Year in review 2011: iPad 2 drops, but carriers, competitors aren't cashing in

The news: The biggest tablet news of the year--at least in terms of a single product announcement--was the unveiling of Apple's (NASDAQ:AAPL) iPad 2, the successor to its popular tablet that continues to define the category. Apple made the iPad 2 thinner than the first, added a faster processor and a front-facing camera, and notched a new carrier partner in Verizon Wireless (NYSE:VZ). But Apple spent much of the rest of the year watching as competitors flailed in their attempts to catch up.

So far this year, Apple has sold at least 25 million iPads (4.7 million in the first quarter, 9.25 million in the second and 11.12 million in the third). Due to its lead, its brand and its content universe, Apple has largely maintained its position in the market, even though tablets running Google's (NASDAQ:GOOG) Android platform (or some variant thereof) managed to jump from 2.3 percent of the market to 26.9 percent in 12 months, according to an October report by Strategy Analytics.

Motorola Mobility's (NYSE:MMI) Android-powered Xoom, introduced in February, failed to catch fire, especially since an LTE upgrade was delayed for months. Motorola shipped just 100,000 Xoom tablets in the third quarter after shipping 440,000 Xooms in the second quarter and 250,000 Xooms in the first quarter of this year. Research In Motion's (NASDAQ:RIMM) PlayBook has failed to garner U.S. carrier support, and the company shipped 150,000 PlayBooks in the quarter, down from 200,000 in the second quarter and 500,000 in the first quarter. And Hewlett-Packard's webOS-based TouchPad? HP killed its webOS device business a little more than a month after the gadget went on sale. 

However, even more important than the flameouts of the iPad's competitors is the larger story that carriers don't seem to be selling that many tablets, and that tablets with built-in cellular connections don't seem to appeal that much to consumers.

According to research firm ABI Research, only a quarter of iPads shipped in the first quarter featured support for 3G networks. Part of that could be because carrier stores aren't the place where consumers are buying their tablets. According to a separate study by ABI, wireless carriers represented 13 percent of all media tablets shipped in the second quarter. The firm found brick-and-mortar stores were the most popular distribution point for media tablets, accounting for 43 percent of all vendor shipments in the second quarter.

Further, consumers don't really seem to want a built-in cellular connection on tablets as long as they can get reliable access to Wi-Fi networks. Figures from research firm Nielsen released in October show shoppers are much more concerned with factors like touchscreens and tablet brands than the presence of 3G connectivity. According to the results of a survey by the firm, around 42 percent of shoppers considered 3G or 4G capabilities "important" in a tablet purchase. Around 48 percent of respondents didn't have an opinion on the question, and 15 percent said 3G/4G connections were not important.

Finally, according to a recent NPD Group report, 65 percent of U.S. tablet buyers only connect via Wi-Fi, up from 60 percent in April.

Why it was significant: The tablet market continues to be dominated by Apple's iPad--and that situation likely will continue. The result is that consumers appear to be increasingly favoring Wi-Fi connections over cellular connections. And carriers hoping to sell iPad alternatives are finding slim pickings. The situation is such that newer tablets, such as Amazon.com's Kindle Fire tablet, don't even ship with a 3G/4G option.

NPD said there are several factors pushing customers to Wi-Fi-only tablets. One is that Wi-Fi is becoming more ubiquitous, providing users with a "good enough" level of connectivity. Another is that many tablet users already own a smartphone, negating the need for "always-on" connectivity.

Interestingly, perhaps the ultimate result of the tablet market may be carriers' gradual moves toward multi-device data plans, offerings that could redirect tablet users to friendlier cellular data pricing.    

Year in review 2011: iPad 2 drops, but carriers, competitors aren't cashing in
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