Cc -india_tablets_report_-_november_2011.34665552

Tablet Ecosystem in India – Current State, Potential and Outlook

November 9, 2011

Jayanth Kolla & Vijay Ramanathan

Preface

As a concept, tablets have been around for a while. So have touch screens on phones. It did take quite a while for a true convergence of hardware, software, operating systems, usability and an application ecosystem to finally come together (read as iPad) which has paved the way for a new generation of devices in the form of today’s tablets! As this nascent market grows at a breakneck pace globally, economies of scale have started setting in already. While a number of models are available in India from global brands and not so global ones there has been very little by way of differentiation amidst all these products. While tablet adoption has largely been with consumers, uses for this device in certain verticals such as education, retail, healthcare, corporates & aviation industries prove there is a large potential for those verticals. Why do a report on the Tablet Market for India? Tablets have the potential to grow exponentially if key players in the Indian market can play to the right market forces. However, India is a complex market made more challenging with a lack of structured, actionable data (the insights and analysis needed for business leaders). Hence this report. What to expect from this report? This report will not only look at global trends, applications and use cases for tablets but also the current state of Indian market, challenges and the outlook for the Indian tablet market. This report will highlight the potential and opportunity in India which should serve as a strategic tool for category players. The authors have reached out and interviewed business heads, product, marketing and sales managers, distributors and retailers of leading global and local tablet OEMs and also some neutral parties such as technology journalists, bloggers and reviewers. The authors wish to thank all the individuals who provided input for this report. Who is Convergence Catalyst & how are they qualified? Convergence Catalyst is a young and nimble Telecom Research and Advisory firm focusing on the Indian market. Convergence Catalyst (CC) principals bring decades of relevant Telecom experience in the Indian Telecom Industry. Having been Technocrats, Product Marketeers, Analysts and Business Consultants, they bring a keen insights into the Indian market dynamics. These insights will reflect on this report to help industry players base their strategic, operational decisions on the emerging Tablet Market.

Contents

Key Players in The Value Chain

Overview of Global Tablets Market

Potential Applications and Use Cases of Tablets for Consumers

Status of Current Tablet Market in India

Factors Contributing to Tablet Consumer Value Proposition in India

Challenges For Growth of Tablets in India

Forecasts for Tablets Sales in India

Something to Think About…

Potential Scenarios That Could Drive Tablets Adoption in India

Convergence Catalyst Credentials

3

Tablets have become popular consumer devices with the launch of Apple iPad in Q1 2010, followed by a number of models by other OEMs1

Sources: CC Estimates, Industry inputs Note 1: OEM – Original Equipment Manufacturer

•  Although tablets as portable, basic connectivity and computing devices have existed for many years, launch of Apple iPad heralded a new device segment

•  iPad launch was followed by a number of tablet launches such as Samsung Galaxy Tab and Motorola Xoom on Android, HP’s slate on WebOS and Blackberry’s Playbook on the QNX platform

•  Although HP has recently announced the cancellation of Slate and WebOS development, the company is rethinking its strategy

Apr ‘10 Sep ‘10 Jan ‘11 Feb‘11

Timelines of Key Tablets Launched Globally

Apr‘11

Samsung Galaxy Tab Apple iPad Motorola

Xoom Blackberry Playbook

HP Slate on Web OS

4

Tablet sales are expected to grow over four times in 2011, with majority of sales coming from North America and Europe regions

Sources: CC Analysis, Morgan Stanley – Tablet Demand and Destruction Report – Feb 2011

•  Globally, over 16 million have been sold in 2010, and the number is expected to grow approximately by 350% to 70 million by the end of 2011

•  Currently, tablets are being sold in developed markets on North America and Europe, while Asia (especially, China) is soon catching up

•  With global (adult) internet penetration expected to reach over 21% by 2014, tablets will help drive the internet adoption among the unconnected, especially in the emerging markets

Total Global Tablets Sales by Year (in Mn) Worldwide Tablets Sales split by region (2011)

2010 2011E

16

70

Total Tablets Sales

North America Europe Asia Rest of the

World

40%

36%

2% 22%

100%

5

Apple’s iOS leads the market with two-thirds share followed by Android

Sources: CC Analysis; Strategy Analytics – Global Tablet Shipments, Q3 2011 – Oct 2011; Nomura – Open Mobile Summit Report – Jun 2011

•  Apple iOS leads the tablets operating system market with two-thirds share

•  Android’s share has increased from 2.3% in Q3, 2010 to close to 27% in Q3, 2011

•  Android is the platform of choice by many OEMs (outside of Apple)

•  As the tablet adoption increases in emerging markets, the share of Android is also expected to increase in the next few quarters

•  Among all the Android-based tablet OEMs, Samsung leads the market with approximately three million shipments in Q3, 2011

Tablets Operating Systems Market Share (Q3, 2011)

100%

26.9%

66.6%

1.2% 2.4% 2.9%

Total Tablets Sales

iOS Android Windows QNX Others

6

The apps (available on each platform’s app store) play a key role in the tablets ecosystem

•  Apps form a critical part of tablets usability and experience as they continue to provide new feature sets and a whole new dimension to postponability

•  While Apple App Store has over 100K iPad optimized apps, the number of apps developed for tablets on Android 3.x (Honeycomb) and other platforms are abysmally low

•  While many of the existing Android smartphone apps do run on tablets, the platform SDK’s2 do not automatically scale the fonts and graphics for the bigger tablet displays, thus providing poor user experience

Number of Active Applications by Operating System App Store1 (‘000, Sep 2011)

Top Categories of Apple App Store Apps (‘000)

Apple App Store

Android Market

Blackberry App World

Windows Market Place Games Books Entertainment Education Lifestyle

Sources: CC Analysis; Industry inputs Note 1: Includes both smartphone and tablet apps, 2: SDK – Software Development Kit 7

Along with web browsing and email, media consumption (consumers) and presentations (enterprise customers) are the key tablet applications

•  Tablets are primarily being adopted for consuming content, with accessing internet and checking emails being the predominant activities both by retail and corporate consumers

•  While retail consumers also use tablets predominantly for multimedia consumption and gaming, enterprise consumers leverage the portability and the mobility of the device for remote access and client presentations

•  Lack of end-user file management system and ergonomic design for prolonged creation of spreadsheets and presentations does not yet make the tablet conducive for replacing PCs in enterprises

Percentage of Users Who Use Tablets Regularly for Consuming Content

Enterprise Customers iPad Usage for Different Activities

68% 62%

54% 54% 52% 52% 51%

73% 69% 67%

46% 45% 38%

Sources: CC Analysis; AlphaWise; Morgan Stanley – Tablet Demand and Destruction Report – Feb 2011 8

Tablets can also be adopted as primary devices in various industry verticals for diverse uses and applications

•  Healthcare industry in the West (especially the US) has exploited technology for a long time

•  Commercial Consumer tablets are coming in as cheaper alternatives and as supplemental devices

Healthcare Education Aviation Retail

•  Universities and Schools adopting Tablets in a big way in the US for a variety of uses

•  The FAA has allowed the use of iPad for electronic flight charts. Big airlines such as United and Alaskan Airlines have replaced their Flight Manuals with digitzed copies on the iPad

•  While online catalogs will aid sales, Retailers are slowly turning to tablets to enhance the in-store purchase experience for the consumer

Typical use cases of tablets in the Healthcare industry include: •  Electronic Medical Records •  Speech Therapy • Digital Imaging •  Patient Education •  Sign out •  Billing

Typical use cases of tablets in the Education industry include: • Digitized Textbooks • Annotate Notes &

Textbooks •  Interactive apps for

education • Note Taking •  Streaming of educational

content

Typical use cases of tablets in the Aviation industry include: •  Flight Charts • Access to Terminal

Approach & Procedures Charts

• Airport/Facility Directory • Weather Briefing • Altitude Charts

Typical use cases of tablets in the Retail industry include: •  Point of Sale Terminals • Customization •  Sales Assistant •  E-Commerce • Digital Signages • Online Catalogs

Sources: CC Analysis

Various Tablet Use Cases for Different Industry Verticals

9

While some industries are still in the pilot mode, education industry across the world has gone ahead to adopt tablets full time

Sources: CC Analysis; iPad Pilots – K12 Learning

•  While many industries are testing/piloting tablets as a potential replacement for their current devices, education sector across the world has already started deploying these devices

•  Various universities and colleges are providing tablets to faculty and students (sometimes as loaner devices for the duration of the course) for downloading digital textbooks, podcasts, assignments, etc

•  Various government departments such as Bureau of Land Management, City Councils, Police Force, Geological Survey Dept, etc in US & UK are using tablets for documentation, instant database access, and as a part of their paper reduction initiatives

Large Scale Tablets Deployment Across the World – Share by Industry Vertical (July 2011)

Total Tablet Usage Education Public Services Healthcare Others

10%

64.6%

17.8% 7.3%

100%

10

Contents







Tablet Projections in India




11

The tablets supply side value chain includes both hardware & software providers along with consumer interface such as carriers/retail channel

Chipset & Other Component Providers

Integrator Operating

System Providers

Carriers Device Makers/

OEMs

• Chipset vendors develop various processors used in tablets such as CPU, GPU, RF processor, etc

• Other key hardware components such as Touchscreen Display, Memory, Battery, etc are provided by various component makers

• Operating System (OS) providers not only develop the OS for devices, but they also enable third party application developers to develop apps and help grow the ecosystem

• While companies such as Apple & Blackberry develop the OS for their own products, Google & Microsoft partner with tablet OEMs to license OSs

• Hardware and software integrators help enable finished products for OEMs

• Device makers develop and launch tablets in various global markets either in partnership with carriers and/or through retail channel

• Carriers provide the requisite 2.5G/3G/4G connectivity for tablets to be used on the go. In some cases, carriers partner with OEMs to launch tablets bundled with their services

• Retail distribution channel plays a key role in tablets sales and Go-To-Market strategy of OEMs

Retail Channel

Source: CC Analysis 12

Of all the global tablet ecosystem players, Apple has managed to integrate most elements of the value chain

Player Role in the Value Chain Analysis

Apple

• Apple has managed to integrate most elements of the tablets value chain and provide end-to-end value proposition

•  It is accredited with creating the tablets category, enabling the paradigm shift to multi-touch and establishing prices for the segment

Samsung • Samsung is a key player in the ecosystem. It provides critical

hardware components such as displays, memory, etc and also manufactures its own tablets under the sub-brand “Galaxy”

Google

• Leading Android development and making it accessible to all OEMs and app developers, Google has opened up the tablet ecosystem for a myriad of ecosystem players

• With acquisition of Motorola Mobility, Google has in-house hardware capabilities for potentially building a device of its own

Microsoft

• With very few Windows 7 based tablets launched in the market and with it’s tablet-optimized operating system (Windows 8) yet to be commercially released, Microsoft is a late entrant into the tablet ecosystem (not counting tablet PCs)

• However, partnering with over 55% of Android vendors gaining royalty for Android use, Microsoft is ensuring revenues from increased use of Android OS

Design Houses in China & Taiwan

• The design houses and hardware manufacturers in Shenzen (China) and Taiwan are enabling the OEMs to acquire and market readily available devices, thus driving the low and mid end tablet penetration in emerging markets

Sources: CC Analysis 13

Contents











14

Tablets offer multiple services and experiences (which were earlier delivered on multiple platforms) on a single device

Key Services

Use Cases

Current Delivery Platform

Listen Manage

Rip Buy

View

Broadcast

Direct

Create

Play

Gamble Guide Maps Navigate

Yellow Pages

Browse Directions

IM - Chat

Stay in Touch

Music Video Gaming LBS Email Social Networking


Reading

Books

15

Intuitive user interface, portability and instant access to digital content makes Tablet an ideal consumption device

Ebooks Multimedia Key Functions - Browse - Email - Office

Touch Intuitive Long Battery Portable Instant ON

Multifunctionality

Connectivity -  2G, 3G, 4G -  WiFi -  Bluetooth

Push Notifications Location Aware

Connectivity

Contextual Relevance

App Ecosystem New Biz Models App for everything Developer friendly Global Reach

App Ecosystem

Usage Hygiene

Sensory Interface Accelerometer Gyrometer Flip to turn Pinch to Zoom

Interaction

User Experience

Leading to Excitement, Delight

Leading to Satisfaction, Comfort


Primarily being a consumption device, Tablet will co-exist with both mobile phones and computers

Primary Communication Device

Basic Voice Communications to sophisticated Smartphones

Highly Portable, highly capable, but still short on Display sizes

Primary Computing/Creation Device

Basic creation to sophisticated computing

Highly capable but, primary interface is a keyboard for creating

Primary Consumption Device

Basic creation to heavy duty consumption

Highly portable, excellent via media for everyday tasks due to touch interface, instant on, long battery life. Work + Entertainment for all situations


Contents











18

•  Tablets were introduced in the Indian market in October, 2010 with the launch of Samsung Galaxy Tab (7-inch) and Olive Pad VT100, both Android-based devices

•  Although Apple launched iPad 1 in India in January 2011, it could not garner significant sales as iPad 2 was announced globally around the same time

•  Reliance 3G Tab is the first tablet launched by a telecom carrier (Reliance), bundled with 3G services

Oct‘10 Jan ‘11 May‘11

Timelines of Key Tablets Launched in India

Aug‘11

Samsung Galaxy Tab

Apple iPad 1

Olive Pad VT100

Reliance 3G Tab Apple iPad 2

In India, Tablets were introduced in Oct 2010 with the launch of Samsung Tab and Olive Pad

Sources: CC Analysis; Industry Inputs 19

Until the launch of Apple’s iPad 2 in May 2011, Samsung Galaxy Tab was the leading tablet sold in India

Sources: CC Estimates; Voice & Data; Industry inputs

•  For the first two quarters of tablets availability in India, Samsung Galaxy Tab dominated the market •  With the launch of their globally successful iPad 2 at the end of April, and with decreased price of iPad 1 by

various retail chains, Apple has managed to lead the market since May 2011, catering to early adopters in India •  As per our estimates, the tablets market has also grown by 60% to 80% between May and Oct 2011, (post the

iPad 2 launch) as compared to Oct ‘10 to Apr ‘11 due to increased distribution and consumer awareness

100%

Total Tablet Sales Apple Samsung Olive Others

10% 82%

6% 2%

Total Tablet Sales Apple Samsung Others1

100% 55% - 60%

25% - 30%

15% - 20%

Indian Tablets Market Share of OEMs (Oct’10 to Apr’11)

Indian Tablets Market Share of OEMs (May’11 to Sep’11)

Note 1: Others include Olive, Reliance, Spice, Beetel, Blackberry, HTC, Motorola, Acer, etc

20

Apart from leading global brands such as Apple and Samsung, a number of local Indian brands have also launched tablets in India

Dell Streak Samsung Galaxy Tab – 7”, 8.9”, 10.1”

Olivepad VT100

Binatone SmartTab

Infibeam Phi

Huawei S7

Apple iPad 1 & 2

HTC Flyer Acer Iconia Viewsonic Viewpad 7”, 10”

Motorola Xoom

Reliance Tab HCL Me X1, AE7-A1, AP-10 A1 Mercury MTab

Milagrow TabTop

Spice MI-720 Beetel Magiq MSI Windpad 7”, 10” Blackberry

Playbook

Fly Vision Lenovo Ideapad – 3

versions NotionInk Adam

Sony S1 Sony S2

Amazon Kindle Fire Cisco Cius

Asus EEE Pad Transformer

Creative ZINIO 7, 10

Toshiba Thrive Asus EEE Pad Slider

Black Elemente 701, 707, 708

iBall Slide

Datawind Ubislate or the Govt. driven Akash Program

Devices Announced, Yet to be Launched


With Android being the choice of operating system by most of the OEMs outside of Apple in India

Total Tablet Sales Android iOS Others1

100%

3% - 5%

Operating System Wise Share of Total Tablets Sold in India (Oct’10 to Sep’11)

Note 1: Others include Blackberry QNX and Windows 7

•  Of over 35 tablets launched in India so far, majority of them are on Android operating system •  Of all the Android based tablets, Samsung Galaxy Tab is the highest selling device •  Although there were only two models of iPads launched in India, six different versions of each model

(combination of Wi-Fi, 3G and memory size) offer choice to consumers at different price points and features •  Apple managed to garner significant share with iPad 1 & 2 despite the high number of Android tablets

availability in India

Number of Tablet Models Launched in India Split by Operating System (Oct’11)

36 26

4

1

Android 2.x

Android 3.x

Total Tablet Launched

3 2

Windows iOS QNX

Sources: CC Estimates; Industry Inputs

55% - 60%

38% - 42%

22

Operating Systems play a key role in delivering the experience for tablets

Features Apple iOS5 Android 4.0 Microsoft WP 7.5 Blackberry QNX Kernel •  OS X •  Linux •  Windows CE 7 •  QNX Neutrino

RF Connectivity •  GSM, CDMA, 3G •  GSM, CDMA, 3G, 4G •  GSM, CDMA, 3G •  3G, 4G

Multitasking •  Yes •  Yes •  Yes •  Yes

Social Media Integration •  Twitter •  Facebook, Twitter •  Facebook, Twitter,

LinkedIn, Win Live

App Store •  iTunes – Music,

Videos, Games, Books

•  Android Market •  Windows Market Place

•  Blackberry App World

Browser •  Safari •  Chrome based •  IE 9 •  Yes Flash Support •  No •  Yes •  No •  Yes

Home Screen •  Icon Centric •  Icons + Widgets •  Icons + Widgets (Live Tiles) •  Icons

Productivity •  iWork •  Google Docs •  Office Mobile •  Docs To Go Voice Recognition •  Yes •  Yes •  Yes •  No Voice Assistant •  Siri •  No •  No •  No WiFi Syncing •  Yes •  With 3rd party apps •  Yes •  Yes. Manual Sync. Over the Air Updates •  Yes •  Yes •  No •  Yes

Cloud Support •  iCloud •  Google Sync •  Sky Drive

Customization •  Limited (after Jailbreaking)

•  Deep Customization •  None •  Limited

Wireless Cloud Backup •  Yes, 5Gb Free •  No •  No •  No


Sources: CC Estimates, Industry inputs, http://blog.o2.co.uk/home/2011/05/android-versions-whats-the-difference.html

Too many Android versions have lead to fragmentation

Android Cupcake – 1.5 Animated Window Transitions Accelerometer Improved Web Browser New Virtual Keyboard Integrated Voice Search Home Screen Widgets Live Folders

Android Donut – 1.6 New way to Search Bookmarks, Web History, contacts & Web from Home Screen Unified Video & Photos in Gallery App Select Multiple Photos for Deletion See what apps are draining battery Camera Speed Boodt (Google claims up to 39%)

Android Éclair – 2.1 Support for multiple accounts & email in a combined Inbox Exchange Support Ability to search through SMS & MMS Camera Upgrades Built-in Adobe Flash Support Digital Camera Zoom Scene modes, White Balance Controls Color effects, Macro Focus Mode Makeover to Virtual Keyboard for faster typing

Android Froyo – 2.2 New Homescreen to configure Shortcuts & Widgets New Applications Launcher & Browser Improved Security with option to set PIN or password Calendar support to Exchange Calendars Camera App added on-screen buttons for Zoom, flash, white balance, geo-taggings, focus & exposure Camcorder got LED Flash support Overall Speed boost

Android Gingerbread – 2.3 Designed for making Android simpler, faster & easier UI placed colorful elements on black background On screen keyboard overhauled for improving typing accuracy One touch selection with Copy & Paste Improved Power Management with ability to monitor & close active apps Camera app support for multiple cameras

Android Honeycomb – 3.x Built specifically for tablets Overhaul to the OS with a 3D ‘esque path towards multitasking, Notifications, home screen customization & widgets System bar is a constant fixture Action bar changes depending on which app is being used Easy to switch between apps Redesigned onscreen keyboard Browser, camera, gallery, contacts & email apps redesigned for big screen Open Accessory Feature Performance Tweaks to Animation Framework Resize Home Screen Widgets

Apr 2009

2005

Sep 2009 Feb 2010

May 2010

May 2011

Dec 2010

24

Apart from OS, specific hardware features such as external memory, long battery life & USB support are also key for success of tablets in India

Feature Description and Analysis Significance

• Extendable memory support is key for Indian consumers • Many mass market consumers in India get their

multimedia content and apps loaded on to the memory card by the retailers for consumption on their devices and share the content with others by exchanging their memory cards

• Some of the low & mid tier tablets with Wi-Fi only connectivity enable users to plug in USB based data modems for 3G connectivity. This and the ability to connect other peripherals through the USB port is highly desired by the Indian consumers

• Some retailers also position the USB port as easy to use drag-and-drop content transfer mechanism. This is favored by consumers who do not want to deal with specialized software such as iTunes for content transfer

• Long battery life is a key hygiene factor for all devices in India

• Mass market consumers in India expect their device battery to last at least one full work day

• Consumption of multimedia on portable devices is extremely high in India and also, sub-optimal networks (3G & Wi-Fi) tend to drain the device power rapidly

Extendable Memory Support

USB Support

Long Battery Life

Extremely Important Highly Important Important Less Important Insignificant


Key Features to be Considered for Launching Tablets in India

Of all the retail channels that are currently selling tablets, Large Format Retail stores sell the most

•  Tablets sales in Large Format Retail stores such as Croma & Reliance Digital is high as they provide wide range of devices on display, good device as well as retail experience and have well trained staff

•  Some OEMs are confused whether to position the tablet as an IT product or a telecom product. They are distributing 7-inch versions in the telecom channel and the 10-inch version in IT channel

•  Telecom organized channel chains such as Univercell, The Mobile Store, etc who have recently started selling tablets are struggling with sales, as they are unable to provide the necessary retail experience or educate the customers

•  IT Channel, which is more adept at solution-selling is able to educate the consumers on the value proposition of tablets and are currently faring better than telecom channels for tablet sales

Total Tablets Sales Large Format Retail Concept Stores IT Channel Telecom - Orgnanized Channel

Telecom - Multi Brand Outlets

100% 60% - 65%

Current Tablets Sales in India Split by Type of Retail Channel (Sept 2011)

10% - 15%

15% - 20%

5% - 8% 1% - 2%

Sources: CC Estimates; Industry Inputs 26

iPad Wi-Fi + 3G Apple iPad or Other

Tablets

Others

Wi-Fi Only

Wi-Fi Only Or

Wi-Fi + 3G

Purchase one of the Wi-Fi Only iPads

Purchase one of the Wi-Fi+3G iPads

Evaluate key parameters (Price, Brand & Features)

Evaluate secondary parameters (Product

Hygiene)

Purchase appropriate model

The current tablet buyers (early adopters) in India consider device OS, price, brand and the high level features for purchase

Key evaluation criteria for non-iPad models include: •  Price

− Low End – Sub USD1 250 − Mid End – Between USD 250 and USD 500 − High End – Over USD 500

•  Brand – Samsung, Motorola, Acer, etc •  Key product features

− Display Size – 7” or >7” − Operating System – Android 2.x vs 3.x or other − Extendable memory support − Onboard memory size

•  Hygiene features such as long battery life, USB support, multiple multimedia formats support, type of inbox accessories, etc

Purchase Decision Making Process for the Current Tablet Buyers (Early Adopters) in India

Sources: CC Analysis; Industry Inputs Note1: 1 US Dollar = 50 Indian Rupees 27

The devices in India can be broadly classified into three different categories based on their features and price point

Segmentation Price Range Key Features

• Up to USD 250

•  7 inch, 800 x 400 px, capacitive display (some OEMs use resistive displays for ultra-low end tablets)

•  Smartphone operating system (Android 2.x) •  Processor – Typically less than 1GHz •  Memory – 256MB RAM. Internal memory of 8GB or less,

with extendable memory support •  Connectivity – Typically Wi-Fi Only

• USD 250 to USD 500

•  7 inch or higher capacitive display •  Smartphone operating system (Android 2.x) •  Processor –1GHz •  Memory – 256 or 512MB RAM. Internal memory of 8GB

or less, with extendable memory support •  Connectivity – Typically Wi-Fi & 3G (in some cases)

• Over USD 500

•  Typically over 7 inch, multi-touch capacitive displays •  Tablet optimized operating systems – Android 3.x,

Apple iOS, Blackberry QNX, etc •  1GHz or higher, multi-core processors •  Memory – 512MB or 1GB RAM. Internal memory of 16GB

or higher •  Connectivity – Wi-Fi and 3G

Low Tier

Mid Tier

High Tier

Sources: CC Analysis; Industry Inputs

Segmentation of Tablets Currently Being Sold in India Based on Price

28

Different segments of consumers have different primary uses of tablets ranging from portability and remote access to multimedia consumption

Consumer Segment Definition Key Tablet Use Cases Description

Corporate Professionals

•  Professionals spend most of the day in offices

•  Connectivity is high priority

•  Portability •  Connectivity on the move •  E-mail & internet access •  Client presentations •  E-book reader •  Writing & annotation

•  Corporate professionals use tablets extensively as it provides portability and the bigger display (as compared to smartphones) is conducive for extensive web browsing, remote e-mail access and reading

Tech Savvy/ Gadget Crazy

•  Own latest device •  Early adopters

•  Applications •  Connectivity on the move •  E-mail & internet access •  Multimedia •  Gaming

•  Technology savvy early adopters explore the latest applications and games and are always-on the internet while on the move

High End Youth and Prosumers

•  Aspirational Category •  May go beyond their

means to own better gadgets

•  Applications •  E-mail & internet access •  Multimedia •  E-book reader •  Gaming

•  High end youth and prosumers moderately use tablets for various applications and services

•  Their primary goal is to cater to the aspirational value of the device

Mass Market •  May not be connected

to Internet but own a communication device

•  Multimedia on the go •  Basic internet and e-mail

access

•  Mass market consumers in India are expected to use the tablets primarily for multimedia consumption


Various Indian Consumer Segments and Their Primary Tablet Use Cases

29

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30

Apart from retail, tablets targeted at specialized verticals such as education sector & enterprise users are also being launched in India

• Cisco has launched a 7” Tablet, Cius at USD 700 targeted for enterprise customers

• Cius is the first tablet based on Intel’s Moorestown family of processors and is also compatible with a docking station

• Cius is based on Android 2.2 and includes various Cisco’s enterprise communication apps such as −  Unified Box (Phone, Chat, Email, Calendar, and Contacts

in a single app) −  TelePresence video conferencing system and −  WebEx web-conferencing app

• Access to Cisco’s AppHQ along with Android Marketplace will enable companies access secure mobile business-differentiated applications

• Tablets offering higher security and enabling customized apps are preferred by enterprises over retail consumer devices

Cius (Cisco) – Tablet for Enterprise Customers

• Aakash is an Android tablet jointly developed by the London-based OEM, DataWind with the Indian Institute of Technology and manufactured by the India-based company Quad

• The seven-inch touch screen tablet features 256 MB RAM, uses an ARM 11 processor with the Android 2.2 OS, has two USB ports and delivers HD-quality video. Aakash has access to Getjar app store instead of Android Market

• The device will be sold to the Government of India at $50 and will be distributed to the students at a subsidized price of $35

• The Aakash is designed to support various document, image, audio & video formats

• The success will however depend on how well the device is built and its usability

Aakash (Ubislate) – USD 35 Tablet for Students


Educational institutes in India are also considering to deploy tablets

Digitized Board Wi-Fi Router

Central Server

1 2

4

5

Students With Tablets

•  Authenticate •  Store and

disseminate digitized content

3:

•  Read •  Annotate •  Consume

•  Number of Courses Offered – 39 •  Number of Students – Over 9,000 •  Number of Faculty – Over 1,100 •  Campus already enabled with Wi-Fi network •  Objective: : Digitization of all key study

elements − Textbooks − Daily notes distributed through a campus wide

Wi-Fi Network − Automate class room attendance

•  Solution: − Deploy tablets to all students, enabling portability

and mobility − Disseminate digitized textbooks and daily updates

of class notes to the tablet − Deploy a location-based solution for automated

attendance marking in the classroom

•  Currently in discussion with various tablet OEMs and solution providers/system integrators to source a complete solution

Process Flow for Classroom Notes Distribution and Consumption on Tablets by Students

Case Study: Profile of a South Indian Engineering College considering tablets deployment

32

Telecom carriers, looking for higher data-based ARPUs have started launching tablets bundled with their 3G services

Free Data Usage/Month 1GB 2GB 5GB

Advance Annual Rental (USD) 90 110 140

Discounted Monthly Rental (USD) NA 12 16

Tariff Plans Prepaid & Postpaid

Key Device Features: •  Android 2.3 OS (Gingerbread) •  7 inch Multi-touch Screen (480*800 pixels) •  9 hours of talk time & 300 hours of standby time •  Extendable memory support •  Dual Camera (2 MP - Rear & VGA - Front ) •  Fully featured mobile phone with FM radio •  Wi Fi Hotspot + Bluetooth and Live TV

•  Reliance has started offering a mid-tier tablet bundled with its 3G services. It procures the device from ZTE •  The minimum cost of ownership for the consumer is USD 350 (device cost + 3G, annual 1GB plan) •  As per Convergence Catalyst estimates, Reliance has managed to sell 10K to 12K devices in the first 10 weeks of

its launch (as of end Oct’11), with majority of sales from Reliance’s existing enterprise customer base •  For new carriers such as Reliance, who have relatively uncongested 2G networks and are looking to attract high

ARPU subscribers on their 3G networks, tablet-bundled 3G services are a good option

Reliance Tab Proposition and Offerings

Device Cost – USD 260


Going forward, with launch of 4G services in India, carriers could potentially launch their services bundled with LTE enabled tablets

Apr ‘11 Jun ‘11 Jan ‘11 Sep ‘11

•  Invitation to vendors for appraisal on requirements

•  Awarding network contracts

•  Technology evaluation & standards definition •  RFP & vendor evaluation

Dec ‘11

•  Test network setup & ongoing network rollout

Apr ‘12

•  Launch of commercial services

Key Milestones for LTE Services Launch in India

•  Going forward, as the LTE service are launched in India, Convergence Catalyst expects the carriers to offer LTE enabled tablets, bundled with services

•  The carriers can leverage higher data speeds of LTE technology to offer better connectivity and optimized user experience to the consumers

•  Although, currently the cost of LTE enabled tablets is high, pan-India LTE carriers such as Reliance-Infotel can help drive the scale and decrease in devices cost

•  Reliance-Infotel is reported to be in discussion with content providers such as Walt Disney, Extramarks Edu, etc and tablet ODMs from Taiwan to source both content and devices and sell them at subsidized prices, bundled with TD-LTE services


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35

A combination of Affordability, User Experience, Aspiration and Utility will make Tablets a strong proposition for Indian consumers

Affordability

User Experience

Tablet Value Proposition for Indian Consumer

Aspiration

Utility

•  Indian consumers are price-sensitive and the device price needs to be in a ‘sweet spot’ for faster uptake

•  The overall user experience of the tablet (including the device user interface) is key to hold the users’ interest

•  Tablet’s positioning should have strong aspirational value, so that the consumers upgrade from their existing devices

•  Something for everyone makes tablet the ultimate All-in-One device


Most of the product categories in India witness steep uptake only after the price becomes affordable to the mass market levels

•  For a price-sensitive market such as India, the cost of ownership (including device and service cost) is a key factor

•  For tablets to be adopted by the mass market, the pricing of the device has to be in the “sweet spot”

•  The smartphones (adjacent product category to tablets) sales in India have increased significantly once the average selling price of the device has reached approximately USD 250

0

100

200

300

400

500

0

500

1,000

1,500

2,000

2,500

Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11

Smar

tpho

ne A

vera

ge S

ellin

g Pr

ice

Smar

tpho

ne S

ales

(in

Thou

sand

s)

‘000 USD

India Smartphone ASP Vs Sales Trend (2010 – 2011)

Smartphone Sales Trend Smartphone ASP Trend

Sources: CC Estimates; Industry Inputs

Affordability

37

+ +

A combination of fast data connectivity, slick user interface and relevant content lend to the overall user experience on the tablets

Factors Lending to Overall Tablet User Experience

Slick Device User Interface

Faster Data Connectivity

Relevant Content

•  For an overall, optimized user experience on a tablet, along with the device user interface, availability of fast data connectivity (3G/4G/Wi-Fi) and access to relevant and compelling content is necessary

•  While the device user interface is a function of the software (OS and UI layer), hardware features (such as processor, RAM and display), wireless data connectivity is provided by various telecom service providers

•  Tablet OEMs and carriers should potentially partner with each other along with content developers and application developers (for localized content and apps) to provide compelling user experience to the consumers

User Experience


Functional exposure breeds familiarity, which leads to aspiration of devices upgradation among Indian consumers

Exposure Wants Needs

Aspires for More Breeds Familiarity Owns

Upgrades Progresses to Other Categories

Flat Screen TVs Notebooks Smartphones

~12 mn

>20 mn ~20 mn

Current Installed Base of Product Categories Adjacent to Tablets

Typical Indian Consumer’s Gadget Ownership & Upgrade Cycle

•  Typically Indian consumers aspire for their next device post exposure to functionality on an adjacent category product

•  This aspiration is also driven by device ownership by the peer group •  Tablets could potentially be positioned as the ‘cool, must-have’, device targeting the existing laptop and

smartphone owners who can supplement their current devices

Aspiration


The tablets’ ability to be ‘something for everybody’ needs to be optimally exploited by the players for Indian market

Computing

Consumption

Communication

Ultimate Convergence

•  Understanding the key utility and applications of a device is important for consumers

•  Multiple use cases such as book reading, internet access, gaming, email, music & video consumption, video chat, etc for which different segments of consumers use different devices can be performed by tablet

•  The industry players can potentially position the tablet as the ultimate convergence device which caters to the users’ various computing, consumption and communication needs

Utility


While utility of tablets is extremely important to the tech savvy segment, the high end youth and prosumers aspire the most

Consumer Segment Definition Affordability User

Experience Aspiration Utility

Corporate Professionals

•  Professionals who spend most of the day in office

•  Connectivity is high priority

Tech Savvy/ Gadget Crazy

•  Own latest device •  Early adopters

High End Youth and Prosumers

•  Aspirational Category •  May go beyond their

means to own better gadgets

Mass Market •  May not be connected to

Internet but own a communication device

Extremely Important Highly Important Important Less Important Insignificant

Key Tablets Value Proposition Factors Relevance for Various Consumer Segments


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42

Sources: CC Analysis Note 1: ATL – Above The Line; 2: BTL – Below The Line

Indian consumers do not yet understand the core value proposition of tablets

•  While the average Indian consumer clearly understands the core value proposition of a Television, Mobile Phone and a PC and is comfortable using them, lack of consumer education and established core value proposition for a tablet is a major challenge in India currently

•  Many Indian consumers, even in urban areas, are unable to understand the need to own a third personal device (apart from their smartphone and laptop) and justify the purchase of a tablet, especially since the price of desired models such as Apple iPad and Samsung Galaxy Tab are quite high

•  The industry players need to educate the customer and the channel through both ATL1 and BTL2 communication channels to overcome this challenge

Television Mobile Phone Personal Computer Tablet

43

Sources: CC Estimates, Industry inputs

Lack of ubiquitous 3G network coverage and faster data speeds will fail to provide optimum user experience on tablets

Total Site Capacity: 40 Er

Total Capacity Available for Data Usage

Voice Usage for 1100 Subscribers @ 0.035 Er per sub

1 2 3

1

2

3

Total Site Capacity: 105 Er

Total Capacity Available for Data Usage

Voice Usage for 1100 Subscribers @ 0.059 Er per sub (assuming higher usage for 3G sub)

1

2

3

Voice and Data Capacity for 2G Site (Erlangs) Voice and Data Capacity for 3G Site (Erlangs)

1 2 3

•  The 3G network coverage in India is still patchy and not ubiquitous •  Most of the 3G networks in India (especially those of incumbent carriers) are not yet optimized for data. In some

cases, the cell sites are configured for a maximum of 0.5 Mbps data rates, which are insufficient to provide optimum experience on tablets

•  Although Aircel has deployed about 50,000 Wi-Fi hot spots in areas with high, concentrated foot falls such as malls and theaters in different cities, the usage and data traffic through these hot spots is significantly low

44

Prevalent piracy, low digital content sales and lack of alternate payment models are other challenges for uptake of Tablets in India

•  The increased number of defaults and the clean-up of credit cards portfolio by the banks has decreased the (already low) number of credit cards between 2008 to 2010

•  This is a hindrance for purchase of apps from tablet platform various app stores

•  Majority of Indian consumers (including youth) do not pay for multimedia content that they consume on their mobile devices

•  Such behavior of Indian consumers is discouraging for ecosystem players trying to monetize multimedia content on tablets

22

29

18

0

10

20

30

40

2006 2008 2010

Total No. of Active Credit Card Users in India (mn)

Various Modes of Mobile Music Access for Indian Youth

Source: Nokia Mobile Music Youth Survey – Oct 2011; I-Cube 2009 & 2010 Report; FICCI Frames – PWC Report; RBI

Sharing With Friends

Dwnld From Pirated Sites

Paid Dwnld From Carrier

91%

69%

<5%

Online Music Sales in India (USD ‘000)

•  Easy availability of free, pirated content and high price of songs available from DRM channels

•  In India there is approximately 1 legal download for every 50 illegal downloads

40

220

0

50

100

150

200

250

2007 2010

45

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46

Tota

l Ins

talle

d Ba

se o

f Uni

que

Mob

ile D

evic

e Us

ers

(201

1)

Sources: CC Analysis, Industry inputs Note: ASP – Average Selling Price

Classification of Mobile Devices

Split of Each Type by ASP Segment

Growth of Mobile Phones (2012-14) by Type & ASP

Assumptions: •  All the Tablet owners will be existing owners of mobile phones for the forecast period. Tablets will coexist with mobile

phones and/or computers •  High and Medium ASP smartphone owners will have greater share of (high and mid ASP) tablets and also will be the early

adopters, followed by high ASP feature phone users, who are expected to primarily buy mid and low end tablets •  All the current and future computer (PC/Laptop/Netbook) owners will also own mobile phones (smartphone or feature phone)

Feat

ure

Phon

es (F

P)

Smar

tpho

nes

(SP)

Low ASP

Medium ASP

High ASP Adoption by

Industry Verticals

Carrier Bundling

Adoption by Unconnected

Segment

Potential Ecosystem Enablers Driving Tablets Adoption

Total Tablet Sales by Year for Different Scenarios

The tablets adoption in India has been projected basis the installed base and growth of different mobile phones and other ecosystem enablers

- Input - Output

Low ASP

Medium ASP

High ASP

Total Unique Mobile Device Owners

Bullish Base Case Bearish

47

Tablets could potentially reach the sales of over 5.5 million in 2014

214

924

2,375

5,537

214

777

1,507

2,256

214 312 378 458

0

2,000

4,000

6,000

2011E 2012E 2013E 2014E

Forecasts for Tablets Sales in India by Year (2011 – 2014, in Thousands)

‘000

Bullish Base Case Bearish

Feature Phone •  High ASP - $140 to $180 •  Mid ASP - $80 to $140 •  Low ASP - $40 to $80

Smartphone •  High ASP - > $400 •  Mid ASP - $200 to $400 •  Low ASP - <$200

Tablet •  High ASP - > $500 •  Mid ASP - $250 to $500 •  Low ASP - <$500

Sources: CC Estimates and Analysis

•  Globally, tablets are following the adoption path of smartphones, and not of netbooks. We believe it will be a similar case in India as well

•  In 2012, majority of the sales are expected to come from the retail channels, and the consumers (especially, mid-tier segment) will choose to purchase either a smartphone or a tablet but not both (at least within 6 to 9 months of purchase of the former)

•  Significant adoption by verticals such as education, retail, aviation, etc and also the unconnected segment is not expected before 2013. By then we expect ecosystem to be ready with mobile networks coverage, digitized content, communicating the value proposition, etc

48

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49

There exist a number of potential drivers on the demand side…

Parameter Key Statistic

• Number of active internet users in India •  ~97 Million

• Number of existing PC users in India •  Over 52 Million

• Number of active 3G subscribers in India •  Between 15 to 18 Million

• Number of TV Households in India •  ~ 141 Million

• Number of unique mobile device owners in India •  Over 540 Million

• Number of unique smartphone users in India •  Over 20 Million

• Number of IT and ITES workforce in India •  ~ 2.3 Million

• Number of Facebook users in India •  ~ 36 Million

Opportunities for Tablet ecosystem in India to explode (1/2)

Sources: CC Analysis; Industry Inputs, NASSCOM, TAM India, IAMAI, MAIT 50

Sources: CC Estimates and Analysis

Opportunities for Tablet ecosystem in India to explode (2/2)

Parameter Key Statistic

• There is an App for everything •  NA

• Touch – The new paradigm •  NA

• Indian government’s ambition for the education sector •  USD 35 Tablet

• Number of global tablet sales in 2012 (projected) •  Over 110 Million

• China and Taiwan based ODMs driving economies of scale •  NA

…and, on the supply side

It is up to the ecosystem players to navigate through a highly fragmented retail universe, diverse consumer segments, unique consumer expectations & complex

market dynamics and capitalize on the opportunity called INDIA!

51

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52

Technology

Telecom Media

Convergence Catalyst brings vast telecom industry & consultancy experience to offer research and consulting services in the TMT domain

•  Head, Product Marketing - Motorola •  Head, Product Management – MTS •  Senior Manager – Tata Teleservices •  Product Manager – Nokia •  Test Lead, RF – Qualcomm •  Network Planning & Optimization – ITI

•  Senior Management Consultant – Analysys Mason

Companies Worked For Key Functional Roles Held

Telecom Industry

Management Consulting

Domain Experience

Telecom Industry and Management Consulting Experience of Key Convergence Catalyst Core Team Members

53

Convergence Catalyst services include market analysis, product offerings consultancy, investment advisory and custom research

Market Analysis Product Offerings Consulting

Custom Research Investment Advisory

Leverage deep understanding of technology, regulation, operations and economics of TMT value chain to come up with reports and analyst notes on the latest industry developments

Leverage extensive experience in end-to-end mobile devices development and launch with both enterprise and retail customers to offer operations consulting to various Indian and global product companies

Understanding of industry & key players dynamics and investors mindset provides a unique advantage to CC to offer both due diligence services and investor pitch-book development

CC leverages its vast contacts base in the TMT domain to gather key inputs on specific industry and/or company developments, and offers custom research reports, fact packs, etc based on in-depth analysis and valuable insights

Focus Areas •  Market sizing •  Opportunity

assessment •  Key player strategies

Focus Areas •  Product portfolio &

roadmap development •  Technical marketing •  Business case development

& RoI estimation •  Pricing & positioning

strategies •  Placement plan •  Marketing plan •  Competitive analysis

Focus Areas •  Due diligence •  Investor pitch-book

development

Focus Areas •  Market assessment •  Forecasting analysis •  Key partner

identification •  Competitive

intelligence

54

About The Author – Vijay Ramanathan

Vijay Ramanathan brings over two decades of international industry experience with over 15 years in the telecom industry. His expertise lies in Product Management & Marketing - from Strategy to Positioning & Execution. He brings a keen insight on key Market Trends that can be converted into actionable plans. Armed with firsthand knowledge of the India Telecom market & the Indian consumer, he has a deep understanding of the hygiene & requirements needed to succeed in the market, having launched upwards of 50 handsets from the very low tier to the high tier segments. He witnessed & participated firsthand in the explosive hockeystick growth in the Indian Telecom market for the last 10 years and has developed a well rounded knowledge of the dynamics in the Operator, Handset, Infrastructure, Regulatory, Retail & Distribution areas in the India Telecom market - keeping a keen eye on advancements in the Wireless/Internet/Gadget/VAS/general technology areas globally. Most recently, he headed Handset Marketing for MTS, a CDMA operator in India. Prior to that, he was Head, Product Marketing at Motorola Mobile Devices between 2003-08, responsible for all handset product launches & in reaching No.2 in India. He has also held Business & Product positions in Telecom Software, Cellular Infrastructure & Auto Navigation industries in USA and India.

55

About The Author – Jayanth Kolla

Jayanth has close to ten years of experience in the Indian telecom industry, having worked as a technocrat (core & access), product manager, marketer and strategy consultant. He has experience working with telecom carriers, leading mobile device manufacturers and management consulting firms. As a technocrat, Jayanth was involved in rolling out the first rural wireless telephone network in India for a private carrier, implementation of S-HLR and testing of CDMA mobile devices. He has worked in multiple capacities in technical marketing, program management, new product development & product marketing launching a number of GSM & CDMA mobile devices in India, both through carrier and retail channels across the portfolio. He has also led the ‘Open Market Handsets’ initiative for Tata Teleservices in 2010. Jayanth has a strong understanding of various consumer segments, distribution channels, ATL & BTL marketing elements & product positioning strategies both in B2B & B2C channels in the Indian telecom market . As a management consultant, Jayanth has worked extensively in research & analysis, market entry, business growth strategy & investment advisory across various players in the telecom value chain including technology & chipset companies, infrastructure vendors, device OEMs, carriers, VAS companies & PEs/VCs Worked with Companies: Tata Teleservices, Kyocera, Motorola, Nokia and Analysys Mason

56

Thank You

Contact Us : Vijay Ramanathan, [email protected] Jayanth Kolla, [email protected]

www.convergencecatalyst.com Twitter: C_Catalyst