra of Micromax says that growth could have been much faster but for two things — what a person can do with a device and how he can do it. The second part requires connectivity at reasonable price points. “The existing data plans are great for usage on phones but not for tabs. If you want these devices to take off in the hinterland, you need good, high-speed pervasive networks and reasonable data tariffs,” he says.

Vishal Tripathi, principal analyst with Gartner India, says that patchy coverage, especially in 3G networks, is playing spoilsport. “The tab requires good 3G networks or wi-fi spots. Without them, it doesn’t offer much utility.” Moreover, unlike for mobiles, especially smartphones, telcos haven’t launched special data usage plans for tablets, nor are they offering bundled deals with specific devices. “We are not tying up with vendors yet,” confirms Anupam Sachdev, CMO, Aircel Cellular. “The focus is more on smartphones as consumption is bigger in that segment. But certainly, tablet growth will explode as broadband networks expand over a period of time.”

As of now, operators don’t have tabs-specific plans as they believe the non-voice plans designed for dongles work for the tabs as well. Idea Cellular CMO Sashi Shankar says his company offers enough data plans for consumers to choose from. “There is no need for separate data plans for tabs because over a period of time, there will be plans catering to two-three devices per person and tabs will be covered in that.” Moreover, data consumption habits tend to be the same across dongles and tablets. While tabs are growing fast as a category, Idea is still evaluating the option of bundling them with connections. “We want to market tabs at the right price and with the right features. We haven’t got the right pricing so far,” Shankar adds.

Tablet makers are trying to work their way around the lack of 3G connectivity and high data usage charges. Brands such as Aakash, Micromax and Lemon are launching low-cost devices with embedded GPRS modems, which eliminate the need for external dongles. Trouble is, GPRS provides data speeds of just 56-114 kbps, which is inadequate for bandwidth-hungry applications such as video streaming and music file downloads.  

If that’s not bad enough, there’s also the question of content. While browsing the net and checking e-mail remain the most popular activities on tablets, as customers evolve, their demands from tablets will change. Right now, though, there’s a paucity of India-specific apps. “The cost of creating apps for tablets is 30-40% higher than for mobiles,” explains Nitish Mittersain, CEO, Nazara Technologies, which develops apps for mobiles and tabs. “Because tablets are more powerful devices with bigger screens, everything — the graphics, the experience etc. — has to be of console quality, which increases the cost of development of games and content.”

Still, efforts are being made to provide Indian tablet buyers relevant content. Market leader Samsung, for instance, has R&D centres in Bengaluru and Noida, as well as third-party developers, content aggregators and middleware partners to develop apps. “We have some seven series of apps for India, designed primarily for tabs. Localised apps are very important for growing tablets as a category,” says Warsi.

BlackBerry, too, has devised applications that will appeal to its enterprise customers. Currently, the company has over 40,000 developers in India creating applications for the BlackBerry platform. It has also set up a lab in Kochi to focus on local app development and offerings include applications for specific fields such as healthcare. For instance, Max Healthcare has rolled out an BlackBerry solution that connects an archive of radiology images, lab reports and other patient information that doctors can access on their BlackBerrys and Playbooks at any time. 

Reality check

Given all that is happening around, it’s easy to get carried away when talking of the potential for tablets in India. The comparison with mobile phones is usually offered as an example of what’s possible — so many millions still don’t have landlines, but mobile penetration in India is a staggering 73%. In the West, tablets are becoming ubiquitous and are predicted to outship notebook computers this year. 

But that’s not going to happen anytime soon in India. For starters, no one — not even tablet manufacturers — is yet thinking of the tablet as a replacement for the personal computer, or even the smartphone. “Tabs are complementing devices and not a replacement by any measure,” declares Warsi. “Most consumers who have a tab have a phone already. We have been evangelising both categories with equal gusto.”

According to Manufacturers Association of Information Technology (Mait), tablet sales in India are expected to cross 1.6 million units in FY13, a growth of 40% over the previous year. (Incidentally, that’s a more conservative estimate than CyberMedia Research, which considers devices with screens of over 5 inches as tablets against Mait’s cut-off of 7 inches.) Over the same period, the PC market (desktops and notebooks) will grow 16% to cross 10.8 million units. “Currently, the value proposition of tablets is not clearly established. It will not be a priority purchase, unlike mobiles, which address a basic, inherent need for communication,” says Anwar Shirpurwala, executive director, Mait.

As things stand, vendors are ready with a wide range of tabs, offering options in price, connectivity and screen size. Then, none of the barriers to broader usage, be it network issues, lack of apps and user experience, is significant enough to be a deal-breaker. Convergence’s Kolla points out that one reason why the tablets app ecosystem will take time to develop in India is because currently only 8% of buyers base their decisions on the availability of appropriate apps. But, put all these issues together and it doesn’t seem likely that the segment will witness exponential growth for a while. Not unless some or all of the pain points are addressed immediately.