Philip Elmer-DeWitt has compiled analyst estimates for Q2 2014 iPad sales, and the consensus estimate is a 0.7% decline. We will have to wait until the earnings report to get the actual numbers, but given the recent trend in sales, I think that this is a very likely situation.
The question is, what has happened?
To understand this, you have to realize that the iPad is a “middle” product sitting in between smartphones and laptops. Hence the segment is susceptible to forces from both below and above, which potentially makes the dynamics of the market rather volatile. To illustrate, here are some of the things that could happen outside of the tablet market itself, that exert strong affects on sales.
From smartphones
- Smartphones could increase in performance, reducing the performance advantage of tablets.
- Smartphones could gain larger screens, reducing the large screen advantage of tablets.
- Mobile applications and web sites could become more abundant and better in quality, making it just as comfortable to read with a small screen as with a tablet-sized one.
From laptops
- Laptops could become thinner and lighter, reducing the portability benefit of tablets.
- Laptops could gain better battery life, resembling tablet battery life.
If you look at what is actually happening in the market, you see all of these forces in play. All the forces that would make a tablet unnecessary or less appealing.
Before and when Steve Jobs announced the iPad, he repeatedly spoke of the challenges of targeting a market that sat between a smartphone and a PC. He said that a tablet had to be significantly better than smartphones and PC at some key tasks, if it was to succeed. Recent improvements in both of these categories have raised the bar even higher. The narrow wedge in which the iPad managed to carve a market is getting narrower. This has been a gradual process that has been ongoing since the first iPhone and the Macbook Air was introduced. Nothing new has happened.
For the iPad to continue its success, it has to find a way out of being squeezed from the top and bottom. The most obvious direction is up; replacing the PC. There are other possibilities however.
Update
There is some discussion as to whether the increasing size of smartphones may have allowed smartphones to entrench on the tablet market. That is to say that larger smartphones are more tablet-ish and that owners of large smartphones will not see a use for tablets, hence lower iPad sales.
This discussion is a result of the analysts confusing customers on Android and iOS ecosystems.
iPad users are disproportionately iPhone users. They share the same ecosystem so you can use the apps that you bought on your iPhone on your iPad and vice versa. In terms of price, iPad users are not the bargain hunters that buy cheap Android phones, but are the people who value quality and also tend to buy iPhones. This is true if you look at countries. iPads are used a lot in high-income countries, which also use a lot of iPhones. Although I do not have the data to back it up, this assumption is rather obvious.
On the other hand, Android users are more likely to use Android tablets because they have the same ecosystem and because they either have less income are or more price-sensitive.
Hence the stagnant sales of the iPad is predominately a result of iPhone users’ purchasing patterns. There are far more iPhone users purchasing or with an intent to purchase iPads compared to Samsung users. If we look at phablet users in China and Korea, the difference is probably more extreme.
Then, if the people who are not purchasing iPads are using iPhones, then their purchase decisions are not being influenced by large-screen phones. This slowdown in iPad sales is not in any major way, a result of large screen phones. It is independent of phone screen size.
Naofumi Kagami 