Wi-Fi vs. Cellular: The tablets' impetus for change

By Gurpreet Kaur, Tablet market analyst

Just a few months ago, I was fairly certain that a Wi-Fi only tablet would have trouble competing. I even wrote about it in an article called "The tablet's taboo: How a lack of connectivity will cripple adoption," but it's already time to crumple up that piece of paper, throw it in the trash and start over. So I'm coming forward with new statistics and a new theory.

Anyone tracking the tablet market has witnessed a clear shift in the industry's emphasis behind the inclusion of cellular connectivity. Being both a PC and a mobile category, vendors are still exploring options and testing demand for connectivity features in a device. Most smartphone analysts would agree, without a doubt, that cellular connectivity is a must-have and with this assumption, as well as the initial dominating presence of mobile phone vendors in the tablet category, 3G-equipped devices controlled a solid portion of the market as 2010 came to a close. 

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Source: Gap Intelligence monthly tablet pricing and promotions report, June 2011

Industry watchers, without the knowledge of user behavior, user preference or user budget would assume that cellular connectivity is a must have, in terms of functionality and channel presence, as well as a source of downstream revenue. The market saw an almost equal distribution of the shelf between cellular and just wireless tablets during the last year. Cellular-equipped tablets also played a major role in expanding the scope of a product's retail visibility as wireless carriers not only placed products in their retail stores, but also helped expand a tablet's distribution to other retail chains.  For example, if a tablet was offered through Verizon, then not only was it available at Verizon stores, but also sold through Verizon's partners such as Best Buy, Costco, Kmart, and Fry's Electronics. 

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Source: Gap Intelligence monthly tablet pricing and promotions report, June 2011

Fast forward six months, the tablet market has undergone a level of transformation that can only be seen once a decade and we are experiencing a very different retail shelf currently. Not only has the number of vendors with products in the U.S. retail channel increased from 1 to 21 since June 2010 and placements increased from 6 to 146 units during the same timeframe, the retail shelf has seen a major shift in cellular and Wi-Fi-equipped device placements. The cellular tablet placement share, which was equal to or close to the Wi-Fi-equipped tablet share until last year, dropped to 30 percent of all tablet placements in May 2011. 

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Source: Gap Intelligence monthly tablet pricing and promotions report, June 2011

Although it's a mobile device, a tablet is not as "mobile" as a smartphone. Tablet usage primarily takes place within a Wi-Fi environment, such as cafes, airports, offices, and my couch.  While a 3G feature on a smartphone or tablet might only come into play when on the go or in places that do not offer Wi-Fi connection, like a park or bus. This usage behavior, combined with recent stats reported by JiWire, reveal that the number of free wireless hotspots in the U.S. outnumbered paid Wi-Fi locations in August 2010, with 55.1 percent of public Wi-Fi locations available at no charge. This information might lead one to believe that a lack of cellular connectivity currently does not translate into disaster for the category.

With that, we have a stark change in vendors' product strategies, who quickly realized that user behavior tends to be towards tablet usage in a Wi-Fi-environment and that cellular connectivity is not an absolutely essential feature in a tablet device. Evidence suggests that consumers preferred Wi-Fi devices over cellular models, at least last year. Their experience with the cellular data feature will possibly influence second generation buyers in the market for a tablet. The inclusion of cellular connectivity or absence of it, will not only determine consumers' purchase motivations, but will also affect retailers' decision to carry a product in-store.

Despite the massive growth in the tablet industry, the category has already seen its share of corrections in product development and go-to-market strategies in its first year of relevance. Who knows, you might be hearing from me again after we learn more about which way the tablet market is leaning in the Wi-Fi versus cellular tug of war. Admitting you were a little off the mark can be very liberating...

Gurpreet Kaur is a tablet market analyst for Gap Intelligence, a San Diego-based independent technology research firm with emphasis in helping product manufacturers and retailers understand current market trends in order to respond to customer demands.

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