Exposing the Google Android Tablet Market

Minyanville  |

The most under-covered story in technology is the sorry state of the Google (GOOG) Android tablet market.

While I've detailed how the Android smartphone market is more or less dominated by Samsung (see: The Samsung Bull Market Just Replaced the Android Bull Market), in the wake of Apple's (AAPL) new iPad, it's time to take a deeper look at the tablet market -- especially since the research firm IHS-iSuppli just filled us in with key piece of Android tablet pricing data.

Let's look at two charts I recently published here on the 'Ville detailing tablet market-share data, courtesy of Strategy Analytics. (See: With Apple iPad 3 Coming, Android Tablet Market Should Be Shaking in Its Boots.)

First, we'll look at the broader tablet market, which as we all know is dominated by Apple and Google:

But now let's break up Android into two to reflect the surge in popularity of the $199 Amazon.com (AMZN) Kindle Fire and Barnes & Noble (BKS) NOOK tablet:

The implication here is simple. In a very short time span, 40% of the Android market was taken by money-losing products specifically designed to promote Amazon's and Barnes & Noble's content ecosystems. Note: 40% of 39% is 16%.

But just now, news hit the wires regarding market research firm IHS-iSuppli's tablet market numbers, and they added a new wrinkle to my bear case against the Google Android tablet market. (Hat Tip: CNET)

Before we get into it, let's have a quick discussion on mixing data between market-research firms: I regard the data from these firms as more-or-less interchangeable, assuming you're simply examining trends -- as in who's gaining share and who's not. However, I would never mix actual numbers from different sources to make calculations -- as in, comparing this year's IHS-iSuppli numbers to last year's Strategy Analytics numbers to calculate growth rates.

Now let's get back to the heart of the matter.

So again, the Android tablet market is increasingly dominated by cut-price products that are a full 60% cheaper than the entry-level iPad.

Well, IHS-iSuppli just provided us with an even clearer quantification of just how Android has attained its share of the tablet market. We'll let analyst Rhoda Alexander do the talking:

The shipment gains for Android tablets in the second half of 2011 were secured at the cost of a 41 percent decline in the average street price for Android tablets. Apple retained 74 percent of the revenue share of the tablet market in the fourth quarter of 2011, even as its unit share declined to 57 percent, down from 64 percent in the third quarter.

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In other words, Android's progress in taking tablet market share has come almost entirely as a result of cheap pricing rather than superior user experience or other serious, profit-generating advantages.

Keep in mind that when the Google Android smartphone boom really kicked off in October of 2009 with the original Motorola (MMI) Droid, the reach of Apple's iPhone was limited by its carrier agreements. At that time, in the US, one could only obtain an iPhone through AT&T (T). That gave Android a huge opening, especially since smartphone players like Research in Motion (RIMM), Microsoft (MSFT), and Nokia (NOK) didn't understand the whole touchscreen thing.

With the exception of its 3G/4G-capable iPads, Apple has no such limitations in tablets.

So let's add it up.

It's clear that the Google Android market has grown largely because of cheap models that are not meant to generate direct profits, and not because any manufacturer has put out a product that can disrupt the iPad's winning streak.

Therefore, it's safe to say that Apple's position in tablets is far, far stronger than the market-share data would indicate. After all, IHS-Suppli estimates that Apple's revenue share of 74% is much greater than its unit share of 57%. I would assume Apple's profit share is even greater than that revenue share, simply because at least 40% of the Android market loses money!

Furthermore, Apple has attained its market position with a product that, up until yesterday, hadn't really changed since its inception in 2010.

How did it do that?

Simple -- through a combination of a passionate customer base, a highly differentiated brand, a superior app/content ecosystem, incredible design, and being first to market.

So what do you think is going to happen with the new iPad, which, while offering little in the way of surprise, is a significant upgrade and pound-for-pound, easily the best tablet on planet Earth? And what about the fact that the iPad 2 will stay on the market, starting at just $399?

Google Android tablet makers would like to you to believe they are making a stand, but don't be fooled -- they've got all their work still ahead of them.

By Michael Comeau

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