Can Apple’s iPad Overcome the Tablet Slump?

Apple employees sell the new iPad Air at the Apple Store on November 1, 2013

Spencer Platt/ Getty Images

As tablet sales slow and the tech community waits in anticipation for Apple’s upcoming product announcements, the iPhone 6 isn’t the only device being discussed. Analysts, investors, and consumers alike are also interested in the future of Apple’s second biggest product line after the iPhone: the iPad.

As we reported in July, sales of the iPad — Apple’s second biggest product after the iPhone — have declined for two straight quarters, reaching only 13.3 million units in the June quarter. At the time, Apple chief executive Tim Cook was optimistic about the tablet market, and said that the product category is still in its “early days,” with big potential for growth in the future despite the pessimism of analysts and commentators.

In a recent piece on Re/Code, Walt Mossberg noted that many believe the “tablet boom” is over, with Apple, Microsoft, and Samsung all watching sales of its tablets fall or stagnate. But Mossberg is in the opposite camp: he thinks that the iPad still has the potential to prove itself a good option for consumers.

Mossberg isn’t alone; Apple’s Tim Cook told him that, “We couldn’t be happier with how we’ve done with the first four years of the iPad,” and characterized the current slowdown as a smaller problem than some commentators, analysts, and investors seem to believe. “I’d call what’s going on recently a speed bump, and I’ve seen that in every category.”

Similarly, Cook was optimistic in July, when Apple’s iPad sales fell short of expectations, and noted that innovations and partnerships — like Apple’s partnership with IBM — would drive future growth. Cook and others have noted that emerging markets, where most consumers don’t have PCs, businesses, schools, and even governments, all represent growth opportunities for the iPad and the tablet category.

Why are tablet (and therefore iPad) sales stagnating?

Recent plateaus in sales could be a function of more consumers opting for smartphones of increasing screen size, instead of spending more money to buy a tablet and a separate smartphone. The slump could also be attributed to a longer replacement cycle for tablets, which could take three to four years versus the two to three for smartphones or the four to six for laptops. Tablets in general and the iPad specifically function well several years after they’re introduced, and consumers don’t perceive the necessity of replacing their tablets with the newest model when an older model works just as well. According to Fiksu’s iPad Usage Monitor, the iPad 2, a model that was introduced in 2011, represented 31.3 percent of iPads in use in April.

In an interview with Forbes’s Eric Jackson, Asymco analyst Horace Dediu says that he expects Apple to unveil new iPads before the holidays, but that the plateau in iPad sales is his “biggest surprise in the last year.”

“I still don’t understand what is happening. When you look at penetration data, the tablet product is the fastest growing new technology in the history of consumer technology. It went to 40 percent penetration in what would be an instant. To have that stop dead in its tracks is unbelievable. It’s not the way logistic or diffusion curves behave.”

While Dediu notes that the plateau could be caused by consumers substituting a large phone for a tablet, he’s not convinced that that’s the case. He’s also not sold on enterprise as the panacea for Apple’s iPad slowdown, as businesses are slow to acquire technology and slow to replace it. “The really big question,” he notes, “is whether tablets are a must-have device for every household or for every individual or for only a subset of both.”

Speaking about Apple’s past new product launches, Dediu notes that the iPhone or iPad each represented “a new computer form factor” at the time. Applying the same logic to the expected iWatch, Dediu notes that, “How it will be used will be determined by the apps written for it.” The same could be said for the iPad, which, like the iWatch or any new product category that Apple enters, needed to “be magical out of the box in version 1″ to get consumers to want, or even need, the new device.

How is the iPad used?

Many users look to the iPad as a more convenient, more portable alternative to a laptop, one that can handle most of the tasks that they’ll need to complete on a day-to-day basis. For users like Re/Code’s Mossberg, who look to the iPad as a viable tool for tasks they’d normally complete on a laptop, the iPad offers the advantage of long battery life an a huge selection of apps. Checking emails, browsing the web, reading the news, watching videos, and even editing document are all tasks that are quick and smooth on the iPad. While all of those tasks can also be completed on a smartphone or on a laptop, the iPad has a larger screen than the phone and a lighter build than the laptop.

Mossberg argues that Apple’s purpose when it introduced the iPad in 2010 wasn’t to make a bigger smartphone, or to replace the Mac or PC. Instead, he thinks that Apple is positioning the tablet as a third category of device, one that can do some things better than an iPhone or a Mac can, but not everything. The idea is that the iPad would be the best, most convenient device for specific scenarios in which the laptop or even the smartphone had previously been the go-to device.

According to App Annie’s iPad Top App Matrix, games like Star Wars: Commander, FaceQ HD, and Swing Copters currently lead the ranks of the most popular iPad apps in the U.S., with productivity apps conspicuously absent from the top five free apps even though Notability ranks first among paid apps.

In other countries, Microsoft Word for iPad, Microsoft Excel for iPad, Microsoft PowerPoint for iPad, and Skype are commonly ranked in the top free iPad apps. While the evidence is basically anecdotal and games are common everywhere, the differences could point to the fact that while most U.S. tablet owners also own or have access to a computer to complete productivity tasks, some consumers in emerging markets use a tablet instead of a laptop or desktop computer.

Among productivity apps that are popular with iPad users in the U.S., the top five free apps are Microsoft Word for iPad, Google Docs, Google Drive, Gmail, and Microsoft Excel for iPad. The top five paid apps are Notability, GoodReader 4, PDF Expert 5, GoodNotes 4, and iAnnotate PDF. Apps like Microsoft Office for the iPad make the device a capable alternative to a laptop for many tasks. The multitasking functionality that was rumored to come with iOS 8 would make it an even more capable productivity tool — and the advent of a multitasking feature in particular seems inevitable given recent reports of what’s next for the iPad.

What’s coming up for the iPad?

Beyond fairly standard expectations that the iPad Air and iPad mini with Retina display will be updated this year (with Touch ID fingerprint sensors, improved RAM, and boosts to other specifications), rumor has it that a huge 12.9-inch iPad is on track for a launch in early 2015. A Bloomberg report noted that production on a 12.9-inch model is scheduled to begin by the first-quarter of next year. For reference, the current iPad models have 9.7-inch and 7.9-inch displays, and Apple has reportedly been working for at least a year to develop a larger screen version.

The news comes as most of the growth in the tablet market comes from smaller-screen, low-end models, a trend which pushed Android into the top spot for tablet operating systems last year. Compared to Android’s 62 percent market share, iOS had 36 percent of the market at the end of 2013, down 53 percent from a year earlier.

A larger iPad would make it even more necessary for those developing apps for the iPad to address a common complaint among iPad users: that many apps for the tablet are simply scaled-up versions of an iPad app, not software that’s really optimized for the iPad’s larger screen size. But the larger screen size could also align with Apple’s plans to push the iPad into wider prominence in the workplace.

Apple’s partnership with IBM will see Apple pushing businesses to adopt the iPad in greater numbers, and IDC researcher Jitesh Ubrani reported that purchases by businesses, schools, and governments accounted for 16 percent of tablet sales in the second-quarter of the year, up from 13 percent a year earlier.

What is the iPad up against?

Apple faces competition from all sides: when consumers weigh whether or not to purchase an iPad, they may look at Android and Windows tablets or hybrids, large screen smartphones (usually Android), low-end computers like Google’s Chromebooks, or even some offered by Microsoft. Google, Samsung, Microsoft, Asus, and even Amazon offer attractive alternatives, and while low-end Android tablets offer few apps that are truly optimized for the tablet, Android tablets priced in the same category as the iPad offer better capability and functionality.

A category that represents particularly powerful competition for the iPad is the class of large screen smartphones. That’s not so much because they’re better at completing tasks that the iPad is used for — they often aren’t — but because of the cost. While U.S. carriers subsidize the purchase of a new smartphone every two years, most tablets aren’t linked to a contract, so their purchase prices aren’t subsidized by carriers. Even consumers who do buy an iPad are unlikely to upgrade it as often as they upgrade their smartphone, simply because an iPad is a costly device to purchase.

But as we reported in July, ad network Chitika reports that the various models of the iPad Apple tablets captured 78 percent of North American tablet usage share in July versus Amazon’s 7.3 percent, Samsung’s 6.3 percent, and Google’s 2.1 percent. So while consumers are using Apple’s iPad, the tablet isn’t continuing its steep, early growth in sales, likely because the high end of the market is becoming saturated and long replacement cycles are kicking in.

Other areas, like the enterprise market, bring their own challenges, with plenty of other companies offering business-tailored tech solutions to a market that, so far, hasn’t seemed too eager to buy. Tim Cook noted in July that tablets’ penetration into enterprise has reached only 20 percent versus the 60 percent penetration of notebooks.

As Apple and IBM strategize to increase the iPad’s popularity in the enterprise market, Apple is also pushing for the tablet to be deployed in other specialized markets like education. However, in the same day AppleInsider reported that Minnesota’s St. Paul School District is preparing to deploy 40,000 iPads as the Los Angeles Unified School District suspends its deal with Apple. While the Los Angeles iPad deal was suspended amid accusations that school district employees had improper ties with Apple, the iPad also faces competition for school districts’ limited tech budgets from a variety of other products — everything from Android tablets to low-end Microsoft laptops to Google’s Chromebook.

One of the key differentiators for Apple’s iPad will need to be its software and the functionality that truly tablet-optimized apps are able to offer. Getting more consumers and business customers to use the iPad will get more users into Apple’s ecosystem where they’re likely to buy apps and media. To succeed, tablets in general and the iPad particularly will need to more clearly represent a natural and distinct class of devices, one that minimized compromises and maximizes capability to convincingly demonstrate that a tablet is a useful, perhaps even necessary addition to consumers’ arsenal of personal devices.

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