Although it has been delayed a week from its original launch, rumors continue to buzz that Apple will debut a new iPad Monday. Usually reliable sources suggest the new iPad will shift the product line away from the Air philosophy of the last two iterations and towards the Pro model, which was debuted in larger-screen form last year.
Apple’s (presumed) move actually keeps with the prediction of Seeking Alpha’s own Mark Hibben. However, it may not be the correct move. Typical of the “consumers don’t know what they want” company, Apple appears to have decided to go against the prevailing trend in the tablet market.
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I am not accusing Apple of being idle. To his credit, Apple CEO Tim Cook has not tried to hide anything. When iPod sales got small enough and Apple Watch sales disappointed, Apple simply folded them into larger categories to hide the gory details. Despite some suggestions he might do the same with iPad as sales went into freefall, Cook has taken the open and honest route.
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One such move: enterprise, which Jobs famously shunned, but Cook has made a full-court press to woo. The recent release of the oversized iPad Pro was the latest step, and the biggest. Cook already had Apple working with his former employer, IBM, to push Apple hardware to enterprise customers and collaborate on vertically integrated software for specific businesses. Now he has a piece of hardware to match Apple’s new ambitions, with a number of features built into the iPad Pro that suggest it might be the first tablet actually built with businesses, not consumers, in mind.
Apple is also tackling the software side. In addition to creating new apps with IBM for enterprise, Apple is also working on Classroom, to help make iOS more appealing to schools.
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But it was not enough. Apple’s recent sales figures showed another decline in tablet sales, down almost 40% in unit sales from the 2013 peak and down 25% from even last year’s depressed number. It’s possible iPad Pro simply was too new and not available in sufficient quantities. Maybe it hasn’t been given enough time to move the needle. That’s certainly Apple’s preferred take on it. Cook says drawing enterprises into the iPad ecosystem will take time. Given Apple’s twelve-figure cash hoard, Apple can certainly afford to be patient with a new strategy, but what it can’t afford to do is ignore evidence it may be on the wrong track, especially when that evidence comes in the form of a competitor in hot pursuit to supplant it.
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[Amazon’s] $50 Fire tablet vaulted it all the way back to third place for tablet sales over the holiday period last year, a 175% increase in a single year. If Samsung (OTC:SSNLF) falls victim to the same sales decline as Apple, and Amazon posts another strong year of growth, it may take over second place this holiday season. Amazon’s tablets have long been mocked as “fruitcake tablets,” things people buy for children or loved ones as gifts, but don’t want for themselves.
They are smaller, less powerful, and have lower resolutions. But they are much, much cheaper. Amazon has long since made its philosophy, and strategy, clear. It sees tablets as mere gateways to customers. Fire is sold more or less at cost to encourage the purchase of both digital content, and more importantly, Prime memberships, which spur sales of Amazon’s physical goods in the general retail sector.
This is anathema to Apple, which not only considers itself exclusively a purveyor of premium products, but also inherited from its late founder a visceral distaste for any suggestion a tablet should settle for such a small role in the human condition. When Steve Jobs released the first iPad in 2010, he had only one regret, as documented in his official biography. He had set the bar too low. More than one reviewer said they loved using their tablet to consume content, but it lacked the necessary tools to really be a creator of content. Jobs, who usually didn’t have much use for outside criticism of his ideas, took the reviews hard because he thought they were right. When he designed the iPad 2, one of the last products before his death, he pushed to incorporate content creation tools like a second camera and more powerful software.
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This attitude, that tablets are for content creation as well as consumption, has outlived its creator at Apple to the present day. Tim Cook himself made explicit reference to it when launching the iPhone 5s in September 2013. Apple was just starting to get some early evidence that iPad’s growth was levelling, and he spent a considerable amount of time at the keynote pushing the theme. Apple devices, he said, were “great for consuming content,” but they were “incredible for creating content.”
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Meanwhile, “The Everything Store” was positively embracing the ideal of consumption. Fifty dollars is a breakthrough price, but it also means consumers know they aren’t getting everything they would get with a $500 iPad. Amazon has to make trade-offs to hit that price target, and their success hinges on if they can identify correctly which aspects of a tablet’s functions, specs and capabilities customers value most and which ones they are willing to go without to achieve savings.
This is sort of the mirror image of Apple’s problem, which is to keep coming up with new capabilities that persuade people to keep paying up for their top-of-the-line model. Amazon has come to focus almost exclusively on content consumption as a tablet’s reason for being. Its cameras are mediocre, its screens just big enough to enjoy a movie but not really big enough to work on. But it gives literally thousands of free apps to every Fire owner, and free trials of its Prime Music and Prime Video services. And it keeps cutting prices.
The fact that Amazon tablet sales rose while Apple sales fell suggests Amazon may be on to something. At the very least, Amazon seems to have a better finger than Apple does on the pulse of what consumers want to see as incremental improvements in their tablets. Lower costs for hardware and content seems to trump stronger processor power, bigger screens or better cameras. Even Cook’s ambition to put iPads in every school may fall short, as schools on tight government budgets will certainly consider cost as one of the prime factors in determining whose tablets they purchase.
PG says (the visitors to TPV notwithstanding) far more people are interested in consuming content than in creating content.
Apple’s marketing pitch to the contrary, many more iPad owners use their iPads to consume content than use them to create content. Perhaps a certain coolness associated with content creators rubs off on the iPad, but, as with virtually all tech hardware, last year’s big new thing costs a fraction of its former price this year.
The downward pressure on product prices never stops and a corresponding pressure on Apple to create astounding new products all the time continues.
The competition between two extraordinary companies like Apple and Amazon is fascinating to watch (at least for PG). However, PG doesn’t think Apple will ever be capable of competing on price, but Amazon shows signs that it may be able to compete on breakthrough product creation and design — see Amazon’s Echo and Alexa, for example.