Confusion As Pundits Try To Explain iPad Sales Decline

Following the decline of iPad sales, pundits are trying to come up with theories to explain what they are seeing. Let’s take a look at some common ones.

Market saturation theory

The iPad was released in 2010, hence the market saturation theory is saying that market saturation was reached in a mere 4 years. That is rather incredible, although not completely unthinkable given the extremely rapid uptake of this product.

The problem with this theory is that sudden flattening is not what market saturation looks like. Horace Dediu has charted the rise and fall of platforms since 1975, and we can see that a sudden flattening of sales is not what happens on saturation. Saturation is gradual, like the PC curve. Abrupt changes like the flattening seen when Macintosh sales flattened, are the result of a new product superseding the old, not saturation. In this case Windows 95.

Another issue with this theory. Searching the web, current household penetration of tablets seems to be around 50% whereas for PCs, it’s about 90%. Saying that tablets have saturated is easy, but it doesn’t explain why they saturated so early. Unless there is a reasonable explanation, “saturation” is not a cause but merely an observation of the slope of the curve.

Update: Tim Cook mentioned that 2/3 of iPad purchases are from first-time users. This makes the market saturation theory even more incredible.

The iPad isn’t very useful

Arguments like “it isn’t a production device”, “it isn’t a must have”, “there are too many things that it can’t do that a laptop can”, “it’s only good for our children to play games on” fall into this category.

The problem with this argument is that it has been true all along. Although this argument somewhat explains why people are not buying iPads, it totally fails to explain why people rapidly bought them from 2010-12.

It’s difficult to explain a huge change based on something that has been the same from the beginning.

Long replacement cycles

I do not doubt that the replacement cycle for the iPad is longer than the iPhone. I do not think however that this could have been a reason for the iPad’s sales decline.

The slowing of iPad growth started at the beginning of 2013. If this was caused by long replacement cycles, then we have to assume that the sales of 2012 were already heavily driven by replacement (with replacement cycle about 2 years) and that these sales started to go away from 2013. This is a preposterous assumption given that the iPad first went on sale in 2010. There would hardly have been a single replacement cycle before the sales started to slowdown in 2013.

In fact, Tim Cook actually mentioned that 2/3 of Apple’s iPad buyers were new to iPad. The iPad does not seem to be strongly driven by replacement sales even in 2014.

Replacement cycles are very unlikely to be the culprit. We have to look at slowing sales to first-time users.

Phablets

Some people think that large screen phablets are eating into tablet sales and that this affected the iPad. These people are confusing the markets where phablets are selling well, with the markets that largely contribute to iPad sales.

It is well known that phablets are mostly popular in eastern Asia, and that they are much less popular elsewhere. On the other hand, iPads (premium-priced tablets) sell well in western countries whereas Asia (especially China) is flooded with cheap tablets, not iPads. Phablet sales and iPad sales owe to two different markets with limited interaction.

Moreover, one can assume that a very large percentage of iPad users also own iPhones because of the shared ecosystem and brand affinity (I haven’t been able to find direct data on this). iPad demographic studies also show that iPad users are similar to iPhone users, supporting this assumption. Since iPhones do not have large screens, the iPhone-owning segment of potential iPad users will not be affected by phablet trends at all. Therefore, if the phablet theory is true, phablet owners must be the sole contributors for the flattening of sales. Their contribution must be so large so as to completely mask the buying trends of iPhone-owning iPad buyers. Quite unthinkable.

I would love to have better data to back this up, but it seems unlikely that iPad purchases are being significantly affected by phablets.

Cheaper Android tablets

If cheap Android tablets are the reason for the iPads decline in sales, we should be seeing booming Android tablets sales. This is clearly not the case. IDC is forecasting significantly slower growth for tablets in 2014 (19.4%) compared to growth in 2013 (51.6%). IDC’s data includes the ultra-low cost tablets in China so it’s difficult to isolate what is happening in the market tier that the iPad is playing in. Nonetheless, it is evident that booming Android tablet sales aren’t what’s causing iPad sales to decline.

If you look at any metric for tablet usage, you will also see that Android tablets are not being used much. It is simply inconceivable that cheap Androids are winning customers from iPad.

There is a possibility though that Android tablets are diverting customers away from tablet usage altogether. Customers interested in tablets, but not of the techie type, might be swayed by a salesperson to buy an Android. On discovering that it’s pretty useless, they may be so fed up that they won’t consider buying a tablet (including iPads) ever again. I’m actually pretty worried about this, but I don’t think that it is sufficient as an explanation for iPad’s sales decline.

My theory: Mobile Software and the Mobile Web

The only theory listed above that makes sense is the “The iPad isn’t very useful” argument. The other theories fail because they don’t agree with either the data or common sense. In the case of the saturation theory which is hard to argue against, it’s simply an observation and not a cause-and-effect.

The only problem with the “The iPad isn’t very useful” argument is that it doesn’t explain why sales grew so fast up till 2012. If iPads weren’t useful, then people wouldn’t have bought them in the first place. Therefore we have to assume that, in the beginning while sales were booming, “The iPad was very useful”. At some point, probably in 2012, that ceased to be true and “The iPad isn’t very useful” became the more dominant situation.

How could that be? What could have changed so dramatically?

My theory is based on the observation that mobile applications and the mobile web improved tremendously so that using smartphones became comfortable enough. For example, when Steve Jobs demoed the iPad on stage in 2010, he browsed the New York Times website. At that time, the NYT website was not mobile aware, and you got the exact same layout as a PC when you accessed from a smartphone. You had to pinch and zoom your way around. They were one of the first publishers that offered an iPhone application, but the quality was quite poor. It also crashed a lot. As a result, viewing the NYT website was such a better experience on the iPad compared to the iPhone and that’s probably why Steve Jobs demoed it from the sofa on stage.

Today, the NYT website is so much better on an iPhone. Even without downloading the iPhone app, you get a layout that is optimized for mobile. It’s smooth, fast, and responsive. The font size is large enough to read without zooming, even on a 3.5-inch iPhone. The experience is so much better.

The same thing can be said of virtually every major website. Every major website now is optimized for smartphones down to iPhone sizes (remember that most web designers will be iPhone owners). There are also many more apps with much higher quality. There are very few occasions now where you need to have the screen size of a tablet to browse the web. This was not true even just a few years ago.

In fact, if you are a web developer, then you will know that what enabled this explosion of mobile websites is a technology known as “Responsive Web Design”. This is based on ideas described in A List Apart in May 2010. This was the watershed moment when the mobile web really started to get its act together. Previous mobile web design attempts were frankly quite clunky. If you want evidence of this history, note that the WordPress default theme for 2010 (twenty ten) was not optimized for mobile. In 2011, WordPress adopted a responsive default theme (twenty eleven) which fully adapted to mobile for the first time (You can check how these themes look on a smartphone using a desktop browser by simply narrowing the browser window). In other words, it took until 2011 till the world’s most popular web-publishing platform became fully mobile-friendly. 2010-11 was a pivotal moment for the mobile web.

What we see is that software and web innovation dramatically improved the usability of smartphones for common tasks like checking the morning’s news. This started in earnest after 2010 and really started to kick in a couple of years after that.

Back in 2010-2012, the old days, “The iPad was very useful” compared to a smartphone for things like viewing newspaper websites. In 2014, this is no longer the case. The iPad lost a key advantage over smartphones. As a result, the iPad had to justify its existence at the other end of the spectrum, against laptops. This enforced the “The iPad isn’t very useful” argument.

In summary, software has vastly improved the usability of smartphones and allowed them to replace tablets for casual computing. Tablets have been squeezed out of its niche. Tablets still dominate some niches which are not accessible to smartphones and could continue to find growth there in smaller quantities (Tim Cook explicitly mentioned education and business). However, it is unclear to me how tablets could grow in the mainstream consumer market in the mid-term (3-5 year span).

Update

While I do have doubts on iPad growth in the mainstream consumer market (by which I mean excluding education mandated purchases), I have no doubt that Microsoft Office will be a huge force in corporate adoption. This alone could turn around the fortunes for iPad.