Daniel Eran Dilger
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Why iPad will continue to dominate the tablet market

Daniel Eran Dilger

Ecstatic about figures showing Android overtaking the iPhone, more than a few have jumped to the conclusion that tablets are next, and Apple’s entire iOS platform will soon be relegated into an also ran position. They’re wrong, here’s why.
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Is Android the next Windows?

The assumption that Android will overtake iOS in tablets is based on two mistaken ideas. The first is that Android has already taken over the smartphone market, and the second is that the tablet market is similar to the smartphone market.

Android is widely thought to have taken over smartphones (in a manner similar to how Windows took over the PC market) because there are now more phones being sold with Android in the US than there are iPhones being sold in the US. To someone living in the US, this might seem very much like what occurred in the early 90s, when Apple’s market share in PCs was rapidly outpaced by the growth of rival Windows PCs from a variety of manufacturers.

However, there are tremendous differences between the two that make this simplistic comparison entirely useless in understanding what will happen over the next year or two in the mobile world. First of all, the PC market of the 90s is nothing like the smartphone market of today. As I’ll point out afterward, the tablet market is unlike smartphones as well.

Smartphones are not the PC again

The PC market originated in the US, and it started out very small. In its second year on the market, Apple sold 16,000 Apple II systems; it was considered a huge success. In 1984, Apple sold 60,000 Macs, and it was considered a modest success. By 1994, Apple’s Newton Message Pad launched with sales above 100,000 and it was considered a flop. Today, if Apple releases a new PC model that doesn’t sell a few million in its first quarter or two it is seen as a failure. This is just one example of how the consumer electronics market has changed.

When Apple was thrust into contention with the IBM PC in the early 80s, it was a relatively small company fighting against an entrenched rival to sell an entirely new kind of product. A decade later, when Windows began to become popular, Apple had already shifted into the role of a premium-priced niche supplier, and Microsoft assumed control of the the PC market.

Further, PCs originated in the US and flowed to the rest of the world, generating massive revenues for Microsoft as it skimmed a large portion of the profits off the top of PC sales. Microsoft’s market power made it very difficult to compete with, because everyone seemed to require compatibility with Windows.

None of those conditions are similar to today’s smartphone market. For starters, the smartphone didn’t bust out onto the world as a new product. It emerged in the early 2000s as an enhanced version of the mobile phone, which a lot of people already owned. Like the simpler phones before it, smartphones were designed and manufactured by a wide variety of big companies, rather than by a few small startups in an entirely new industry. There were no scrappy Ataris and Commodores and Apples; just big Motorolas and Nokias and Sony Ericssons.

Rather than being an American invention, the smartphone largely erupted in Europe and Japan, with only limited niche products available in the US from Palm and Microsoft. If there were ever a Windows of smartphones, it was Symbian, but unlike Microsoft, Symbian didn’t skim off the industry’s profits. Instead, hardware makers profited while Symbian lived off the scraps of their contributions. And despite its dominance across most of the smartphones sold prior to the iPhone, there has never been any need to be compatible with Symbian; there was no real barrier to entry stopping Palm, Windows Mobile, or for that matter Apple’s iPhone, because Symbian wasn’t preventing competition the way Bill Gates’ Microsoft had worked so hard to do in the PC world throughout the 90s.

Apple 2007 wasn’t Apple 1987

Just as today’s smartphone business bears no resemblance to the PC market of the 80s and 90s, Apple is nothing like it was back then either. Most importantly, at the launch of iPhone Apple had already enjoyed massive growth in its relatively new iPod consumer electronics business and had turned itself into a major international retailer, two things it had never achieved before, and which were fundamental in successfully entering the smartphone market.

Just prior to introducing the iPhone, analysts were beginning to fear that Apple’s iPod business would be eaten away by competitors’ new MP3-playing smartphones. Instead, Apple launched the iPhone into a market full of competitors and rapidly ate up nearly all the profits in the smartphone arena. While Apple doesn’t call the iPhone an iPod, if you add up all the iPod-capable devices Apple now sells, the total is a massive snowball that hasn’t suffered a lick from alternative smartphones and their ability to play MP3s. Conversely however, Apple has completely destroyed what were the big American smartphone platforms (Palm and Windows Mobile), has slashed global leader Symbian down to size and bested RIM as the corporate leader with its BlackBerry.

Apple is now the world’s largest consumer of Flash memory and exerts market power over other mobile components as well. It can source new display and construction technologies just as well as (if not better than) Sony and Samsung and Nokia, and enjoys broad and deep economies of scale in the mobile arena that most of its competitors simply do not. The fact that Apple was able to launch a new smartphone and rapidly make it the number one phone in most leading nations within just a couple years is nothing short of astonishing. Major companies that tried to do something similar have failed spectacularly, notably Microsoft and Nokia. Motorola and Sony Ericsson are treading water accomplishing nearly nothing.

Android is not Windows (it’s more like Symbian)

The fact that Google has stepped in to offer hardware makers a free operating system they can use is not exactly the same level of accomplishment. Like Symbian (and unlike Windows), Google’s Android software does nothing to sop up the profits in the smartphone market. Google is actually paying some manufacturers to use it (via advertising incentives), and has little market power to force anyone to deliver Android models that look or work the way Google would like.

Also like Symbian (and unlike Windows), Android does little to tie users to its platform. Users may buy Android apps, but they apparently feel little loyalty to the operating system. The kinds of smartphone apps people use are largely tied to utility (Facebook, Twitter, games) rather than to an API or a platform. Most of the gaming code in mobile platforms, for example, is cross platform and not tied to proprietary frameworks, as Microsoft worked so hard to do in every area of the Windows world. The only “stickiness” in mobile platforms is attached to Apple’s iOS, and that’s largely due to developers and users having a better business model for apps in iTunes, rather than there being some proprietary barrier that prevents portable mobile development or the movement of users’ documents and data (as historically was the case in the Windows PC world).

Also like Symbian (and unlike Windows), Google’s Android currently does nothing to hold back competition in the industry. If anything, Android lowers the barrier to new competition among hardware makers, enabling smaller companies or firms new to smartphones to introduce Android-based products with less effort. Further, Google’s own technologies are not exclusively tied to Android, but are commonly made available across platforms. Google’s Maps, Voice, search and YouTube services are available on alternative platforms.

What has Android done?

So what does all this mean? Most importantly, it means Google is not imposing a Windows-like lock on the smartphone business that will serve as a tourniquet around the necks of superior platforms. Microsoft was successful in holding back the pace of technology throughout the 90s to ensure it could tax nearly all of the profits in the PC world. It wasn’t just weaker products from Atari and Commodore that suffered from Microsoft’s imposition of barriers to competition; far superior computing platforms from NeXTStep to OS/2 to Unix were all held hostage to the point of a slow strangulation at the hands of Microsoft.

Google isn’t doing that, does not appear to be interested in doing that (as it makes its money from ads, and can do this on any platform) and does not appear to be capable of doing this (because it does not exert the market power over its licensees that Microsoft did and does in the PC world).

Stepping back a bit further, it appears Google has largely displaced independent Linux distributions, Symbian, and proprietary embedded operating systems (outside of Nokia, where all three are still embraced in a corporate museum of sorts). While certainly a major accomplishment, Android is really only serving as a method to allow Apple’s competitors to copy the iPhone with relative ease. Google will increasingly face fractionalization and backwards compatibility issues like those that Symbian (and Microsoft) have faced, without being able to rapidly chart a new course for Android as nimbly as Apple can with its full control over the iOS.

The primary example of this is in tablets. This is profoundly important in discussing why Android poses so little threat to the iPad.

The table market is nothing like smartphones

The tablet market is if anything more like the PC market, with Apple playing the role of IBM this time around. It is other companies, and in particular Microsoft, that play the old role of Apple: the historical “first mover” unable to keep up with the industry it hoped to ignite. If you ignore the Newton Message Pad and PDAs, you can credit Microsoft with being the first company (since 2000, say) to attempt to popularize the “Tablet PC” in a slate form factor. Despite a decade of trying, Microsoft made little progress, achieving only a status of a premium-priced niche supplier. Apple assumed control of the tablet market with the iPad.

Further, tablets (well, the iPad) originated in the US and flowed to the rest of the world, generating massive profits for Apple as it inhaled both the software and hardware profits as an integrated designer. Apple’s market power made it very difficult to compete with, because everyone seems to desire compatibility with iPad apps.

None of those conditions are similar to today’s smartphone market. For starters, the iPad did bust out onto the world as a new product. It was not an enhanced version of the mobile phone, which a lot of people already owned, but rather a new class of product that people had to decide if they actually needed. Unlike smartphones, the iPad (and most other tablet offerings) are not subsided by carriers, and those that are do not take the place of a smartphone. It’s a new purchase. While many people don’t seem to think twice about the value of their subsidy connected to a $1000 annual smartphone contract, they will notice assuming the responsibility of another expensive contract. Subsidies will therefore play less of a role in making iPad alternatives affordable, because there is a finite limit to how many contracts a person will sign up for.

The iPad is also very much an American invention, and is quickly being adopted by Europe and Japan. This worldwide appeal is not based on its form factor, but rather the iPad itself as an integrated product and platform. Unlike Microsoft, Apple doesn’t have to work to thwart competition by preventing its hardware partners from using alternative operating systems, because Apple is the sole builder of the iPad. Other tablet makers will face a new type of competition that is unlike the smartphone business.

Apple’s leadership position with iPad

Despite the iPad’s similarities with the PC market, it’s also very different. This is because the PC was created as an amalgam of hardware makers and a software vendor. The iPad is an integrated device, like the Macintosh. Or, if you will, the iPod. And if you examine the history of the iPod, you’ll find that despite efforts by Microsoft to create a rival “open” PlaysForSure platform in the Windows PC model, Apple experienced not even the slightest dent in its iPod growth.

Apple also stood up against notable hardware makers ranging from Archos to Creative to Sony to Panasonic to JVC to Thompson to Philips to Samsung to SanDisk to Cowon to Microsoft itself. Apple also weathered the imitative efforts of Chinese cloners. There is no product anywhere that even threatened to take some portion of Apple’s market share away in the realm of music and media players.

If Microsoft’s efforts with PlaysForSure had no impact on the rather simple iPod, what evidence is there that Google’s own broadly licensed platform could empower the same set of hardware makers to rival the much more sophisticated iPad? If people were desperately wanting to buy tablets, why didn’t any of the models Microsoft introduced with all of its hardware partners ever sell any? The answer is that nobody wanted tablet devices. People want the iPad, not because its a tablet, but because it offers a strong development platform with an easy to use interface, one that cuts out the complexity and bother of a full sized PC. Android doesn’t offer any of those things; it only makes it easy for hardware makers to ship smartphones.

For this reason, it seems easy to point out that all of the vendors who have promised tablet devices of some sort are in for a surprise when they find out that the tablet market doesn’t actually exist. It’s the iPad market, and it involves being able to run iPad apps. Everything else is a big, rather expensive media player. And we’ve had lots of high-end media players all along that haven’t sold in any real volume. There’s no market for that sort of thing.

There’s also no proven market for Internet devices in general, as exemplified by Nokia’s “Internet Tablets” or the Sony Mylo or a variety of Palm devices that were glorified PDAs. If you recall, the PDA died because the smartphone took over its functions. Even rather fun devices like the Sony PSP have not proven to be hot sellers because they can be replaced by a mobile phone capable of nearly as good of games. And of course, that users have a finite number of pockets. Introduce a device that’s too close to what already exists, and it doesn’t stand out enough to thrive on its own.

The iPad is not a market, it’s a product

There was once a fear (as I noted above) that iPods would lose out to smartphone sales. And when the iPad was introduced, a shockingly large spectrum of pundits insisted that it was not noteworthy because it was “just a big iPod touch.” The reality was that Apple created a strong enough differentiation for the iPad that it was able to stand on its own, a very impressive feat to pull off, and particularly so during the midst of a recession. But now you have a broad number of new devices that all expect to grab users’ attentions, and most of them are nothing more than an oversized Android phone without the phone. Why are these same pundits now applauding?

While Android will certainly remain a fixture of the smartphone market, I’m skeptical that it will power any significant growth in expensive devices outside of smartphones, where, like a clownfish among sea anemone tentacles, it enjoys a protection from price sensitivity due to contract subsidies. Add in the economies of scale Apple enjoys as the iPod/iPhone/iPad powerhouse, its powerful brand, and the sophistication of its development tools and software marketplace, and competitors to the iPad simply face extreme barriers to adoption. It would be much easier to deliver an iPod competitor, but nobody seemed able to do that either.

What seems increasingly more likely to happen is the entrenchment of Apple and its iPad as a product that third parties add value to. As long as Apple keeps its prices reasonable and keeps innovating, the iPad will be difficult to compete against, particularly as iPad software grows increasingly sophisticated. It’s pretty easy to move Facebook, Twitter and Google Voice clients among smartphone platforms, but it’s more difficult to migrate or duplicate the far more sophisticated titles appearing for the iPad. Much like what happened with Windows, software vendors will see increasing benefits to standardizing on iPad apps.

What’s the alternatives to iPad?

Well glad you asked. The first is to try to target the variety of tablet hardware running various versions of Android, something Goggle won’t even recommend trying until well into next year when Android 3.0 ships. And even once Android settles down as a potential tablet platform, it will be the same fractionalized, minority platform attached to the same development and testing problems Android smartphones face today, where apps don’t necessarily work on all phones. Like Symbian, Android isn’t a coherent platform, but rather more of a technology portfolio that various hardware makers use in ways that intentionally don’t foster compatibility or commonality in their user experience.

You also have RIM’s upcoming PlayBook, which runs the first 1.0 version of Adobe’s Flash-based AIR platform as a tablet user interface. RIM wants to distract people with its ability to browse the web fast or play back movies smoothly, but AIR is not going to result in nice apps anywhere near the sophistication of iPad apps. AIR is no Cocoa Touch, and the PlayBook is no iPad, in the same sense that the BlackBerry Storm was no iPhone, despite all the optimistic press that greeted it.

You also have Google’s Chrome OS, which was once the company’s official tablet strategy. It was also supposed to be here by now, but it’s still not ready yet. Once it arrives, we’ll see if people actually want a tablet experience that is only a web browser with some geeky app-like functionality. That’s a far cry from the “it just works” experience of native, self-contained iPad apps.

And of course there’ll be HP selling a tablet that runs Palm’s webOS, a sort of hybrid between the raw web experience of Chrome OS and a native app experience of Android. HP has no experience in building either compelling mobile hardware or in running its own mass market software platform. On top of that, the expertise it acquired from Palm is has largely already jumped ship. Good luck with that.

And of course, there’s Microsoft, which has already proven across a decade of attempts that it can not develop nor sell a compelling mobile device of any kind.

With the iPad, Apple has created another iPod: something an audience wants for what it is, not for what it does in general terms. The iPod wasn’t really a “Personal Media Player,” it was just The iPod. Similarly, the iPad isn’t a tablet device, it’s The iPad.

  • counterproductive

    Kdaeseok,
    I’ll try and find the article I read recently that said this. Basically it pointed out that the of the initial sales tally of the Tab (600,000), a significant portion of that (some 150-200,000) were sold in S. Korea — which was interesting, because, a) Samsung is South Korean, and b) the iPad was not available there at the time.

    Stuffing the channel is pretty common in figures like these. I’ll look for the article about this too. Basically, Apple sales figures are very accurate and they represent sales to actual end-users, consumers. Apple knows exactly how many have been bought and paid for and reports these. In many cases, the product itself is being shipped to the end-user directly from China. Or, a given store is getting a weekly shipment of a very small number (5-25 or something) and they are cosmogony for more the next week because they can’t keep them in stock.

    This is wholly different from other hardware makers and their products, where you get them shipping products by the truckload to distribution warehouses where they sit, or sit on the shelves until demand from consumers picks up. In some cases you might even get extra product pressed on the distributor as part of a deal — eg. “take a thousand of these, and we’ll give you a deal on our big TV’s that are popular.” These thousand that have been SHIPPED, are then counted as sales. That is “stuffing the channel.” Apple never does this: again, a sale is always a sale with Apple.

    Do i think this accounts for all 600,000 or 1 million Tab sales? Of course not, but I would be very surprised to find if didn’t account for a significant proportion, because this is how the industry (apart from Apple) works. I’ll try and find what I was reading when i made the comment, but asymco.com is a good place for you to start.

  • counterproductive

    Cosmogony was meant to be “clamouring” in post above. Didn’t notice the replacement text for my misspelling ;)

    Virus for Mac? Show me your evidence. There were a few (literally just a few) on the Classic Mac OS. I have vague memories of getting one once. But the last ten years of OS X? Maybe a couple of worms or Trojans, but i have not heard about one self-replicating virus. Dan posts on this from time to time, so I am sure everyone here would like to hear about it.

  • kdaeseok

    In Korea iPad and Galaxy Tab debuted at the same time. Galaxy Tab went on sale on 14th November, and iPad on 30th November. Potential iPad buyers couldn’t wait two weeks so bought Tab instead? I don’t think so.

  • counterproductive

    Sorry, my figure for S Korea was way off. After more research, I read the figure is more like 30,000 Tabs sold there (not the 150-200,000 I mentioned). In contrast, Korea Telecom took 60,000 pre-orders for the iPad, and these should be in the hands of the happy customers now.

    I read somewhere that Tab is available in 90 countries. iPad may now be available in close to 90 countries, since 11 were added on 30 Nov (including S Korea). In China, where there is a lot of room to expand, despite pundits “concerns” it sounds like there are, lo and behold, long delivery times on iPads — meaning demand is higher than availability.

    Overall, it does remain to be seen if there are sustainable, long-term markets for tablets other than the iPad. Sure there was initial interest; but as Dan said, the manufacturers may get a wake up call soon. Tab figures show a slackening off already:
    1 month: 600,000
    2 months: 1 million
    And if these numbers are padded by channel stuffing, well; the numbers are already going down.

    And yes, I can imagine that initial excitement for a home-grown product led 30.000 S Koreans to go out and get a Tab before they saw an iPad. Now 60,000 of their neighbours will have an iPad. Let’s see how the Christmas shopping ends up.

  • kdaeseok

    I don’t know what exactly you’re trying to say.
    You said Tab is mostly being sold in one country, and now saying it’s not?
    Galaxy Tab’s available in more than 30 countries… you’re probably confused with Galaxy S.
    http://www.zdnet.co.uk/news/mobile-devices/2010/11/23/samsung-galaxy-tab-heads-towards-one-million-sales-40090950/
    I don’t remember saying Tab is selling better than iPad. What are you trying to say?

  • counterproductive

    I shouldn’t have said “mostly sold in one country”. The one country that I saw an individual figure backed out for was S Korea, and that doesn’t account for as much of the total as I had thought. Apologies.

    However, out of 90 countries in which I understand the Tab to be available, 30,000 out of the first month’s 600,000 for Korea is a pretty significant figure.

    It’s great that the Tab has so much interest and early sales. I am truly happy for Samsung. What I am trying to say is that, while it may seem that the outlook for the Tab is as you say “quite the opposite” of Jobs’ assessment (and this article), it may yet remain to be seen. I know you aren’t saying it is selling more than the iPod, but it doesn’t even seem to be building the kind of momentum that the iPad is building.

    Though 1 million sounds great, I am trying to say:
    1) the number of Tab sales seems to be slowing after initial interest (600k first month, 400k second);
    2) some of these countries are just coming online for the iPad, and Apple can’t make enough for the countries it does supply; preorders and scalping are crazy;
    3) some channel stuffing is undoubtedly involved to reach that 1 million figure.

  • kdaeseok

    OK, OK. Points taken. Just one thing again. Galaxy Tab is not available in 90 countries- Galaxy S is. Check my link again… it says Tab was available in more than 30 countries when it reached 600k.

  • 16thnotes

    Unfortunately, this ignores the impact that carriers will have in this equation. Currently Softbank’s exclusive contract for sales of iOS devices in Japan continues to seriously hinder Apple’s progress due to Softbank’s inability to deal with increased network traffic as well as a number of other deal-breakers for the Japanese market. (world’s #3 economy)

    Sounds like something has to give in regards to the US carrier exclusivity as well for Apple to sustain this leading position and remain a viable choice.

    As always, nice topic, very good points, just feel one major factor has been ignored. Cheers…

  • enzos

    > Apple to sustain this leading position and remain a viable choice <

    They don't have to have a leading position to remain a viable choice. It's business, not a wrestling match. … As Jobs has long maintained their aim is not to make the most of any thing it's to make the best things.

  • http://www.sounds.wa.com/ Brian Willoughby

    subsided (wrong word) should be subsidied (well, that’s not really a word) or, actually, subsidized. There are some other typographical errors. Has no one stepped up to volunteer as your editor? Don’t all great writers need an editor?