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THE NEXT BIG(GER) SCREEN A Shift Toward Phablets A NIELSEN TELECOM PERSPECTIVE August 2015 Copyright ©2015 The Nielsen Company. Confidential and proprietary. UNDERSTANDING THE PHABLET TREND A look at the emergence of phablets and their impact on the broader smart device industry What’s so special about phablets? Following the debut of the Samsung Galaxy Note in 2011, smartphones have grown steadily larger in size over the past four years, blurring the lines between phone and tablet. This steady screen size creep has been complemented by a rapid rise in market share, as consumers eagerly embrace the larger screen size. As the trend looks here to stay, this analysis will take a detailed look at the emergence and market share growth of Android+* phablets, defined as smartphones with a screen size of 5.5 inches or larger. The paper will analyze the driving trends behind phablet performance, its past and current impact in the marketplace, and opportunities for future marketing and development. Questions addressed include: • How have phablets fared since entering the marketplace? Who is buying them? • What is the impact on regular sized phones and tablets? • How do people interact with phablets relative to smaller phones? • What are some important factors driving marketing ROI? • Are some markets more effective to market the phablet in than others? • What can manufacturers and carriers do to effectively market new phablet devices? 2 Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 BIG SCREENS, BIGGER MARKET SHARE Phablets have more than doubled in market share in the last year T h e Y e a r of t h e P h a b l e t 2011 saw the introduction of the first-ever phablet, the Samsung Galaxy Note, and its success led to more than 10 phablets from a variety of manufacturers launch in 2014. Market share stood at a just nascent 5.6% of total Android+ phones in January 2014 and quickly grew to 13.7% just 18 months later. Much of this growth was captured by Samsung, which comprised almost 70% of total phablets in the market in June 2015. ANDROID+ PHABLET GROWTH OVER TIME 100% 75% 94.6% 86.3% 50% 25% 5.4% 13.7% 0% Share of Android Market Android of Share 1/1/2014 5/1/2014 9/1/2014 1/1/2015 5/1/2015 Phablet Regular smartphone F l a g s h i p P h o n e s a r e G r o w i n g L a r g e r , B u t P h a b l e t s a r e U n i q u e Bigger is better if the increase in flagship devices is any indication. From 2012 to 2014, the size of major flagship lines grew steadily larger. However, with the exception of the Moto X, other flagships’ screen size remained unchanged from 2014. Phablets appear to be a distinct offering separate from traditional flagships. 6 5.7 5.5 5.5 5.5 5.2 5.2 5 5 5.1 5 5.1 5 4.7 4.7 4.8 4.7 4.7 4.5 4 Screen Size (Inches) Size Screen HTC One LG G Galaxy S Moto X2 Base: U.S.; Smartphone installed user base Source: Nielsen Device Share, 2015. 3 *Android+ is inclusive of Android, Windows, and Blackberry OSes. Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 WHAT’S DRIVING PHABLET SALES? I t ’ s All A b o u t t h e S c r e e n Phablet owners are buying specifically for the size, with 50% of owners citing it as a top 3 reason. 24% list it as their #1 reason, compared to just 11-12% for brand or operating system. 60% Android+ Phablet Owners Regular Android+ Smartphone Owners 10% 40% 16% 12% 10% 8% 8% 20% 8% 12% 11% 9% 10% 24% 7% 16% 12% 11% 14% 12% 0% Screen Size OS Price OS Price Brand Top 1 Top 2 Top 3 Given that most phablets’ specs are comparable to smaller flagships, screen size is the overwhelming factor for choosing a phablet, not hardware or processing power. H i g h - E n d P h a b l e t s D o m i n a t e t h e M a r k e t ; M i d - Low- T i e r S p e c P h a b l e t s H a v e n ’ t G a i n e d G r o u n d 1.3% 4.6% 1.3% Samsung Note Samsung Mega LG G Series 23.6% HTC One Max 3.5% 65.8% Nexus 6 Other High-end phablets are dominating the market, with Galaxy Note series alone commanding two-thirds of it. Given that screen size, not specs, drives phablet purchases, mid-tier phablets have considerably under-performed. With some increased marketing focus, there may be opportunities for mid-tier players to gain back market share from the top-end Samsung phablets. Source: Nielsen Mobile Insights Q2 2015. Sample size = 4,106 (phablet), 31,301 (non- 4 Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 phablet), 35,406 (total smartphone). Android, Blackberry, and Windows OS only. HOW ARE CONSUMERS USING PHABLETS? P h a b l e t O w n e r s C o n s u m e M o r e M e d i a As many tablet owners have found out, a bigger screen lends itself to a better viewing, gaming, and internet surfing experience. Compared with other smartphone owners, phablet owners are more likely to use their device for media consumption and shopping. 200 154 140 150 135 133 132 128 128 108 100 50 0 Near-Field Live video Mobile banking Video/mobile Mobile Online game Streaming Mobile internet Communication messaging TV shopping playing music/radio Phablet owners’ self-reported use of voice and text on their phones is largely comparable to that of regular smartphone owners’. However, phablet owners are much more likely to report high data use, likely due to their higher media consumption.. Upgrading customers to phablets could likely lead to an increased spend on data. 100% 35% 33% 47% 48% 59% 53% 50% 38% 39% 31% 35% 27% 33% 27% 28% 12% 19% 13% 15% 0% Android+ Regular Android+ Regular Android+ Regular Phablet Android+ Phablet Android+ Phablet Android+ Smartphone Smartphone Smartphone Low Medium High Source: Nielsen Mobile Insights Q2 2015. Sample size = 4,106 (phablet), 31,301 (non- phablet), 35,406 (total smartphone). Android, Blackberry, and Windows OS only. 5 Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 WHICH CONSUMERS ARE BUYING? P h a b l e t O w n e r s A r e Y o u n g e r and H i g h - T e c h Unsurprisingly, given that phablets are a relatively new trend, phablet owners are slightly more likely to be high-tech adopters. Phablet-owning consumers are also less likely to be older than the average Android+ smartphone owner. Android+ Phablets Android+ Phablet Low Tech Med Tech High Tech Younger Family Older 104 101 102 100 97 96 Using ConneXions, a Nielsen segmentation system based on demographics and tech behavior, it is apparent that certain consumer groups, like the “Early-Adopting Elite” and “Wireless White” Collars, are adopting phablets at a preferentially higher rate. Ownership is lowest among Young Startups and older, low-tech segments like Elderly Traditionalists. 160 120 105 105 104 104 102 99 98 96 95 94 80 40 0 Early-Adopting Wireless White- Suburban Young & Emerging Frugal Folks Mature Mid- Offline Seniors Elderly Young Startups Elite Collars Spenders Wireless Techies Techs Traditionalists Base: U.S.; Smartphone installed user base Source: Nielsen Device Share June 2015 6 Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 WHERE ARE PHABLETS SUCCEEDING? A d o p t i o n V a r i e s H e a v i l y B a s e d on R e g i o n Markets vary widely in phablet penetration. Phablets have enjoyed considerable success in several Texas markets, with high adoption rates. However, some cities, particularly those in the Northeast and Great Lakes region, have been difficult to crack. Share of Android Smartphones Not A l l M a r k e t i n g D o l l a r s a r e E q u a l Marketers should be careful where they invest precious ad spend, as not all markets respond similarly. For instance, Samsung’s Galaxy Note 4, the most successful phablet to date, saw much higher return on marketing six months post-launch in Southern cities like Austin, and Atlanta at under $10 per device. However, some major markets, like Chicago, Los Angeles, and Philadelphia, cost up to twice more. 9 $25 8 $22.49 7 $20 6 5 $15 4 $10 3 (Millions) 2 $8.93 $5 1 Ad Spend per Device 0 $0 Total Smartphones in Market Las Vegas Salt City Lake Total Smartphones in Market (March 2014) Spend per Galaxy Note 4 Base: U.S.; Smartphone installed user base Source: Nielsen Device Share Jan 2014 – June 2015, Nielsen Ad Insights January 2014 – June 2015 7 Copyright ©2014 The Nielsen Company. Confidential and proprietary. Confidential Company.The Nielsen Copyright ©2014 FINALLY…WHERE CAN PHABLETS GROW FROM HERE? With the recent release of flagship phablets Samsung Galaxy Note 5 and Galaxy S6 Edge+, and rumors of more from other manufacturers, competition for the phablet market is poised to heat up.