CES 2011: Day 2

CES Exhibition Floor

As we explore the CES floor the energy around the tablet is palpable. The smartphone is assumed. Despite all the uncertainties of the market and the struggles for market share this looks like an old battlefield. The excitement is around the tablet which had its last energy peak in 1991 with Pen computing. Yet, in only 9 months the market has been transformed by the iPad. This was only speculation at CES 2010. Here at CES 2011, CEA estimated before the event that there would be 80 tablets introduced and yesterday they hinted at 100. During a panel discussion on tablets a thread ran about the struggles that tablet manufacturers are having with differentiation. There is only one way to characterize this – high market velocity. This was captured with one company showing a case for the iPad 2.0. Here at CES 2011 as we walk the floor, sample the exhibits, go to sessions and engage with individuals, some of the dynamics around the tablet market have gained additional clarity. But by no means would we want to claim there is understanding of this immature market.

CES Overview

We were last at CES in 2009 and it seems like an eternity. Notable changes include:

The exhibit space has shrunk. The Sands is gone. There is less space being used in the Hilton Convention Center.

Some large players are not here: HP and Dell, for example. The single largest missing company is Apple. Another company noticeably missing is Google.

The event is more diverse. CEA has created Tech Zones to highlight segments of the market, even including products for Apple and gamers.

PMA abandoned its February trade show in Las Vegas, due to competition with CES, and now CES has greater depth in photo equipment but Nikon is missing. CES is not a photo equipment show.

There is little here on social networks. If anything, CES is about published media and the products for consumption, not how and what consumers do to participate on networks.

The technical program is also more diverse but the quality is variable. The programs are not managed in the say way they are in many conferences.

In many respects CES has filled the void left by the demise of COMDEX, but at its core CES is about Consumer Electronics and not computing or communications. Yet, as a massive trade show centered on consumers, it remains a premier event, at least in the US.

It has become difficult to sustain these large venues in these economic times. The direction has been and continues to be towards more specialized events on a much smaller scale. Unmanageable size killed COMDEX and it remains to be seen if the size of CES will severely impact this venue. A downward trend is already evident but one must give CEA credit for being adaptable to the market dynamics.

140,000 individuals came to CES. This makes CEA happy but we wonder if this is a good sign for the event.

In walking the floor the first day one is struck by these impressions.

3D displays and even cameras are everywhere. One has a sense of desperation. With increasing penetration of HD television the industry must find a way to continue to flood the market with LCD panels and, if possible, increase or sustain the ASP. 3D is that hope. But the hype can only last so long. If consumers do not grab this technology it will rapidly fade. As one commentator said – this is the last year of 3D hype. If it does not stick this year it may not be around again.

Numerous times we have heard this described as the year of the tablet. Products are everywhere and, more importantly, individuals are carrying them. The space is dominated by Apple but its absence at CES makes the venue a wannabe forum.

Large home appliances are entering CES, in the large booths, as connected devices. But we regard most of this as no more than exploration.

A hot topic is connected TVs and TVs in many forms beyond passive watching. Again this is an attempt to differentiate a commodity product and stimulate sales.

There are really two shows here, not too dissimilar to COMDEX at the end. That is, on one side are the large CE companies with massive booths which drive the show-floor eye candy. But there are many small booths of companies from Hong Kong, China, Taiwan and Korea. It could be said that the start-ups are present here but we find the side-events such as ShowStoppers a better venue to see this aspect of the market.

The keynotes are an important event at CES. This is where the large players make major announcements and show a commitment to the market. As normal, Microsoft had its event the night before the opening of CES and on opening day it was Verizon.

It is not hard to get caught up in the visual spectacle of CES. One cannot help but be impressed by the massive booths which delight the eye. CES is not immune from the same forces of the market which drive the companies exhibiting here. It is clear that CES has changed in even the last few years but continued substantial changes will be required if it to sustain its position as a premiere large-scale conference venue.

Verizon Keynote

It was widely expected that Verizon would announce the iPhone on its wireless network at CES. But as the event approached, the speculation rapidly shifted to a focus on Android announcements. The message which resonated with this shift was – Steve Jobs would not let such a significant announcement happen outside of an event he does not control. Only a week later was the iPhone on Verizon announced in New York City.

Most of the keynote was about the Verizon network and how it will meet the needs of consumers in the future. A lot of time was spent with the Time Warner CEO Jeffrey Bewkes but this was about how Verizon could support the plans of Time Warner.

The significant element of the keynote was the demonstration by Google Android chief Andy Rubin of Honeycomb on the Motorola Xoom. It was fluid and well integrated. The desktop was well done. Maps looked like Google Earth with 3D buildings as one got to the ground. Email integration was excellent – gmail that is. Google has set a high bar for its entry into the tablet space.

Tablet Frustrations

In spite of the promise of Motorola’s Xoom and the interesting Microsoft tablet-like devices in its booth, one could not handle them. Promises of products in the coming months seemed hollow when the hot items were under glass.

In the Motorola booth we asked about distribution and Xoom will be only available on the Verizon network. While the Apple iPad has a 50-50 split between WiFi and 3G products Motorola has elected to segment its market with only one means of distribution. There is hardly an open market for products when it is buried in a 2 year contract with artificial pricing. Apple is much more transparent. Other companies are less likely to so restrict on tablet offerings but the connectivity to networks remains an area which will continue to evolve.

Tablets in Context

A conference session: The Great Slate Debate, provided an excellent context for the tablet market dynamics. Here are some of the points made.

Already the tablet market is saturated and vendors are seeking to differentiate their offerings. Freescale stated that there were 23 tablets being shown in its suite. One panel member said – How can we stay alive in this market?

Significant production is already underway. Freescale cited one tablet, which will retail at $149, is being currently produced at 300,000 units/month.

Tablets continue to be differentiated from Notebooks and Laptops in terms of use. Tablets are for consumption and Notebooks are for creation, has been the standard line. Yet, this notion eroded when tablets with 4 cores were discussed and how these have the compute power of many notebooks. Another characterization of tablets was that they typically are not on-the-go. If one views CES as a measure of this, one would certainly regard the notion of tablets being used in a physically confined environment as false. There is no easy way to carry them as a personal device like a phone. There is only one way to respond to all of this: It is impossible to have one view of tablets. This is a new computing category, with new form factors and a wide range of target markets from vertical to horizontal.

On multiple occasions the early and immature characteristics of the tablet market was described. One cannot assume what the markets looks like today will be the same tomorrow. It is changing too rapidly. Tablets are already surfacing in usual form factors and applications. One cited was a tablet which is a television viewing device in the living room which could morph to a large screen television controller. Tablets are not PCs and even the notion of the iPad as the defining tablet may be too narrow for this emerging category.

The ability to rapidly respond to the market is, in part, driven by two factors. First, Apple operates on a cadence of 1 year product cycles for its major offerings. This defines the markets for those products. The response to this cadence comes from companies in Asia who are accustomed to high market velocities. They are able to respond to what Apple does and still eke out gross margins within the life cycle of the Apple products.

A major advantage from the supply side is that Tablets, including the prospect of many of them in a family, will drive more screens in the home.

Toshiba will start with 10” tablets then expand the offering to 7” and 11” tablets. What OS is employed will be based on the tablet use case.

Barnes & Noble will begin to offer apps on its color Nook device. They find that “traditional” app developers need to be educated on how to deal with a focused vertical market – book readers. The message is that iPad applications are not necessarily best for those focused on reading books.

There is confusion in the OS offerings. Clearly Google dominates due to price and continued innovation. Honeycomb shows how it is driving the market. In spite of rumors of Linux-based offerings only a few have been found, including the Sharp Galapagos which runs a customized version of the Linux OS.

In spite of the “openness” of Android, Google carefully controls how the OS is used in the market. For example, when the OS is updated Google selects the combination of the hardware company, OEM, and CPU supplier. This is the anointing of the premier hardware platform and launch product. This becomes the first Google Certified device. Then, all following Android devices must get certified by Google. If a device is not, Google will deny access to the Google Marketplace.

Given the market hold which Google has on the current tablet market there was some discussion that Microsoft’s offering on ARM could open the market to more competition against Android.