It has been a tough slough for Apple’s iPad since the height of its popularity in 2013. Facing its second straight year of negative growth, there isn’t a consensus on why iPad sales have declined. I believe the slump is attributable to a combination of factors.
Apple CEO Tim Cook called the declining iPad sales a “speed bump” last year before the launch of the 2014 models, but we haven’t seen what Apple plans to do to rejuvenate the product. From my point of view, Apple itself has done more to hurt iPad sales than any external factor, such as Microsoft or Google.
But that’s not necessarily a bad thing. Here’s a full explanation of my theory…
1. Apple’s bigger iPhone 6 Plus phablet has made the once popular iPad mini all but pointless. That’s not entirely true – there are significant cost differences and over 2 inches of additional diagonal screen real estate – but having a huge iPhone makes having a small tablet a lot less desirable. Combine that with the fact that most people buy their phones subsidized, and a much faster, sleeker iPhone 6 Plus costs about the same as an iPad mini up front.
Below the cannibalization of the iPad is shown in a chart from Credit Suisse. Characterizing phablets as “4+ inches” seems a little out of date, but the point is clear, phablets like the iPhone 6 are eating into tablet share across the board.
2. This year’s iPad hardware updates weren’t terribly magical. The iPad mini got Touch ID (at a $100 price premium). The Air 2 got both faster and lighter, which is always great. And both became available in gold. But for people like me who are very content with the iPad Air – discussed in point 10 below – adding Touch ID or a golden housing wasn’t a big enough incentive to upgrade. Would sales have taken off if Apple offered more storage on the lower end, more laptop-like features, or lower costs?
3. New tiny 12-inch MacBook sales will impact professional/luxury iPad users. The 2-lb light weight and super portability will bring over folks who can spend a lot to get the latest technology. In fact, lowering the prices on the very popular MacBook Air to near cost parity per GB basis also makes a MacBook Air seem like the better deal (128GB MacBook Air: $899 retail, but often lower, versus 128GB iPad w/cellular: $829).
When I go to bed at night and have my iPad Air for consumption, there is often something important that I can only do well on my Mac (like adding something important to this post). This has happened so many times that the iPad doesn’t get picked up at bedtime much anymore. If I lost my iPad Air this week, I’d probably replace it with a MacBook.
4. Split screen iPad support and other laptop-like functionality is late in coming. If those features come out this year, and I think they will, a lot of professionals will jump on board. Currently functionality that makes an iPad a better solution to a problem than a laptop is often lacking.
5. Microsoft and its ecosystem have been making inroads into the professional ranks. You have to admit some of the hardware the Windows folks are putting out isn’t bad, especially when a hybrid computer can go from a MacBook Air form factor into a tablet form factor with a swinging hinge. Yes, I know Apple’s philosophy is not to marry toasters and refrigerators, but tablets and laptops aren’t that different anymore.
Even if they aren’t right, many folks will choose a convertible laptop-tablet PC over an iPad or a MacBook for that matter.
6. Chromebooks in education. Google Chromebooks have been eating Apple’s lunch in education and ironically the iconic appeal of the iPad is partially responsible. A sysadmin for a large school district tells me that the iPad trials went something like this: 100 iPads were given out to 4th graders. Within a month, over 50% of them went missing, and a few of them broke, while 10% of them were jailbroken or hacked. At the same time, with a similar Chromebook rollout, only 10% went missing, a few of them broke, and none of them were hacked (though it is certainly hackable). Give kids free iPads and they’ll have a tendency to disappear or get subverted for personal gain.
Apple has done some work in getting its iPads in schools with some noted success and other spectacular failures. A new initiative may really help but the fact that most schools either have Microsoft or Google email/apps on the backend means it is going to be tough.
7. Pricing. Apple could sell iPads at lower price points if it really wanted to. In fact, we’ve seen major retailers cutting as much as $130 off the price of new iPad Air 2s, and up to $200 on the high-end models. Subsidies are another option. Apple was able to stave off any encroachment from the Amazon Fire Phone because it offers iPhones at low price points (including “free” with plan). Apple, however, has no protection for its iPad line when Amazon comes in at $100 or less for a new Fire tablet. Fire tablets continue to be popular though Amazon won’t let you know any numbers. Spotting a Fire Phone is harder than finding a Sasquatch.
Also, 16GB is not enough space on the low end. Apple can afford to pop in 32GB of storage on the entry-level iPads and I think they will go up to this amount this year. 16GB isn’t enough for even a base model iPhone in my opinion, and with the bigger display, iPad apps need bigger files.
8. Killer App? You need a smartphone for certain things. You need a computing device for other things. There are very few apps that need an iPad, especially when you have a big iPhone in your pocket and a 2 lb. Mac next to your bed.
9. Marketing and the Apple Watch. iPad hasn’t been getting the marketing spend it got in its first years for a variety of reasons. Last year Apple had the big iPhones to explain to the public. Before that it was iOS 7’s new look and feel. This year it seems Apple is focusing its attention and every extra marketing dollar on the Apple Watch.
But Apple Watch isn’t just hurting the iPad from a marketing standpoint. Those of us who have a yearly Apple discretionary fund of $500 or so bucks aren’t likely going to put it towards the iPad this year. And Apple announced the Watch right before the holiday shopping season. Sure, that was mostly to dissuade people from buying other watches, but some folks also probably held off on Apple purchases.
On a higher level, it also makes me wonder if Apple’s got a new paradigm. Instead of iPhone|iPad|Mac, is Apple now promoting: Watch+CarPlay+Apple TV+Accessories|iPhone|Mac in its “3 screens” paradigm? Where does iPad fit?
10. Perhaps this is unintuitive, but Apple’s incredible build quality coupled with genuine efforts to update old iPads to the latest version of iOS has made the decision to purchase a new iPad a difficult one. My old iPads still look, feel and work great. My son can still use our original iPad and a lot of the apps he likes. I bought an iPad Air last year, and it is hard to justify the purchase of a new one (even though retailers are discounting the heck out of them). My wife uses an iPad 3, and for what she does on it, there is no reason to update.
The good news here is that much of the iPad’s sales decline can be fixed by Apple, because it’s responsible for most of the issues above. An iPad Pro, price drops, a better iPad iOS version with split-screen support, and better integration with keyboards are all ways Apple could stop the decline in iPad sales and get the platform growing again. More and more engaging marketing wouldn’t hurt, either.
Perhaps Apple can fit iPad in between the Apple Watch launch and the launch of the new Apple TV?
Filed under: AAPL Company
, iOS Devices
Tagged: Apple Inc
, Apple watch
, Market share
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