Prepare for the Coming Tablet War

Just when it seemed as though Apple (NASDAQ:AAPL) had cemented its position as the dominant player in the tablet market with the iPad, along came Amazon (NASDAQ:AMZN) to shake things up last holiday season with its 7-inch Kindle Fire. This is the smaller tablet form factor that former Apple CEO Steve Jobs declared “dead on arrival,” yet Amazon went on to sell a boatload of the $199 tablets — 4 to 5 million of them over the holidays.

Numbers like that were bound to cause a ripple effect and now we’re seeing it, only it’s turned into something much bigger. Instead of being a cakewalk for Apple, it looks as though the tablet market is about to get interesting, and the current battlefront has moved to that 7-inch arena. While smaller tablets make some compromises, they offer two distinct advantages over bigger models like the iPad: portability and cost. These factors are apparently resonating with consumers more than Apple anticipated.

As fall approaches and retailers begin to prepare for the all important back-to-school and holiday shopping seasons, here’s how things are looking in the 7-inch tablet market.

Front Runners

Google’s (NASDAQ:GOOG) Nexus 7 was expected to shake things up, but few people expected what Google put out there. The Nexus 7 has won rave reviews for powerful specs, premium feel and a full version of the latest Android operating system (4.1 or “Jellybean”) — as opposed to customized versions used by the Kindle Fire or Nook Tablet that lock users into proprietary App Stores. Although a $199 version is available, consumers seem to prefer the $249 model (which doubles storage from 8GB to 16GB) and as of this writing, Google was sold out of that 16GB model.

Amazon’s $199 Kindle Fire started the run on 7-inch tablets, but its popularity is flagging. In the quarter following Christmas, Amazon moved only 750,000 units and it’s taken a further hit with the release of Google’s Nexus 7. Technology moves fast and the Kindle Fire — which was a little underpowered at the time of its 2011 launch — is definitely outclassed now. But when Amazon releases an updated version (as it’s certain to), expect the Kindle Fire to remain a top contender. If nothing else, Amazon’s willingness to take a loss on hardware along with its huge multimedia and e-book offerings will keep consumers’ attention.

Still in Contention

Barnes & Noble’s (NYSE:BKS) NOOK Tablet and NOOK Color tablets (priced from $169 to $249) don’t get a whole lot of press these days, but before the Kindle Fire, these were the best-selling Android tablets, accounting for half of the North American market for non-Apple tablets.

Samsung (PINK:SSNLF) released its $249, 7-inch Galaxy Tab 2 in April to positive reviews. It didn’t result in a stampede of buyers, however, and reviews pitting it against the Nexus 7 give Google’s tablet the edge in power, display quality and software (at least until Samsung’s is upgraded to run Jellybean). However, the Galaxy Tab 2 has the advantage of expandable storage and dual cameras.

Dark Horses

Kobo’s Vox 7-inch tablet is seriously outclassed by pretty much everything else out there, but it does have several things going for it — namely, parent company Rakuten’s (PINK:RKUNF) ambition to take on Amazon globally. This includes multi-language support, a solid online e-bookstore and placement on shelves at prominent retailers including Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY) and the U.K.’s WH Smith.

Research in Motion (NASDAQ:RIMM) got off to a rocky start with its 7-inch BlackBerry PlayBook tablets, but initial launch issues are pretty much addressed, there’s support in place for at least some of the more popular Android apps, the hardware itself is still pretty solid and its been selling the tablets at fire sale prices (appropriately enough); $249 will net a 32GB model these days. A 4G LTE version with upgraded specs is rumored to be dropping any day now (although the $549 price dug up by MobileSyrup seems unlikely to last). RIMM is somewhat poisonous to many, but its tablets do have their fans and when they go in the bargain bins, they tend to get snapped up quickly.

Of course there are many other compact Android tablets out there, from manufacturers including HTC and Sony (NYSE:SNE), but they simply aren’t making onto the radar as contenders.

A few things stand out as the coming battle begins to take shape.

First, is that Apple appears to have been wrong about the market for 7-inch tablets. They are usable, people are buying them and they are likely taking away from iPad sales. There’s a good chance the rumored iPad Mini may see the light of day in order to combat this threat.

The second is that 7-inch tablets aren’t merely a march to the bottom. The fact that Google has $199 Nexus 7s on the shelf while the $249 version sold out is proof of this. So Apple may not have to drop an iPad Mini below $200 to compete; it also strengthens the case for releasing the device, since at least some people are clearly buying smaller tablets because they prefer the size, not just because they’re cheaper.

Finally, clear signs that compact tablets are just the start of this war. Microsoft (NASDAQ:MSFT) fired the first shot, indicating it wasn’t prepared to concede the full-sized tablet market to the iPad with the announcement of its Surface tablets. Now, Reuters is reporting that Amazon is preparing to release multiple new tablets, including a 10-inch version to take on the iPad directly. All eyes are now on Amazon and Apple to see what the fall battlefield is going to look like.

As of this writing, Brad Moon didn’t hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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