The market for tablets seems to have plateaued quickly.
Both Apple and Samsung, the top two tablet makers in the world, reported declining tablet sales and margins in the last quarter. In addition, IDC reports that growth in the tablet market was just 4.4% last year as compared to 51% in 2013.
Canalys, another research and consultancy firm, said the slowdown at the top end of the market (which consists of Apple and Samsung), is mirrored at the low end, where sales for 7-inch Android tablets have been cannibalized by large screen smartphones and intense price competition that has seen margins evaporate for major players. According to Tim Couling, senior analyst at the company, “It was always going to be tough for Apple to repeat its stellar performance of Q4 2013, when it introduced the iPad Air. With an iterative product refresh this year, the drive to upgrade iPads was muted.”
Apple is still ahead in the tablet sweepstakes market, though. It had a 30% market share in the most recent quarter. Due to inventory issues, Samsung struggled to grow and barely managed to retain its second spot. However, Amazon grew its share and so did Lenovo.
But, the future does not look too good for Apple. Tablets are besieged by new products, such as notebooks and large screen smartphones. What’s more, successful tablets such as the iPad have limited utility for mainstream consumers. In the absence of mainstream traction, Apple is focusing on use cases in industries. For example, the airline industry uses iPads in multiple contexts from order processing to cockpit bags. But that market is limited and does not offer the growth potential of mainstream markets.
Although Apple has negotiated excellent pricing structures with suppliers for device components, it faces formidable competition as far as pricing margins are concerned. Samsung, which was previously a supplier to Apple, already owns large parts of the manufacturing supply chain for such products. Similarly, Xiaomi has made a name for itself by aping Apple design and technical specifications and manufacturing products at much cheaper prices. Hence, competing on product margins would result in a race to the bottom for Apple and will dilute its brand equity with discerning customers in a growing market.
Thus, the Cupertino-based company is caught between a rock and a hard place. Here are two things it can do to safeguard its position in the tablet market.
Focus on foreign markets
In his latest earnings call, Tim Cook, chief executive officer at Apple, predicted that a majority of Apple’s future profits come from China. In the wake of increasingly embattled and lawsuit-happy developed markets such as the United States, this might be smart strategy for Apple to ramp up its tablet prospects.
China (and India, another country where Apple has ramped up its marketing efforts) is home to a growing middle class. Apple’s customers fall into the relatively affluent category in these markets (though the company has divulged plans to introduce cheaper products for these markets). Making (and pricing) custom products for these markets is one way for the company to target China and India. The App store is another.
Along with making money for Apple, the App Store is the company’s play into the cultural life of its target markets. With a focus on improving hardware, Apple can leverage its App store to reach out to consumers by featuring local content to encourage participation and community. For example, Xiaomi has built a community around its product. With its much broader reach, Apple’s App store can be used to incentivize consumers to create local content for tablets.
Create a hardware ecosystem
Apple needs to go back to its design roots. The beauty of Apple’s blockbuster iPhone is that it combines multiple uses across hardware and software with a basic use case — communication. The barriers to entry for that basic use case — making phone calls and connecting to the Internet using a phone — span regulatory and technical scale bottlenecks. By making it easy for users to develop on its platform, the company made it easy for entrepreneurs to reach its customers.
Currently, the iPad does not have a basic use case. In its current format, the tablet is primarily a media consumption device. It’s used as a device for creation or communication are limited or can be replicated by competitors. Already, entrepreneurs have created devices that use the iPad’s capabilities for business. The company can make it even more simple for them by using popular industry standards for ports or making tweaks to the device (such as additional ports or capabilities for its sensing capabilities) that make it more attractive to entrepreneurs. Or, perhaps, the company could create an App store for hardware add-ons with iPad.
By making it easier for hardware entrepreneurs to innovate on its device, the iPad’s use cases multiply and graduate from media consumption to providing basic use cases for homes and businesses.