With the launch of the new iPad in the rear view mirror, it's time for the annual iPad sales hysteria. Since its introduction in 2010, the iPad has dominated & defined the tablet market. iPad & tablet sales have been zooming over the past year, with annual growth in excess of 250%. However, in Q4 2011, the iPad's market share dropped to 57% as compared to 39% for Android tablets. Even with this drop, absolute sales numbers for the iPad have seen phenomenal growth, which emphasizes the staggering growth of the tablet market.
Now,
as with the launch of any major Apple product, the iPad will see a spurt in sales & market share this quarter. But what will the iPad's market position look like in this industry in the long-term? In order to understand this, we need to understand the primary product & market segments in the industry. Industry segments typically evolve over time and have a greater impact as an industry matures. We have seen the beginnings of this kind of segmentation starting to form, with the launch of products like the Asus Transformer Prime and the Kindle Fire. Let's have a look at these segments and how they would affect the iPad, as well as the industry at large.
1) Media Tablet Segment
A media tablet could be described as a generic term for any touchscreen-only tablet. Obviously, this segment was created by Apple, with the launch of the iPad. This segment currently accounts for the lion's share of the tablet industry and with the launch of the Amazon Kindle Fire, this segment has become significantly more competitive. Since buyers of media tablets are predominantly average home users, the usage patterns are skewed towards browsing and media consumption. For these users, the key factors affecting their purchasing decision comes down to brand, pricing & a large application base. This is the primary reason why the Kindle Fire has managed to be so successful in such a short span of time. Based on the target market for this product segment, the screen size and the price of the majority of products would be at the lower end of the market (7+ inches & $200-$400). This segment will start to get significantly more competitive later this year, with Google set to launch an Asus manufactured,
quad-core, Nexus tablet at $200 and Amazon set to launch the
upgraded Kindle Fire.
2) Hybrid Tablet Segment
A
hybrid tablet is essentially a high-end tablet, with the added functionality of an attachable keyboard dock & trackpad. The form factor is similar to an ultrabook and it is also mouse-compatible. This segment was created by Asus, with the original Asus Transformer and has grown in popularity with the launch of the Asus Transformer Prime. Now, other PC/Tablet manufacturers have taken notice of this segment and have begun launching similar products. Typing long emails/documents has long been a nightmare on touchscreen-only devices and Hybrid tablets have come to prominence as a solution. In addition, it is far more comfortable to use & carry, as compared to a tablet with a connected or bluetooth keyboard accessory. In terms of usage patterns, hybrid tablets could be used for productivity or high end gaming, apart from media tablet uses. Based on these usage patterns, the target segment for hybrid tablets is primarily high-end home users/power users and in the long run, enterprise users. For these consumers, the key factors affecting their purchasing decision are most likely processing power, a keyboard dock, long battery life & a large, high-end application base. Based on this target market, the screen size and the price of the majority of products would be at the higher end of the market (10+ inches & $400-$600).
How does this affect the iPad?
The new iPad and the iPad 2 are still essentially high-end, high priced ($400+) media tablets, without the added functionality of a hybrid tablet. As these segmentation trends start to make their mark over the next year or two, the iPad will be caught between these two worlds. Apple could tackle this problem by introducing a
smaller, low priced iPad (much to the dismay of the late Steve Jobs) or by marketing the iPad with a dockable keyboard. Introducing a smaller, cheaper iPad would make Apple compete on far lower margins, risking their industry-leading operating profit margin. While, marketing an iPad with a tablet dock would undoubtedly cannibalize sales of the Macbook Air, which is a considerably high value product for Apple. Both strategies have their pitfalls, but they will be necessary if Apple expects to continue to be a major player in this industry.
Market Outlook for 2012
Most analysts estimate the tablet market to grow by about 100-150% this year. But
driven by the launch of the upgraded Kindle Fire & especially the $200 Nexus Tablet, I expect sales to beat analyst estimates. Based on these product launches, I expect Android Tablets to pass the iPad and
capture over 50% of market share by the end of the year. The iPad would see massive growth in absolute sales numbers as well, but will not be able to match the growth of competition. I have already covered my expectations from
Windows 8 tablets and a late launch in Q4 2012 would mean they would have a minimal impact on the market.
