The dust on the iPad sales decline news has mostly settled, and at least the sensible analysts have converged on the view that the cause was the rise of the smartphone; that the smartphone became good enough for many of the computing needs that tablets were previously purchased for.
So now that we have a rather adequate idea of what happened, let’s try to go forward. Let’s try to see what will happen in the future.
Tablet sales vs. PC
Up till now, the rhetoric was that tablets will overtake the PC in sales quite soon. This assumed that tablet market will continue to grow while PCs will gradually decline.
First, it is possible that the overall tablet market (not only iPads) might also slow down. Hence tablets might not overtake PCs so soon.
Second, comparing tablet sales to PC sales may not be meaningful. Whereas many analysts previously thought that tablets were replacing PCs, that does not seem to be the case. In fact, it seems to be the smartphone that is replacing tablets and also PCs.
As a result, we don’t know right now what is going to happen to tablet vs. PC sales. We are also starting to think that this question is rather meaningless.
Absolute tablet sales
We know that the tablet market is rather complex. On the high-end, there is the iPad which is used for all kinds of tasks, including web-browsing, reading books, composing emails, drawing art, playing games, watching video and a lot more. On the low-end, there are media players which are not used for web-browsing but are used a lot for watching videos.
The price points are very different, as is the ecosystem, product quality etc. With this huge difference, it is questionable whether we can discuss these two segments together; it looks like there are two completely different markets.
For the iPad segment, it is reasonable to assume that the current trend will continue. Assuming that the flattening of iPad sales is a result of smartphones becoming more capable, we don’t see an immediate end to this trend. Investment continues to intensify in mobile applications and services. On the other hand, there are few compelling applications targeting the mass-market that require a tablet to enjoy. The exception here might be Microsoft Office. The ubiquity and importance of Microsoft Office could enable the iPad version to single-handedly reverse the downward trend of iPad sales.
For the other tablets, there is reason to believe that they will continue to expand. Prices are getting extremely affordable to the point that tablet hardware is now being bundled with subscription services, such as education. That is to say that these tablets are not longer a product in themselves, but an accessory to a service. They are single-purpose devices, much like the jug that comes with your coffee maker. They do not compete with other jugs. Since customers are not making an explicit purchasing decision when acquiring these tablets, competition with smartphones is irrelevant.
Unless a new consumer killer application emerges, the upside potential of the iPad segment lies mostly in businesses and education. As I mentioned, Microsoft Office may be a big boost to the corporate adoption of iPads. The problem is that corporate and education IT are slow-moving. We do not know when adoption will kick-in at the level that we need to see a visible reversal in iPad sales trends. It make take some more years, in which case we would see a continuation of the current downward trend for a while.
There is no question that the iPad is a magical device.
Whether laptop users will embrace it for their work as a PC replacement is actually kind of irrelevant. Replacing PCs doesn’t expand the possibilities of computing if the same people are using it for the same tasks. Instead, what is really important is how iPads allow children, old people and people with disabilities to use computers. Equally important is how it allows computing in situations where it was previously difficult, like when you are standing and do not have access to a desk.
Too many people thought of the tablet as a PC replacement (and found that tablets were actually being replaced by smartphones). That was the wrong approach. Tablets will never thrive if they can only find their niche in between two strong and ever-evolving products. Tablets will thrive if they can carve out their own niche and that niche grows.
That niche is a new market segment. It is a market that did not previously exist. The majority of potential customers are not yet aware of the possibilities, or there may be roadblocks which have not yet been sorted out. Sufficient budget may not yet have been allocated to these projects. It will take time.
In the long term, I am confident that the iPad will thrive. The current levels of iPad purchases and awareness are extremely high, and it is totally unlikely that many people will or have found exciting new niches. Unfortunately none of these have yet become truly mainstream, but it is inevitable that many of them eventually will.
In this context, it is easy to see that iBooks Author, the software that you can use to create beautiful multimedia books for the iPad, is a long-term play. It is an attempt to improve the quality and quantity of e-books specifically for the iPad. It has to potential to grow the iPad education niche, but it will take time.
In the mid-term, I expect iPad sales to continue to struggle. They may even significantly decline. Keep in mind that current iPad sales are extremely high, much higher than PC shipments from either Lenovo, HP or Dell so even a significant decline does not mean that iPads will lose relevance.
I have no idea how long this will continue, or if business/education sales will be large enough to ever sustain 20 million iPad units per quarter for example.
What we do know is that the iPad still does not have a direct competitor and that looks like this will continue to be so mid-term.
The risk that I do see to the iPad business is tablet bundling with services. It is possible that we will continue to see a proliferation of single-use tablets being offered for free or extremely cheaply with education services, business solutions, entertainment subscriptions etc. These markets rarely care about providing the best possible user experience and they could prevent the iPad from finding traction in these markets.
Apple’s solution to this problem is easily predictable. They will work on the ecosystem and developer tools so that better services and solutions are uniquely possible on the iPad. The race is on.