Every mobile device vendor wishes in one way or another that it were Apple. The company has succeeded by delivering a complete hardware and content experience with its devices for nearly 20 years along with an attractive brand promise that make consumers wait in line to buy products sight unseen. How many times can Apple repeat this pattern and what level of success is its iPad tablet brand likely to see?
Starting with the company's iPod media player, Apple launched the iTunes music service that aggregated a broad range of genres, artists and labels in one convenient interface and transactions at a cost everyone could afford. iPod catapulted forward the MP3 player category by establishing licensing agreements with major music labels to distribute audio digitally. Its relationships across the music industry and promoting songs at $0.99 could not be replicated by other vendors. Apple's ability to provide an end-to-end solution integrating content discovery, transaction, and breadth of offering made it nearly impossible to follow, causing the demise of many its competitor.
The iPod recipe carried forward as Apple launched its first smartphone, iPhone, based on its own iOS system software and balanced through a burgeoning app ecosystem delivered by extending iTunes to include software applications. While Apple took an early lead in the smartphone market, the open ecosystem of Google's Android OS has since eclipsed iPhone though the company remains a strong competitor for device and app revenues.
With the introduction of iPad in 2010, Apple leveraged its hardware and iTunes experience to deliver a two-handed media experience along with apps designed specifically for the larger display. Similar to iPhone, the company took an early lead with almost no competition for the first year of commercial availability. The Android camp has been in chase ever since and only in the second quarter of 2013 did Android tablets finally match iPad hardware revenues.
Apple's device success has come about when it launches into a relatively immature or underserved technology market by delivering a great experience through tightly coupled products and software. Given the current position of iPad in a growing tablet market, what level of market domination will Apple be able to pattern itself after: iPod or iPhone?
iPads are seemingly everywhere: at home for couch surfing, in the office for ease of delivering presentations, and even at casual restaurants as the point of sale terminal. Some believe that Apple has already mastered the tablet opportunity, leaving all other offerings a distant comparison to the beloved iPad. Others, and where ABI Research posits, is a tablet market that is coming of age and appealing to the mass market of both consumers and business users for the first time.
And the tablet market is only now showing the tide turning from Apple-only to Apple vs. Rest of the Market, led by vendors embracing Google's Android OS. The iPad Air and iPad mini with Retina Display announcements are partly a hedge by Apple that it can recover margin, which declined about $20 per quarter from the iPad 2 launch in March 2011 through the second quarter of 2013, and partly that audiences will continue to buy the newer models at full price (the shiny new object temptation) rather than last year's models.
Future tablet volume and revenue growth will be coming from two primary areas: expanding into new markets that have not been able to afford tablets and/or lacked the wireless connectivity to use them; and businesses strategically committing to tablets for a portion of their workforce. Despite the popularity of tablets in the U.S. and Western European countries, the category is still a luxury item with average selling prices remaining above $400 in many markets. Apple has generally been a premium play that kept tablets out of reach for the mass market. All of the tablet OEMs have also been challenged to find much early success in the underpenetrated computing markets where home broadband access and mobile broadband services remain sparse, costly, or both.
Early trials for tablets in business vertical markets have been a near lock for Apple's iPad though. The company continues to cite "trials and deployments" at nearly all of the Fortune 100 companies, though the exact level of sales is open to interpretation. Individual schools and school districts have been leading the tablet charge with iPad 2 purchases. Deployments typically range from tens to hundreds of units. IT managers responsible for maintaining smartphone and tablet programs recently experienced their first major OS upgrade cycle on iPad with the introduction of iOS 7 with several managers expressing headaches that supporting Apple in the enterprise is causing when internally-developed apps and VPN services break. While the issues are not unlike experiences from Windows and Android, ownership to resolve problems and how to manage OS and app revisions is less understood.
For Apple to dominate the tablet market at a level similar to its iPod leadership, it needs to slam the door shut on the Android opportunity. ABI Research believes this would require a combination of:
- Device innovation for development of new, compelling apps that utilize the capabilities of an increasingly connected and "aware" hardware platform that knows the user's preferences to adapt the user interface and presentation of information, and
- Nurturing ecosystems for the vertical business markets as Apple has done as early as the days of Guy Kawasaki and Mac evangelism, and with the U.S. K-12 Education segment.
Until these achievements have been attained, Apple will follow the success path of iPhone by leaving the door open for competition to nip at its heels and ecosystems to progress solutions that happily fill the void.
Jeff Orr is Sr. Practice Director of Devices, Applications & Content for ABI. Orr manages the analyst resources for mobile devices, applications and content research at ABI Research. As an individual contributor to ABI Research's mobile devices team, he focuses on media tablets, ultrabooks, netbooks, and eReader devices. He also leads research into markets for 3G/4G modems and mobile hotspot routers. For more information: Media Tablets & eReaders