Phablets are a very hot, growing market.  Phablets are those huge phones (greater than 4″ screen size) that some people carry around.  From almost nothing in 2012, over the last 3 years the market has exploded:

Source: Jay Yarrow, Business Insider http://www.businessinsider.com/in-one-chart-heres-why-the-ipad-business-is-cratering-2015-3?utm_content=&utm_medium=email&utm_source=alerts&nr_email_referer=1

Source: Jay Yarrow, Business Insider http://www.businessinsider.com/in-one-chart-heres-why-the-ipad-business-is-cratering-2015-3?utm_content=&utm_medium=email&utm_source=alerts&nr_email_referer=1

The original creator of this market data, Kulbinder Garcha of Credit Suisse, thinks this demonstrates cannibalization of tablet sales by phablets.  And this is supposedly a bad thing for Apple.

But there is another way to look at this.  By introducing and promoting a phablet (iPhone 6+ and Galaxy S6,) Apple and Samsung are growing users of mobile media and mobile apps.  As the chart shows, growth in tablet sales was nothing compared to what happened when phablets came along.  So people who didn’t buy a tablet, and maybe (likely?) wouldn’t, are buying phablets.  The market is growing faster with phablets than had they not been introduced, and even if tablet sales shrink Apple and Samsung see revenues continue growing.

Who wins as phablet sales grow? Those who have phablet products in the market, and newer versions in the works.

Smartphone sales 2014-15

Source: Kantar WorldPanel and Seeking Alpha http://seekingalpha.com/article/3032926-microsoft-the-china-mobile-backed-lenovo-windows-10-smartphone-could-be-a-future-tailwind?ifp=0

 

 

As this chart shows, the companies who dominate smartphone sales are those who make Android-based products (#1 is Samsung) and Apple. Microsoft missed the mobile/smartphone trend, and even though it purchased Nokia it has never obtained anything close to double digit share in any market.

Unfortunately for Microsoft enthusiasts, and investors, Microsoft’s Windows10 product is focused first on laptop (PC) users, second on hybrid (products used as both a laptop and tablet), third tablets (primarily the slow-selling Microsoft Surface) and in a far, far trailing position smartphones.

Source: IDC

Source: IDC

As data from IDC shows, Surface sales are inconsequential.  So the big loser from phablet cannibalization of tablets will be Microsoft. Given its very small user base, and the heavy losses Microsoft has taken on Surface, there is little revenue or cash flow to support an intense competitive effort in a shrinking market.  Apple and Samsung will market hard to grow as many sales as possible, and likely will make the tablet products more affordable. Thus one should anticipate Microsoft’s very small tablet share would decline as tablet sales shrink.

This is the problem created when any business misses a major trend.

Microsoft missed the trend to mobile.  They didn’t prepare for it in any of their major products, and they let new products, like music player Zune and Lumia phones, languish – and mostly die.  By the time Microsoft reacted Apple and Samsung had enormous leads.  Microsoft is still trying to play catch-up with its “core” Windows product.

But worse, because it is so far behind, Microsoft’s leaders are unable to forecast where the market will be in 3 years.  Consequently they develop products for today’s market, like tablets (and their hybrid products,) which we now see will be obsolete as the market shifts to new products (like phablets.)  Because Apple and Samsung already have the new products (phablets) they are prepared to cannibalize the old product sales (tablets) in order to overall grow the marketplace.  But Microsoft has no phablet product, really no smartphone product, and will find itself most likely writing off more future Surface products as its tiny market share erodes to nothing.

So this trend to phablets continues to make a Microsoft comeback as a major personal technology competitor problematic.  Windows 10 may be coming, but its relevance looks increasingly like that of new Blackberry models.  There is little reason to care, because the products are years late and poorly positioned for leading edge customers.  Further, developers will already be onto new competitive platforms long before the outdated Microsoft products make it to market.  Without share you don’t capture developers, without developers you don’t have a robust app market, without apps you don’t capture customers, without customers you can’t build share — and that’s a terrible whirlpool Microsoft is captured within.

Be sure your business keeps its eyes on trends, and does not wait to react.  Waiting can turn out to be deadly.