In a historic first, 2013 was named the ‘Year of the Tablet’ as tablet devices overtook PC sales for the first time since they entered the market.
But even though year-on-year tablet sales have risen, most tablet manufacturers are only scraping together small profits.
This hasn’t stopped hardware-only retailers like Tesco from jumping on the tablet bandwagon with its value product, Hudl. But almost all retailers are feeling the heat as tablet sales jump and profit margins shrink.
Selling Like Hot Cakes
In the last quarter of 2013, tech researcher IDC predicted that in last year’s Christmas rush, tablet sales would would overtake PC sales, with 84.1m tablets against 83.1m PCs.
20 million Britons now use tablets, while PC sales have seen their longest decline in history in the UK and worldwide.
On Boxing day, the BBC reported that more people accessed iPlayer on tablets than on computers for the first time.
The meteoric rise of tablets indicates a major behavioural change in how people are consuming media and information.
The race to the bottom
Tablet hype means that large industry players are jockeying to produce tablets as cheaply as possible.
As tablet prices are slashed, major brands are forced to cut costs in manufacturing. Aldi, Argos and Carphone Warehouse have all released tablets which retail at less that £100.
At the end of last year, Datawind released the world’s cheapest touch-screen Android tablet, UbiSlate 7Ci, retailing for only £30. But with only 512MB of RAM and a single-core 1GHz processor, the tablet, there’s not much the tablet can do.
Kevin McDonagh, CEO of Novoda, an Android software startup says retailers are cutting corners to make tablet sales profitable:
I suspect, and this is just my opinion, Carphone Warehouse, Aldi and Argos tablets were previously produced en masse before the involvement of any of these companies.
The companies then chose to brand and ship the devices with a bunch of apps installed upon them for customisation.
Made in China
McDonagh told Tech City News “if you visit Shezchen in China, the electronics markets will present rows and rows of tablets.”
All tablets look like the same rectangle screen on the outside. They all look the same on the outside, but this does not reflect it’s internals.
Competing with a high-quality tablet like the iPad on a budget is next to impossible: instead, knock-off assembly line tablets with names like aPad, bPad, and cPad resembling branded tablets in nothing except name, pose as quality products.
Chinavasion, a China-based online retailer says its factories produce tablets for various tablet brands alongside their own tablets which sells for less than £30 on their website.
Many of our tablet devices are built in the same factories as the brand name tablets — and to the same high specs.
Tech City News contacted Chinavasion to ask which brands were produced in their factories in Shenzhen, but unsurprisingly a spokesperson told us that they were not able to disclose this information.
The bottomline
Unless you compromise on quality, its next to impossible to make profit from hardware-only sales of tablets because of the plethora of knock-offs in an increasingly competitive market.
Google’s Nexus and Amazon’s Kindle make almost no net profits from hardware sales.
Hardware-only retailers such as Tesco, Samsung and LG have the least to gain from the tablet boom. Intense competition means these major players are selling their own-brand tablets for tiny profits. These companies are gasping for profits to capture a slice of the market share.
So, why bother?
Apple and Microsoft are still making healthy profits although Microsoft’s disappointing sales volume meant they had to slash their retail price.
For Google and Amazon, tablets are still worth selling because the devices act as a gateway to their other services such as ebooks and other products.
Other retailers like Tesco use the tablet simply to generate foot traffic in their stores and plot various monetisation strategies around it.
What’s crucial though, is that despite the tablet hype, most hardware-only retailers have little to gain from declining PC sales and growing tablet numbers.