Network Effects – A tale of Two Tablets
In the cluttered tablet market, manufacturers are trying hard to differentiate their products from the rest of the pack. With over a 75% market share, Apple tablets are the clear market frontrunner. The remainder of the market is mostly controlled by Android Tablets, which can be segmented even further by device manufacturer. Two companies, however, differentiated their products even further by developing their own operating systems for their tablets. RIM developed BlackBerry Tablet OS, a spinoff of its already popular BlackBerry smartphone operating system for its tablet, the Playbook. HP acquired Palm inc. and released a tablet version of webOS for its tablet, the Touchpad. The success of these two products, the Playbook and Touchpad, relied heavily on consumer adoption and are a good example of markets with network effects.
The success of cell phone operating systems such as Android and iOS has shown that people love aps. As stated by Cornell professor Trevor Pinch, “apps represent our unique needs, personality and interests.” A wide selection of apps enables a person to easily customize their mobile device to fit their daily lives. A device lacking numerous, diverse apps would be less desirable to a consumer. Pinch’s research revealed that about 55% of smartphone users rely significantly on apps to significantly benefit their lives. Since developing apps takes time and money, developers will look to develop apps for platforms which have the largest user base. One can quickly see that the success of the product is closely related to network effects.
When both the HP Touchpad and the Blackberry Playbook entered the market they both had a limited number of tablet friendly apps available. Both companies catered to app developers prior to the products’ release dates in hopes that they would create apps for each respective platform. However, the strategies of both companies were vastly different; ultimately leading to the success RIM and the demise of HP.
RIM followed an aggressive strategy to increase its user base even before the release of their product. They gave out free Playbooks to anyone who developed a unique app for their operating system. RIM increase the number of consumers significantly with these giveaways while simultaneously increasing its app library. This helped to increase the valuation of the tablet by consumers as revealed by the market model with network effects. To further increase their valuation, the Playbook allows for native Android apps to be run on the operating system. Ultimately, consumers will now value the Playbook more because the user base is expanded to BlackBerry Tablet and Android OS users. The strategy to give away free tablets and to run native Android applications may have ultimately been the saving grace for this black sheep tablet. It currently has a 5% market share, which is formidable considering that RIM is competing against two giants (Apple and Android).
On the other hand HP did not follow any steps to increase their number of consumers before releasing the product. As a result, people valued their product less. From a hardware standpoint, the Touchpad surpassed most other tablets. Unfortunately it was late to the tablet game and was not able to garner the early adopters it needed to propel its tablet to success. The tablet posted very poor sales and eventually HP cut production of the Touchpad. They were all liquidated at $99, $400 less than its retail price. It is still unclear if this is a move by HP to increase their consumer base, or if their ultimate plan is to completely eliminate their non-Windows tablet division. Either way, network effects ultimately drove down the price of the TouchPad to a loss for HP.
Network effects clearly played a large role in the success of both the Playbook and the TouchPad. A solid consumer base is required for the success of tablets. RIM was able to tap into the large consumer base already controlled by Android while simultaneously increasing its market share. This eventually led to its success. Alternatively, HP did not have any consumers when it released its product which caused people to value it less. This ultimately led to the liquidation of HP webOS based tablets. With the tablet market maturing it is unlikely that we will see another unique tablet OS emerging in the near future.
Sources:
http://www.tgdaily.com/mobility-features/58463-android-tablet-market-share-tumbles-to-268
http://www.fabriqate.com/what-types-of-apps-are-the-most-popular/
http://crackberry.com/android-app-player-blackberry-q
http://www.masslive.com/business-news/index.ssf/2011/09/sales_of_ipad_android_tablets_continues.html