If 2010 was the year of the smartphone, is it safe to say that 2011 will be the year of the tablet?
Dan Schwab, D&H Distributing:
This year there will be dozens if not hundreds of different applications launched from 7-inch to 10-inch form factors and smartphones using operating systems from HP’s Palm OS to the Androids, including the nextgeneration Honeycomb OS.
From a consumer-education standpoint, tablets will be the wow product. Everyone who has played with someone’s iPad wants one. What will happen is there will be a plethora of products. Everyone will enter the category. When digital cameras were first introduced in the mid-’90s, dozens of people entered. The same thing happened with MP3 players, digital frames and netbooks. It then settled back down to the multinationals, to the five or so players. That ultimately will happen in this case as well.
There will be many different options for the customer, but I personally believe they will be in addition to, and not instead of, other devices. People probably will carry two devices, and shortterm, they are very apt to have three — for instance, a notebook for work purposes, the BlackBerry at all times, and a tablet around the house.
That’s key this year from a customereducation standpoint because there will be so many options. It will be the hot category, but there will be a lot of consumer confusion over the right product and when it’s the right time to buy it.
Michael Vitelli, Best Buy:
The applications will have to move across all the screens, the way iTunes works across the iPhone, the iPad and the iPod.
Android will be the same way. There are Android phones, Android tablets and Android will be in notebooks. Android, via Google, is also on TV, so applications can move across four screens.
BlackBerry is trying to do the same thing with the phone and the tablet, as is Microsoft with Windows 7 – mobile on a phone, mobile on a tablet and mobile on a notebook, and they have always wanted it to be on TV. Now HP has also entered the market, and you have five different operating systems.
At the end of the day, one would not want to buy a tablet, but buy an operating system that will move across all the platforms. That is where it seems to be heading. Then what has to happen is whatever the mechanism is to sell to you, or rent to you or let you have free applications across that, it has to work on every one of those screens.
That will lead to some interesting software because it has to be scaled to work on four different screen sizes. It could be an Android big-screen application, and the store might sell it that way. But it’s absolutely changing very, very quickly.
Fred Towns, New Age Electronics:
Amazon is doing something similar with Kindle.
Paul Ryder, Amazon.com:
Philosophically, Amazon as a company thinks about the customer experience and then it works backwards. Kindle is no different. It was really about one wanting to read a book — we are device-agnostic. You own your books, you are in the cloud, and you consume them wherever you want on whatever device you want. It is a fantastic strategy. Apple has it with iTunes from way back, and whatever Apple device you have all the music plays on it.
Amazon believed in that philosophy for the Kindle. As new platforms emerge, Kindle on that platform will emerge with it because it’s just about convenience. A lot of publications thought the Kindle was dead once the iPad came out, but it’s a single-purpose device just like the GPS. I can take out my phone and try to use it in my car to get somewhere, but the GPS is actually better because it was developed 100 percent for that purpose. The same thing holds true with the Kindle. So if I want to sit down and read for an hour, I prefer to do it on the Kindle, but I may snack on a book out in the hallway or at the soccer field.
The Kindle is like the early step of what Ultraviolet is trying to do for the movie side in making content available to so many different devices. The barrier was already broken by saying, “Well, if you bought the book, we will enable the book to be put in so many different devices.”
When one talks about content, there are people dealing with storage and content, trying to grasp their part of it. All the storage companies are now putting their version of an Apple TV together to be able to take that content and move it and share it. That is a big change. Amazon was at the forefront of that because of what was done with the Kindle, taking that same content and making it shareable among so many different mediums and devices.
What role can distributors play in moving A/V specialty retailers into mobile broadband?
We think the role we have to take is from an education standpoint. We have had the luxury of selling CE and IT for decades. We have to help the dealers understand and have taken as much of a leadership role as possible with a digital home guide on our website. The guide shows how one can create different solutions by combining IT and CE products, and also features virtual trade shows and events.
These products are not going to be everything to everybody. What’s key is retailers need more bullets to differentiate themselves, to add value to that transaction, to go back to the customer and get them to transact or upgrade and complete the solution.
A lot of the IT products first started with wireless technology in the home, but it really has grown beyond that today. It is imperative that retailers are merchandising the full solution. They can’t sell the full breadth of products, but they have to be able to offer differentiated solutions that add value and margin and satisfy customer demand.
We’ve tried to work with a lot of the independents to bring them up to speed on the offerings, noting if they are not currently in this business, they should get into it. We are opening up to different dealers, who were willing to have an open mind about it, to say this is how this side of the business runs. You’re missing a big opportunity by not having it.
There is more of a need for education on how to manage the life cycle and the turns because the computing product turns so rapidly. Our cycle changes three times a year, and that’s not typical for most consumer products.
User interface is really key. A smart guy five years ago said it would all be about user interface. At the end of the day, Apple was one of the first to come out with a common platform with a user interface across all products. So companies like HP and Samsung may not be sleeping — they are looking at this very quickly because they know it is their future.
Retailers can get into the business without necessarily having entered the rest of the computer business because it is developing very quickly into its own category with different utilization. It is important to line up the supply chains and teach the retailers how to live on 12 turns times X margin with the proper set of accessories, and quit worrying about the individual margin on a device.
It’s an education process, and retailers have to look for partners because that’s a well-developed channel with supply-chain logistics that cater to the margin. Every retailer will be in the computer business by the end of 2011 whether they want to or not, and they have to somehow figure out how to be in that relationship. They will all be in the tablet business — they have to because it’s such a transformative venue.
Retailers will also have to rethink the margin on specific products. A lot of times they will make the decision to not enter a category because the margin doesn’t work with their SG&A, instead of not breaking it down. In the e-reader business, if the retailer looked at the little leatherette cover that everybody needs to have, they would notice they would make 10 points on the reader, but that $39.95 cover, which costs $5 from China, picks up that margin and it’s not a bad sale.
The replacement warranty on it is also an easy sale, and all of a sudden there’s a pretty decent market basket on a category that most retailers today would say they don’t want to be in. Retailers have to rethink the building blocks.
There are two places where there is margin — content and solution. The piece in the middle is continually being squeezed in terms of margin. If you’re not delivering content like the Kindle delivers or you’re not on the solution side, you have a challenge on your hands in terms of just trying to sell products. You can whine all you want, but the margin trend will not be up.
Retailers have to figure out where they will play their strength. Fortunately, a lot of the retailers have focused on the solution end of the business. For every iPod that you don’t make money on, a nice set of headphones could be sold and a lot of money could be made.
With the cellphone, the customer can be regenerated every 18 months back into the store with new technology. The same trend is likely to continue with tablets to where it becomes net positive with all the innovation going on.
Retailers have to approach these categories differently in terms of how they try to garner the dollars out of one side. It will always be about basket. It will always be about attachments. In some categories, the challenge we will face this year will be just pure math where you take [average selling price] times unit demand equals “I don’t like that.” Every retailer needs to step back from that and take charge of their own destiny because otherwise, just running down the curve as it’s traveling right now, there’s probably not a lot of dollar growth in some of these big categories.