The fact that tablets are a bona fide success story in the U.S. is simply stating the obvious with more than 25 million tablets in the hands of U.S. consumers at this point. Various tablet manufacturers (especially one based in Cupertino) can celebrate the successful excess of the tablet industry, even as the rest of the consumer electronics world continues to face belt-tightening consumer behavior. Notebooks may be suffering a little--and netbooks are racing towards their inevitable demise--but everyone, apparently, needs a tablet.
A less happy participant in the tablet's success story is, perhaps, the carrier. So far the carriers have failed to convince the majority of consumers that every self-respecting tablet should come with a mobile cellular connection. Worse still, the majority of tablets being sold don't even support mobile cellular directly, with 59 percent of tablets sold being Wi-Fi only in November 2011 according to The NPD Group's Tablet Adoption and Insight Report. This lack of built-in cellular is good news for the OEMs, as they don't need to support multiple variations of a tablet to cover the various cellular data types--LTE, HSPA+, EV-DO and even WiMAX--and the decision to ignore the cellular modem also means a lower price tag for the consumer.
While the carriers can easily adapt to the lack of a modem by promoting mobile hotspot solutions, it does detract from the uniqueness of a specific tablet (in the carrier's eyes) that they enjoy in the phone business where specific phones may only be found on the shelves of a specific carrier. Fundamentally, consumers do not think of the carrier as the obvious purchase location for a tablet. While the tablet may be based on smartphone operating systems, many consumers consider the purchase to be far closer to a PC purchase. As a result, consumers more naturally gravitate towards Best Buy or one of the other electronic retailers, where they will see a wide variety of tablets (or they visit the Apple store because they have already made their choice). As a case in point, among current iPad owners, 44 percent purchased from Apple stores, 15 percent purchased from Best Buy, while only 2 percent purchased from Verizon.
After almost 25 years of consumers flocking to their stores, the U.S. carriers now face a far more competitive market for the next generation of connected devices. The advantage that the carriers still have is when consumers think of a mobile data connection, they still think of the carrier stores as the place to go. The problem with this legacy thinking is that, right now, the vast majority of consumers are not convinced that they need a mobile connection beyond Wi-Fi. Indeed, over the past year, NPD Connected Intelligence℠ has seen a shift away from mobile data connections for tablets, with a smaller percentage of consumers using cellular connections now than almost a year ago.
Connected device preference: Cellular vs. Wi-Fi
One could argue that many smartphone users also don't truly need a data connection: more than 50 percent of smartphone users consume less than half a GB of data each month (a quarter of smartphone users consume less than 100 MB), according to NPD's Connected Intelligence SmartMeter. This limited consumption highlights the fact that many smartphone users have not embraced data connectivity to the extent that we all expect, and as such, are unlikely to embrace cellular connectivity on a tablet if they don't have to (remember, smartphone users have to buy a data connection). Further, with wide-area Wi-Fi becoming more ubiquitous, the need for an always-on cellular connection becomes less compelling.
All of this puts pressure on the carriers to convince users that a) the carrier store is the best place to shop for a tablet and b) once the decision to buy is made, that the consumer needs a data connection on the tablet too. To do this, we have seen the first tentative steps towards bundled sales, with carriers offering smartphones and tablets together. Typically, these bundles are tied to one specific manufacturer who is hoping to gain an edge in either smartphone sales, tablet sales or both. Pantech, for example, has a promotion with AT&T; the waterproof Pantech Element (tablet) comes with a free Pantech Burst (smartphone), as long as you buy a two-year contract for both products.
This promotion--and we will see many more like it in the coming year--highlights another concern for the carriers: they are trying not to subsidize the tablets too aggressively. The carriers could promote tablets the way they offered netbooks a few years ago--essentially offering the netbooks for close to free in exchange for a two year data connection--but such a move would further increase acquisition costs and is therefore consider the path of last resort (or desperation).
A better approach is to create an ecosystem pitch based on how consumers buy and use devices. An excellent example of this took place at my local AT&T store, where I saw a sales person position the benefits of both the Samsung Galaxy smartphone as well as the GalaxyTab, particularly when purchased together with a data plan. While the pitch fell apart on the details, the concept that the sales person was applying was a good one.
Carriers need to find that "must have" (dare I say "killer app"?) use for why a consumer absolutely must have a data connection on a tablet now, and not wait another ten minutes until they find a Wi-Fi connection--which could be provided to them for free by their carrier anyway because they have a smartphone plan. AT&T and Verizon have an opportunity here due to their entertainment businesses (FiOS and U-verse), but pitching a video connection is fraught with over-use issues. Social media provides a reasonable opportunity to highlight the benefits of a tablet, particularly if the carriers focus on 7-inch devices, which are just small enough to be portable.
But the best opportunity for the carriers lies in revamping their approach to data plans. The issue with current data plans is that they are analogous to jumping into the deep-end; consumers need to go all-in with a $20-$30 commitment, and the pool (pardon the pun) of data disappears at the end of a month. If the carriers focused on more compelling entry points (such as longer expiration periods for the data), consumers would be more willing to trial data use. The other approach is the oft-talked about "family" data plan which the carriers all plan on launching at some point soon (although the definition of "soon" is open to debate). These plans may help drive more interest in tablet usage if the cost of adding the device is very low. T-Mobile has a head start in this area; while it does not offer a family data plan, the carrier does offer free hotspot "tethering" from the smartphone. This means that the consumer can dip their toe into cellular data without incurring additional costs. And hopefully, dipping the toe is followed by greater data use, which means that the T-Mobile consumer buys larger pools of data to share across devices, discovering, along the way, their own particular "must have" justification for the tablet connection.
Eddie Hold is the vice president of The NPD Group's Connected Intelligence business unit. In this role, Eddie is responsible for managing the overall unit, maintaining the direction, creation and expansion of the content.