Best Buy CEO: iPad Is Cannibalizing Laptop Sales By 50%

The CEO of Best Buy just said the iPad is cannibalizing 50% of the company’s laptop sales, the Wall Street Journal reports.

When consumers walk into Best Buy now, they don’t look at or want laptops, instead they’re drawn to the iPad.

“People are willing to disproportionately spend for these devices because they are becoming so important to their lives,” says CEO Brian Dun.

via Best Buy CEO: iPad Is Cannibalizing Laptop Sales By A Shocking 50%.

It’s proceeding as expected, but much, much more quickly.

My first reaction in January: asymco | First Thoughts on the iPad

A further thought in May: asymco | Will Apple rule the iPad market? (part II)

  • MattF

    It's now clear that the iPad breaches some fundamental cost/functionality barrier, and that the App Store is a very, very big deal. It's worth recalling that Apple had to be dragged into distributing the original touch SDK, and was clearly unprepared for and astonished by the avalanche of apps that appeared almost overnight. Apple deserves huge credit for grasping the opportunity and going for it, but I doubt that it's what they originally had in mind.

    • Gandhi

      Apple is a software company at its core. The whole "web apps is the future" talk was just that – marketing speak. They just did not have the SDK ready for the iPhone launch. Just as they did not have a unified iOS ready for the iPad launch.

      While Apple is still way ahead of the competition, they still need to launch early enough to entrench themselves in the market. They wait till everything is perfect, and competitors would have crappy android tablets selling in place of crappy netbooks.

      This way, Apple has set the bench mark that others have to emulate.

    • Steven Noyes

      I suspect the SDK had always been planned. With iPhone OS 1.0, however, the OS was not yet stable and the developer tools were far from complete. Even early releases of XCode did not have IB interfaces built in yet.

      To me, this shows Apple's very different approach to Google's on releasing software.

      Apple takes a much more traditional track with standard SQA practices and this has served them very well. They employ small teams that are very targeted and master the domain. As a result, you tend to get solid releases from 1.0 though features may be lacking. The features included, however, are implemented very well.

      Google has always used their release early release often track. This is very effective at getting software out really fast to users but sometimes the quality is not there or things are really half baked.

      In XCode's/IB case, the toolset simply was not ready at the iPhone launch. Likewise, by getting devices into users hands FIRST, this built up pent up demand allowing the App Store to take off once the SDK was up and running. With Android, the SDK was available long before devices were so you had tools but no market causing the Market Place to languish for a year.

      Due to low initial volumes of Android users and a sorry state of dev tools, the first Android apps were poorly designed, written and somewhat buggy. This reputation has been difficult for Android to shed.

    • I would also agree with the replies above that the SDK was planned all along but was not polished enough for release along with the organization needed to support it.

      There are two pieces of evidence to support the notion that the SDK actually preceded the iPhone itself. (1) The core applications on the iPhone on launch day used the same APIs and were coded like any apps should be. (2) developers were able to use unpublished APIs immediately after jailbreaking began and well before the SDK was published. The APIs were always there and a developer just needed very little help in putting them to use.

  • Gandhi

    Best Buy CEO should have clarified that the iPad is eating in to laptop sales of those that are sold at similar price range of the iPad.

    Apple's Mac sales seem to be doing just fine.

  • min

    I wonder how much profit Best Buy makes on the iPads vs. netbooks/non-Apple laptops? Probably a + since they're going all out and making them available in all stores.

    • David Chu

      Coming from a background in the retail sales channel, I can tell you this. The key metric is revenue generated in relation to shelf space. Best Buy doesn't care if they get lower margins as long as the product moves. Add in the fact that Best Buy gets more than 50 points margin on accessories, Apple has a lot of leverage with them.

      It's easy to tell which products are the most profitable for retailers, they usually occupy the center of the store. That's why you are hit with DVDs and cheap impulse buy items right when you walk in the store. Every Best Buy I have been to has Apple products at the center of the computer department which makes me believe that even with the lower margins they are making more gross revenue on Apple products than any individual PC/Laptop.

      • poru

        Tangentially… for those who are interested in sales statistics:

        a) I was in the Apple Store near the Opéra (Paris) a week or so ago on a cold rainy day. It was absolutely packed and perhaps 80% of the main floor space was divided between iPhones and iPads. It was clear that they were selling all they had in stock. When I asked one of the staff if it was always like that he said yes, and that "they were there for the iPhone."

        b) On the Eurostar to London a few days ago there was an obviously very wealthy Arab family (father, son, daughter, and 2 bodyguards/assistants). I counted 2 iPhone 4s (both belonging to father), an iPhone 3 (daughter), MacBook, iPad (son), and 2 iPhone 3s (bodyguards). So that's a good £3000 of hardware there (at least). The question is: what is the profit to Apple from this scenario vs the profit to MSFT or GOOG if they had been Win or Android hardware? I guess if Android, Google would make nothing (apart from advertisements)? If Windows/WinMo… a few hundred dollars?

      • David Chu

        It's hard to compare Apple's business model with google or Microsoft because they have different strategies and goals. Here is some info I'm aware of. Hopefully other people can fill in the blanks.

        For Google, I did a study a while back onn how much a user was worth to google. (Advertising revenue / user base). I believe the results came to about $15-20 per user.

        I believe the license for Microsoft's mobile platform is about $15.

        For Apple, I believe their average margin is a bit above 40%, so an iPhone that sells for $600 nets them about $240. That $240 is spread around in lots of ways such as overhead for their stores and their research and development costs. It's really hard to judge.

  • AaronS

    Re: min's comment on profit on iPads vs. non-Apple laptops.

    Retailer margins on Apple products are VERY small. They most likely make much more on the sale of cheap laptops than Apple hardware.

    • Steven Noyes

      I understand the markup on things like cases, dock connectors, cables… is very high. Buy the iPad and make 5-10% but sell a charger cable, case, book and a bluetooth keyboard and make 70%.

      • dms

        Right. The profit is in the "ecosystem", i.e. the accessories. Even the Apple Retail Stores devote a ton of shelf space to the accessories, especially the higher-end vendors like InCase.

    • David Chu

      The margins on other computers are also very thin. Nut at least you can sell warranties on them.

  • It's funny…of all the iPod "alleged weaknesses" people were talking about, nobody really guessed the only that actually mattered to most people in the world….

    … iPads production rate. Only 1 million per month at the time o unveiling.

    Cause every since its launch a lot more people wanted an iPad and could not get one, that those that had and iPad and wanted (camera, Flash e.t.c)

    • dms

      When it was reported that Steve Jobs remarked that the iPad is the most important thing he's ever done since the original Mac, a lot of people thought he was out of his rocker. But as usual, Steve turns out to be a visionary.

  • No one wants a laptop, they want what it enables. If an iPad allows you to do most of the things you used to need a laptop for, why not make the switch? In addition, the message transmitted from the iPad is "you can do this." The laptop says, anything is possible if you work at it. The iPad's ease-of-use is confused with a lean-back, consumption device.

  • Rob Scott

    @ cgerrish, that is how I think about the iPad as well. On my laptop I run my powerpivots and other processor intensive tasks, but 99% of the time when I am home all I am doing is answer email, surf the web, play games, play music and a loaptop is an over-kill. iPad makes perfect sense for me.

  • Tom

    That 9.7 inch screen becomes bigger than a 55 inch flat screen tv when it's about a foot away. Perfect for movies.

    • poru

      perfect for *movies on demand*…

      I travel a lot (too much) and now I download a few movies and TV shows onto my iPad for watching on planes and in hotel rooms. The <5$ iTunes fee is much less than the extortionate hotel movie-on-demand charges.

      (BTW for those who enjoy good audio, try the new B&W headphones. They are absolutely amazing.)

  • Tom

    I hope this link works. First time for everything. The Samsung Galaxy Tab, while lacking Android 3.0, Gingeebread, still shows the Android Market available. Never mind that android apps don't work.

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