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iPad lead seen as 'overwhelming'

Chris Whitmore predicted 2.0 million iPads would be sold in 2010 soon after the product launched. (asymco | Analysts predict iPad sales)

More recently, Chris Whitmore writes for Deutsche Bank:

“We believe Apple’s lead in the tablet market will prove difficult to close by the onslaught of competing products coming over the next several quarters,” he writes in a note to clients issued early Monday. “Ultimately, we expect the slew of upcoming competition to fall flat from a user experience standpoint while struggl[ing] to materially undercut the iPad on price.”

How far ahead is Apple (AAPL)? According to Whitmore:

  • 12-18 months in content (see chart)
  • 2 or more years in terms of other media acquisition and integration via iTunes
  • Untold dollars in terms of component pricing

via iPad lead seen as ‘overwhelming’ – Apple 2.0 – Fortune Tech.
Compare this fresh (re-)assessment with the following points I made in May of this year:

The iPad comes with an even bigger value chain [than the iPod] bolted on: the App Store. Apple is flogging not just an “app player” but also a new way to develop and distribute software. If you cut “music” and paste “apps” you see the immediate parallel between iPod and iPad. The app ecosystem will quickly grow to be larger than the music ecosystem with the mobile software business already eclipsing the music business.

So the iPad challengers face five daunting obstacles:

  1. Recognition of a threat from a seemingly benign product
  2. Execution on hardware against the best integrator on the planet
  3. Execution on software against a new UI metaphor fortress surrounded by a patent moat
  4. Integration of hardware and software to a sublime whole
  5. Re-building a value chain for which they have no handle vs. a broad and deep existing universe of app/content creation distribution and consumption enjoying logarithmic network effect value.

asymco | Will Apple rule the iPad market? (part II)

Welcome to the club, Chris.

  • Richard

    That only goes if these companies are trying to emulate Apple. Look at what RIM is doing with the Playbook: they look for weaknesses in Apple's offering, and build on those. It may not be a perfect strategy, but there are very few companies in the world with the wherewithal to compete with the above mentioned value chain.

    • Christian

      True, but any attempt such as RIM’s is predicated on the assumptions that any “weaknesses in Apple’s offering” matter to consumers, can be overcome effectively by a competitor, and will ultimately make for a significantly profitable niche. None of those assumptions are particularly certain.

      If we allow for a moment that the iPad will follow the iPod in dominating its segment, there will still be room for competing tablets from a small array of OEMs to coexist with the iPad, much like how the Zune and SanDisk’s MP3 players coexisted with the iPod. In this scenario, the bad news for Apple’s competitors is that the leftover marketshare is both low-margin and low-volume, relative to Apple. But, a buck is a buck.

      Horace’s five points about the fortified position of the iPad are well-taken, but tablets — as extensions of, and perhaps eventual supplanters of, full computers — are by nature likely to take on a different market path than the iPod. Personal audio players have a defined, singular focus, while computers and tablets are general purpose. This suggests a fragmented eventual market a la the smartphone market. Gruber’s predictions of a equal-share split in smartphones would not be surprising in the tablet market either, assuming Chrome ever makes it to market and Microsoft eventually pulls together a worthwhile tablet offering.

      I expect that Apple will continue to rake in the majority of margin, however. The tight integration they’ve built is nearly impenetrable.

      • http://www.asymco.com Horace Dediu

        My prediction of a split pie for iPhone does not apply for iPad. The iPhone competes in a market where there is significant and sometimes extreme interference by operators in the availability of a platform. The meddling by intermediaries is unlikely with the iPad (or it's little brother the iPod touch) so I expect much more of a network effect for a leader.

    • iphoned

      >>Look at what RIM is doing with the Playbook: they look for weaknesses in Apple’s offering, and build on those.

      RIM has nothing but a YouTube video right now of something that looks like a good looking rectangle with moving images. And it is not even a video of an actual device running. We all know what promises are worth.

      • Jim

        Not only that, RIM is effectively limiting the market for the PlayBook to people with Blackberry devices. That artificially limits not only sales but also buzz as it can be seen as a limiting factor. RIM is also trying to position the PlayBook as a professional tablet while espousing its entertainment proficiency. Such double duty works when the maker is leaving the uses to the buyer, but fails when the maker is trying to assert application on the buyer. The Pad is marketed as a window on the world with the world as your oyster. Moreover, from what I can see everyday, business people have absolutely no trouble justifying a plain iPad in the boardroom. Indeed, with a 10" screen, its always going to appear more professional than a 7" screen.

  • Jeremy Whitt

    If you aren't trying to emulate Apple, exactly what market are you trying to enter? There is not much room left in between the iPod touch, e-readers, iPads, smart-phones, netbooks, and notebooks. Its a bit more than just finding a weakness in Apple's offering, (which really, say that out loud at a board meeting, "Our plan is to….find a weakness in Apple's offering.") The bigger problem is trying to come up with a product that consumers see as relevant in an already completely saturated market.

  • berult

    I'm the ultimate barometer; as frugal a consumer as they come. The antithesis to impulse buying, always on the look out for prime surreal estate. Beyond analysis, prognosis, assumptions, presumptions, wishful projections and default rejections, I committed to having one the very day it was fanfared, way back in January. Talk about reading tea leaves…

    Actual delivery on May 29th. Pure factual enjoyment ever since.

    Good enough for me, good enough for a whole lot of pretentious fools like me!

    • Tom

      You know, sir, there is something to be said for this site. No one here is a sycophant, nor obsequious, nor garrulous! There are no personal attacks, no rants for nor against anyone nor anything: it's a continuous breath of fresh air.
      Very humbling.

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  • iphoned

    I don't know about those analysts calls…iPhone lead seemed overwhelming also up until just this summer, when Android suddenly skyrocketed past it in unit sales…on the other hand, it did take Android-verse a few years to gear up for that surge…

    • Jim

      I'm sure Windows Phone 7 will also sell quite a few, but will it make money in the manner of the iPhone is for Apple? If a tree falls in a forest without making money, does it make a sound? Does anyone care? The iPad has some advantages for Apple in that they have some component locks (at a time when OEMs are wary of investing in new plant), the OS is built on an existing, class leading code-base that will merge in iOS 4.2, has an existing application base and has a full suit of tablet app tools (iWork). Pulling that lot together at a price that leaves a double digit margin is not so easy.

  • iphoned

    One has to wonder about all these tablet competitors leading with 7'' tablets and some going with carrier channel.

    – Are Android makers leading with 7" because Android OS is just not ready for a true tablet size computer, and they are just positioning oversized phones as Tablets? Makes one onder

    – Are people really ready to buy a second contract essentially just for data for a "tablet" that's already barely larger then a phone/1st contract which also has data? I wonder about that.

    This has a smell of failure all over it…although I am sure on the 2nd or 3rd try Android tablets may give a (future) iPAD a run for its money just as in the smartphone market.

    • poru

      I agree. I just don't get the 7" form factor, unless it is just because Apple has a lock on the bigger screens right now. I look at the Dell Streak and the RIM VapourBook (TM) [as others have noted, there isn't any actual evidence to its existence yet] and wonder why people would forego the iPad's ecosystem and quality and screen/keyboard size just for a smallish saving in weight (and not even money if the price estimates are correct). I'm typical probably in using my iPad for: surfing; email; games; misc apps (e.g. the excellent Bloomberg); movies and PDFs; occasional writing. Which of these is better on a 7" screen?

      • yowsers

        Not seeing it either. The 7" form factor strikes me as a use case that is incompletely thought out.

        The 7" screen reminds me of a throw-back to the PDA form factor.

        Maybe they're trying to differentiate within a niche Apple hasn't taken yet — that is, one step up from the iPod Touch, half-a-step down from the iPad.

        I suspect the manufacturer's are hoping that they can release it into the wild and the market will go wild defining use cases on their behalf — via apps — like the app devs did for the iOS devices.

        Interesting that you don't hear the same criticisms for these 7 inchers that the iPad gets. Just sayin'.

    • Marcos El Malo

      Your first question: It's an android thing, specifically froyo, which was not designed for the tablet form factor. This is why some manufacturers are waiting for gingerbread (Android 3.0).

  • MattF

    I think it's still very early days for tablets. My guess is that Apple will try to segment the iPad market as they've done with the iPod– and I'd guess a 'lesser iPad' will be like the iPod touch wrt the iPhone– thinner, lighter, and cheaper rather than smaller. A WiFi-only iPad at substantially less than $500 would mess up most of the competition's plans, and Apple can easly afford to do that.

  • Andy

    I think the only company out there with a sound strategy to take on the iPad is Amazon. Take a look at what they've been up to lately:

    1: Overall Kindle success
    2: Amazon-branded Android app market
    3: Marketing the Kindle directly against the iPad
    4: Kindle going into brick and mortar stores

    Amazon has the media infrastructure to match iTunes/AppStore, distribution channels, a solid product and a recognized brand with both the "Kindle" and "Amazon" names. Amazon is going to build a product line "upwards" from the Kindle, and chew into Apple's market share from that direction. IMO, Apple has no choice — they *must* cost/feature reduce the iPad or risk losing the low-end of the market to Amazon (something they can't afford to do if they want to keep those huge margins).

    It'll be interesting to see where Android 3 and whatever mutant Win7-tablet-OS-MS-comes-up-with products enter the market. I suspect to be successful they'll have to come in at the high end, over the top of the iPad… take higher margins on higher ASPs (but lower initial volumes) and then press downwards as they build market acceptance… but without a media infrastructure they're hobbled.

    • http://www.asymco.com Horace Dediu

      I agree that Amazon is the best positioned of the iPad alternatives. However I still think they will find it hard to disrupt iPad for a long time to come. The iPad still has a very long trajectory to become a good mobile computer and Amazon will need to be there when iPad overshoots. This will take 5 years at least.

    • Jim

      The Kindle is essentially a one-trick pony – aside from reading eBooks, its fairly inept. But for book reading its excellent. Amazon will struggle to increase the utility of the Kindle while keeping the price low. They appear to be using the razor/blade model which makes sense. Their margins are on the books.

      The Kindle is not an iPad competitor except for those few people who only read books on an iPad. Indeed, Amazon likely reaps better overall margins on eBooks bought via its iPad Kindle app than through its own device.

      • famousringo

        I think the point here is that Amazon is positioning, but they haven't really made their move yet. Yes, the current batch of Kindles are little more than electronic books, but the formation of an Amazon app store points toward the idea of a Kindle-branded Android tablet with more feature parity with the iPad.

        When this Kindle Kolor™ is ready for launch, Amazon won't be hobbled by a reliance on mobile operators for distribution (like the Galaxy Tab is), and the Kindle App Store will be able to leverage all the advantages of Amazon's online marketplace.

        Amazon can afford to be a little patient for all the right conditions, because the existing Kindles are keeping Amazon's hand in the market. They don't have to scramble like Samsung and Blackberry, they can wait for Android 3.0 while they polish up their own content marketplaces for a full colour touch tablet experience.

    • berult

      Amazon has to contend with "compounded" speeds. Insane pacing of Apple's patented technology development; systemic, accelerated, real time integration into an inhabitable, hospitable, informative, communicative, self-sustaining i/MacWorld.

      Amazon owns the infrastructure capable of supporting the taming of a particular moment in its development. Can it perform a dancing act in an accelerated frame of reference? A balancing act better performed in a watershed environment than in a reflexive accoutrement.

  • Rob Scott

    I played with the Galaxy Tab today (played with the prototype some months ago). It works, for what it is but it nowhere near the iPad.

    What it has is some good hardware specs. This unfortunately is what sites like Engaget are obsessed with. Two cameras, beat the iPad!!! This is how mostly people buy, hardware specs.

    What concerns me with Apple is that they are very stingy with hardware features, for no good reason. There is no reason why the iPad has not cameras for an example. By continuing doing this Apple give an opening to the competition and soon thereafter the competitions owns the market (in units at least).
    Now I know that hardware is the easiest thing to copy, thus it make no sense to depend on hardware specs to sell your product. But also to have an +A product we need well spec'd devices, if only to compete in those stupid boards on Engaget.

    The later buyers of iPad are less satisfied and I suspect, one of the reasons is that new competing devices are better spec'd.
    I hope we will have a great update in Jan, Apple mustn't give a chance to Android like they did with the iPhone. I also do not understand their resistance to carrier subsidies.

    • MattF

      Early versions of Apple devices are always 'missing' various hardware (and/or software) features. You can complain, but it won't change the way Apple does things. E.g., looking back at the specs of the original iPhone and comparing it to the current model, one can wonder why anyone bought the original. 'Reality distortion' and all that, I guess.

    • FalKirk

      "Two cameras, beat the iPad!!! This is how mostly people buy, hardware specs."-Rob Scott

      I'm not so sure Rob. I agree with you that specs are how products are evaluated. And evaluations can affect sales. But, on the whole, I think geeks buy features and consumers buy benefits. And the geeks, who are the reviewers, aren't nearly as influential as they used to be or as they think are.

      Apple products not only provide end users with benefits, those benefits are very easy to showcase. For a recent example of this, look at the MP3 wars. The geeks were always pointing out the superior features of competing MP3 players. But at the end of the day, consumers bought Apple because the Apple iPods contained, not all of the features, but all of the features consumers needed.

      • Jim

        I am sure that the Android licensees would have given their back teeth to be able to launch a tablet with the specs of a low-end iPad. There is huge advantage to being first to market. The added specs just eat at their margins. Apple is minimalist and doesn't add features unless their use if clear. iPad2 will have at least a front facing camera but it's lack in version 1 has not been a handicap.

        As for up-front carrier subsidies – no thanks. Not for a tablet when 90% of the buyers have a cell phone and a plan already. The only reason to use a subsidy is when you need to hide the true cost. The lack of subsidy is precisely why Apple can offer a WiFi-only device and an unlocked 3G device. This has undermined the business model of the new sector. It is not business as usual.

    • Tom

      The later buyers of iPad are less satisfied and I suspect, one of the reasons is that new competing devices are better spec’d.

      Who are early adopters? People who've been using MacOS X and iOS for at least 5 years combined. They've got the system down cold, and they know the ropes, and they know the benefits. So, the iPad just snapped into place.
      The later adopters have to learn the ropes, figure out how things work, get things going. As that occurs, their use time increases.

      Never forget my first Mac, a black PowerBook. G3. I was used to IBM PCs, and a clunky Packard Smell, and so I didn't think too much about the PowerBook when I first got it. But the more I used it, the more exciting it got to use it.

    • Priit

      "Apple mustn't give a chance to Android like they did with the iPhone"

      Put they do. With iPad they give even more and even better chances. That is when you live outside of US. While you dream of Jan update, for example for people in Scandinavia the Galaxy Tab will be the very first tablet they can actually own.

  • Rob Scott

    We need to be able to edit our comments! Tons of mistakes in that last post.

    • berult

      Mistakes? How dhare you?

      Hi Rob, Universal expansion of the tablet market in terms of mind share serves Apple strategic market penetration I believe. Apple cannot grow tablet mindshare all by itself, it needs to add some weight from the competition for critical mass sustainability of the overall tablet computing market. Apple's weight can best be thrown around if somewhat "handicapped".

      Hardware specs are on a few months cycle; they cater to the transient mood, grow the tablet sphere of influence and are absolutely no hindrance to integral quality product diffusion.

      Lurking evanescence trumps obsolescence as a potential threat in an emerging, highly disruptive technology.

      • http://twitter.com/ThembeK @ThembeK

        Good points. I did not consider that.

  • Tom

    Rob Scott, OCTOBER 4, 2010 at 5:01 PM
    We need to be able to edit our comments! Tons of mistakes in that last post.

    REPLY. I SECOND THAT!

  • Tom

    Of course, Android will overtake the iPad in marketshare just like it did with the iPhone. How? A new tablet release every week, from 25 different OEMs, on every single carrier. To even notice the iPad in all that noise!
    Yet the iPhone is doing quite well in spite. How? Everyone knows WHEN to listen to Apple: April brings a new iPad, and June/ July brings a new iPhone. We all got that.

    • asymco

      I'm not sure that iPad will go the way of iPhone with competitors. Perhaps it will go the way of the iPod. The problem with iPhone has always been dependence on the operator channel which interferes with and distorts the market. iPod was not so constrained. iPod touch is another example: a device which can be used for some limited communications but is unrestrained in distribution by communication services companies. iPad has a hybrid feel but I think it will lean toward iPod more than iPhone.

      • http://twitter.com/ThembeK @ThembeK

        You are underestimating the power of carriers and their subsidies. Here is an example: Vodacom South Africa is the biggest distributor/seller of PCs and they do not even stock them. The iPad will not stand a chance without the benefit of carrier subsidies.

        Carrier subsidies in most countries often means a customer pays nothing for the device, nothing, zero, zilch, no pay-in, nada. Take the iPHone for an example, in South Africa all models are FREE, no pay-in whatsoever. iPhone 4 32GB is free with a monthly subscription of only ZAR429.00, cheaper than any option on AT&T. This is possible because the carrieriers run the plans on break even, with the hope on making money on out of bundle.

        If we were allowed to subsidies the iPad we would most certainly have the entry iPads available to 3 – 12 million customers free of charge with us taking a small loss/profit on each connection.

        The Galaxy Tab, will be available for FREE, so will the S7. Apple needs to get on with the program.

        There is no downside in letting carriers make your device affordable to people who would otherwise not afford it.

      • OpenMind

        Good, but very narrow mind point. Not every country like South Africa, or most of countries are not like SA.

  • Steven Noyes

    @MattF

    I think that is true off all electronics driven buy software and has nothing to do with an RDF. Would you pay 5K for an 8088 tuning at 4.7Mhz today? Running DOS?

    I think Apple targets a specific set of use cases at a very targeted price. This dictates hardware feature set. Software features are minimal but have near perfect implantation. This contrasts with companies that put in features to hit a spec sheet but don't consider use cases or implementation.

    • Marcos El Malo

      I've always felt ambivalent about people with your last name. Sorry if I seem nosí.

  • TPJL

    The thing that Apple does so well, and that their competition completely fail at, is building an emotional connection with the consumer.
    That is their real power. They can be trusted to produce above par goods. They are known for quality. But most importantly they sell an experience to their customers, an experience unmatched by any other competitor. Remember people are emotional not androids without feelings who only care about specs.

    How many people do you think will be clamoring into stores to get the Dell streak or the RIM vaporware?
    How many other companies can make us want a device such as the iPad when we never needed it before, but after seeing and/or using it we just have to have it?

    I can think of no others.