The Importance of Market Segment Definitions

By Norbert Hildebrand

In my article Are Tablets PCs?, I raised the question if tablets and PCs should be counted in the same market segment. One of my arguments to do so was based on the fact that if a product is used for the same purpose by the consumer, it should be counted as being part of the same market. Another concern was based on the fact that market research articles often influences the opinion of consumers indirectly in the form of a feedback loop.

As I published this article a week ago, I did not know that this topic would show up that quickly again in newly released market forecast data from IDC. Only this time, the news was a lower market forecast for the tablet, the same device that just a few weeks ago caused the PC forecast to decline. So what happened?

IDC published a press release, IDC Tempers Long-Term Tablet Forecast as Competing Technologies Heat Up, in which it argues that the advent of larger sized smartphones (“phablets“) and wearable computing devices are fighting with the tablet over their share of the CE market. IDC sees consumer CE spending as somewhat of a fixed number that gets divided by all categories. This is certainly relatively close to reality in the current economic conditions and also confirmed by the release of consumer CE spending data from CEA over the last few years. In terms of the market forecast reduction, it reduced the 2013 tablet forecast from 229.3 million units to 227.4 million units. Really?  This reduction of 1.9 million units is less than the market research firms typically differ on actual sales numbers for the last year.

Reading this headline made me think, is the tablet frenzy already over? Reading the article more carefully, it made the good point that the future growth of tablet sales will shift from developed countries to developing countries, in which the price of a device is a much more important factor. In addition, in these countries owning two devices like the smart phone and the tablet may be the exception instead of the rule. In these areas, many researchers see good chances for phablets to replace dual purchases (smartphone and tablet).

IDC-August-2013-Smartphone-Forecast-India-0913This is also shown in another market analysis for the India smartphone market released by IDC. As you can see in the figure, it sees the 5″ to 6.99″ market segment of the smartphone growing strongly over the last five quarters.

Wait. Did IDC really measure up to 6.99″ as smartphones and from 7″ on as tablets? Would that make the Dell Streak 5 the first smartphone to fail miserably in the market?

If this continues we have to ask ourselves, should phablets be defined as smartphones, tablets or their own category? Depending on the market research firm, this definition may shift somewhat and will create different results going forward. To make this even more confusing, in which category do tablets with calling features fall?

My stand is that devices serving the same market should be counted as being part of that market segment, so I would put phablets and tablets (at least the 7″ models) in the same market segment. This is an interesting point as they come from very different roots, but arrive at the same culminating point.

If we want to avoid future headlines of market research reports that contradict each other in the basic message (e.g., the market is growing versus the market is shrinking), we need to come to an acceptable form of market segment definition.

So what is your vote? Are phablets tablets or smartphones? Just vote below and I will share the results with you soon.