Kids' tablets prepare for battle

September 20, 2012: 1:21 PM ET

A new generation of kids' tablets will go head-to-head this holiday season, but will children go for them instead of their parents' iPads and Kindles?

Tabeo, Toys 'R' Us' new kids' tablet.

By Omar Akhtar, reporter

FORTUNE -- All of those parents who'd rather not let their kid toy around with their iPad will have plenty of cheaper, kid-friendly tablets to purchase as stand-ins this holiday shopping season.

This year, a new generation of children's tablets will try to capture the older-than-toddlers but not-quite-teenagers market. Kids' tablets like the LeapPad and the InnoTab have been around for a while, but those are, for the most part, learning devices aimed at toddlers. The latest crop of children's tablets, like Lexibook, Kurio, and Meep, are educational and entertainment devices, and they are targeting the 6-to-12-year-old demographic.

It's up for grabs whether the current generation of youngsters will accept these devices, or if they will view these non-iPads as a poor substitute for the real deal.

There's not much to separate the new tablet brands: they all have seven-inch screens and wireless access. They all use Google's (GOOG) Android platform, you can watch video, download apps, play preloaded popular games like Fruit Ninja and Angry Birds, and you can buy them all at Toys 'R' Us for $149 each.

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Toys'R'Us recently threw its hat in the ring by coming out with a children's tablet of its own (the "Tabeo," set to hit stores on Oct. 21.) It's a surprising move, given that the company is stocking the competition, but one that will ultimately serve consumers well, says Troy Peterson, vice president, divisional merchandise manager at Toys'R'Us. "With each product, there's a little bit of a difference, and we want the customer to have a choice," says Peterson.

Oregon Scientific, the Portland-based company behind Meep, doesn't foresee a problem either. "We're confident in our product, confident in its parental controls, and confident in its cool factor," says David Riley, product and marketing director of electronic learning products at Oregon Scientific. Riley points to the Meep's customizable colors, protective outer rubber, and accessories like musical instruments and game consoles as its key differences from the competition.

And it's not just about adding variety either, says Sean McGowan, a Needham and Co. analyst who covers the toy industry. "Toys'R'Us's strategy is to sell a high-margin device of their own and be able to wedge themselves into this business," says McGowan. "They want an ongoing relationship with their consumer, they know what kids want, and what's going to satisfy them."

McGowan says stocking a variety of tablets may not be a bad thing for the brands. "Some people will go for one brand and some for the other, everyone on display will benefit," says McGowan.

As if there wasn't already enough competition, Amazon (AMZN) upped the ante by dropping the price of its Kindle Fire to $159 last week. And then there's the gold standard for kids in the 6-to-12-year-old demographic: mommy and daddy's iPad.

In a Forrester Research survey of 4,750 U.S. adults, 29% of tablet users say they let their children older than six use their tablet. Apple (AAPL) currently dominates the tablet market, with nearly 70% of the market, as of last quarter. The high premium placed on the Apple brand filters down from adults to children. For the last two years, an iPad has been the most-wanted holiday gift for kids between 6 and 12 years old, according to a report by Nielsen.

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Toys'R'Us's strategy is to differentiate itself by being kid-specific. "The only way to compete with iPad is to not compete," says Toys'R'Us's Peterson. In the Forrester survey, 26% of parents said they're concerned about their children accessing inappropriate content on their tablet. On all of the kids' tablets, however, parents can control the content children can access with a one-time setup and set limits on how long they can use it, something they can't do on the iPad or Kindle. The kids' tablets are all built to withstand damage, and at $149, they are less than half the price of an iPad.

That's still no guarantee they'll beat out the iPad, says McGowan, "The question is, 'Are they cheap enough for households on a budget and are they cool enough for kids who really want an iPad?'" McGowan says. "You think you're saving money, but if the kid doesn't love it and is embarrassed to show it in front of his friends, it's money wasted."

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