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How we do all this will never be the same

In a new ad for the iPad Apple once again makes the case that the tablet is a good substitute for a PC in a number of use cases (and permits some new ones.)

We’ll never stop sharing our memories. Or getting lost in a good book. We’ll always cook dinner and cheer for our favorite team. We’ll still go to meetings, make home movies, and learn new things. But how we do all this will never be the same.

This belief that the iPad “cannibalizes” the PC is a powerful concept. The growth of the PC has certainly been affected. But has the Mac’s growth also been affected?

Tim Cook seems to think so. In the earnings call he said:

In terms of cannibalization, we do believe that some customers chose to purchase an iPad instead of the new Mac during the quarter, but we also believe that even more customers chose to purchase an iPad over Windows PC. And as I’ve said before, there’s a lot more of the Windows PC business to cannibalize than the Mac.

If we look at the behavior of Mac vs. iPad, the following chart may be useful:

First off, we can observe that since introduction, iPad has always sold more units than the Mac. Now it’s selling more than twice as many units and the revenue from those units is higher than those of the Mac. The other line to look at is the growth (y/y). During the time that the iPad has been shipping, the Mac growth has been declining.

Yes, it’s still growing at five times the rate of the PC market (and 7.5 times the rate of Windows only PCs), but the iPad phenomenon is indeed affecting the Mac.

With the launch of Lion, Apple is clearly showing that there is dramatic improvement potential in traditional personal computing. But increasingly the improvements are “borrowed” from touch interfaces. Clearly, as the ad implies, computing will never be the same again.

  • timnash

    The iPad seems to have also cannabilized the sales of iPod Touchs. Before the iPad launched Apple sold about 2 iPod Touchs for every 3 iPhones. In this last quarter the total unit sales of iPads + iPod Touchs was about two thirds of iPhone sales.

    • EWPellegrino

      I think that might be more of a function of iPhone penetration. The iPod touch was popular in markets where IPhones couldn't be bought, but that is not really an issue now. The touch was also a popular device to give to kids, but increasingly either Mom or Dad has a 3G or 3GS spare after they upgrade, and given the longevity of these devices there's no need to buy a dedicated PMP for junior.

      Even without the iPad we were always looking at a future where every iPod was an iPhone.

      • timnash

        An iPod touch or iPad with Skype or FaceTime is a phone that works well if you have WiFi so if WiFi access is easy and more widespread, another future is where people drop expensive carrier contracts funding their iPhones for cheaper WiFi + iPod touch/ iPad. If this future happens, Apple will be even more dominant.

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

        That's a big-what if, compared to cell coverage which is already "easy widespread". While building cellular networks is more capital intensive than building wifi networks, it is also more efficient and profitable. So while I like your idea, I don't think we're going to see replacement of cellular networks by bottom up growth of wifi.

    • Famousringo

      iPod has been in decline for some time now. But you might be on to something. YoY iPod decline has been hovering around 10%, but in this breakout quarter of the iPad 2, the decline jumped to 20%. It's like the iPod's getting squeezed between iPhone and iPad.

      There are hints that even the Touch might convert to a budget iPhone this fall, so we might not be talking about it much longer.

      • EWPellegrino

        Normally in this last quarter there would be a back to school special starting that would offer a free iPod, but this year they switched to an iTunes voucher, so that will have contributed significantly to reduced iPod shipments. We can expect to see it bite in the next quarter too.

  • Senator Gronk

    Funny. They’re not only out to replace Windows, they’re replacing Macs too…

  • http://aaronsuggs.org/ Aaron Suggs

    When the iPad takes sales from Windows PCs, that's not "cannibalizing", imho. That's drinking someone else's milkshake.

    • arvleo

      I see cannibalization differently…Too many companies have sat on progress from the fear of hurting existing business and not innovating at all.
      After all it is way better for a company to cannibalize its own business rather than waiting for a competitor to do it to them!

  • davel

    I saw that ad. Very simple. Very powerful.

    Contrast that to many other ads in this space and they talk about multi tasking, flash and the like.

  • Tom Ross

    If the new iPad commercial is about the PC at all, then only by omission. It doesn't say "You could move your picture collection from the PC to the iPad". Apple is drawing a straight line from traditional activities that predate the PC (making a photo album, collecting recipes, sports on TV, dad shooting a home movie, kid learning how to write, the doctor checking x-rays etc.) to the iPad. It's as if the PC never existed.

    • Ken Spellman

      Great insight; hadn't thought of it that way but you're right.

  • justinfadams

    Good stuff. I was thinking another good way to look at this is the growth rate delta between Mac Sales and PC sales, because that sort of normalizes Mac Sales compared to what the market is doing. I only found this old chart:
    http://www.systemshootouts.org/?q=taxonomy/term/2

    That might be a way to isolate a reduction in Mac Share growth due to the iPad, versus a reduction in total PC growth due to the iPad. In my mind, the last two quarters have seen slower buying due to the known wait for Lion, which may exaggerate the downward trend on Mac Growth.

    Overall, I don't think we're going to continue to see the connection in iPad growth lowering Mac Growth.

  • Consumer_Next

    I see a "season" for sales having impact. This is the time to spend little money for something you do not have and fills a notch you need. Soon Mac owners will be upgrading their systems to take advantage of technologies in Mac OS 10.7. This will cause an uptick in Mac sales while new adopters will still create iPads sales.

  • Eric D.

    I get a new Mac for my home graphics business every two years. The speed bump is always worth it. The older ones get passed down to family members. Good trucks.

    But everybody wants their own iPad. I've already bought three. Cheaper than the combination of laptops, video games/consoles, books, DVDs, magazines, etc.

    No surprise the iPad is outselling PCs and Macs. But it's cannibalizing a whole lot of other sectors as well.

  • Gromit1704

    This snapshot of iPad vs. Mac sales is probably too early to make a meaningful conclusions on.

    If Tim Cook is correct, and the iPad is replacing far more Windows PCs then I would expect an Halo effect on Mac sales in 18-24 months of the iPad2 release (when sales really took off).

    Apple is positioning its Desktops to be more like iPads through Lion, Mac App Store etc. Macs have always been a mystery to PC users and that was one of the reasons that put them off buying a Mac. They didn't know how to use them, and didn't want to learn. Through the iPad, a lot of Windows users will learn, and they will like the security and useability that Apple offers them. When the economic situation picks up, and the PC users are in the market for a new Desktop Computer, the new Mac running Lion will be very attractive machines.

    I predict the blue lines on Horace's chart narrowing the gap with the orange ones.

    • Eric D.

      Comfort with the iPad will definitely lead to more people switching over to Macs from PCs. But the most dramatic shift has really been among the youth. They've had ten years of comfort with Apple through the iPod. At many colleges, Macs are now on par with Windows among students.

      Another reason for the youth shift is the growth of social media. Five years ago, World of Warcraft and other MMORPGs ruled their universe, and the bragging rights went to the most graphically souped-up gaming boxes. Now it's more about uploading to Facebook, Flickr and Youtube. The Mac has far better tools for that, and the iPad and iPhone extend that functionality. Apple's $300 Final Cut Pro X is going to kill Adobe's Premiere. The new Garage Band and iMovie are $15 upgrades on the Mac, $5 on the iPad.

      Any adult who's gotten comfortable with Windows is going to be a hard sell. But all the cool kids in the world know where the fun is happening now. What else explains the growth of the Mac in places like Japan?

      • Gromit1704

        Agreed. The Halo Effect of the iPod and iPhone are well documented. I don't think we have even seen the start of the Halo Effect the iPad will have on Mac sales, but I think it will be huge.

      • EWPellegrino

        I think what will be really huge is the halo of the iPad on the iPhone. Lots of people with an iPad just won't feel the need for a Mac, but everybody needs a phone – and once a new user has bought into the iOS ecosystem the iPhone will make much more sense than any other.

      • Gromit1704

        There may possibly be two different Halo effects crossing both ways. Anecdotal I know, but everyone I know (most not Mac users) had an iPod or iPhone before they got their iPad. But I agree that those totally new to any Apple device who get an iPad first, will see the sense in an iPhone later.

      • Tom Ross

        Why would people upgrade from the iPad to the Mac if the iPad (in a few years, hypothetically) can fulfill all their computing needs? I'm not upgrading from my MacBook to a MacBook Pro just because I enjoyed the MacBook and want to spend more next time. I would only do that if I felt that my MacBook was in some way limiting me. So you're implying that the iPad will continue be a limited form of computing compared to legacy PCs. I think Apple's iPad misson statement is saying the opposite. The iPad will evolve to be the dominant form of computing.

  • http://www.informationworkshop.org Mark Hernandez

    I'm wondering if we're missing some sub-data points here? For example, how many iPad sales are to people who have never owned a PC, which is the point of the device's design? If, say, half of sales of the iPads were to people who've never owned a PC then we're talking about significant penetration of a new market. Also, "fleet sales" to say, corporations like Alaska Airlines to install iPads into brand new uses where a PC would never have been used.

    Again, Apple knows exactly how this breaks down, and our assumptions break down because we don't have that kind of useful information to know more accurately *how much* cannibalization is really taking place.

  • http://www.cyclelogicpress.com Neil Anderson

    I was waiting for Lion and the new MacBook Air.

    I think folks who are new to Apple and buy an iPad will be back to buy a Mac at a later date. I've seen that with the iPhone.

  • name99

    I have a different take on this.
    As I've said many times (and I believe Apple agrees), an iOS device is not a substitute for a Mac, it is a complement. There are circumstances where the iOS device works well, and others where the Mac works well.

    So why are more iPads selling than Macs? Some possibilities:

    (a) The world (at least the developed world) is awash in PCs (Windows or Mac). People have one sitting around for when they want to engage in substantial writing, a task that requires multiple windows, etc. If this is true, Apple will slowly pick up converts to Mac as their PCs die.

    (b) Many of those receiving iPads (I'm thinking particularly here of kids, but maybe also some of the old) would actually LIKE to have a PC device to augment the iPad, again for the appropriate tasks like large amounts of writing, or multiple window work. The lack of increased PC sales represents their powerlessness, and the fact that their purchases are made by other people, for them — cf the purchase of Windows or Blackberries by corporations, regardless of the wishes of their employees.

    (c) (Something of a variant of both the above.) Many iOS owners would LIKE a Mac (they or may not have access to a PC, but second hand Macs, even old one, remain surprisingly expensive), but the gap between the price of an iOS device and that of a Mac keeps them out of reach.

    This third possibility is most interesting, because it suggests a new direction for Apple.
    At the simplest level, this direction could be some variant of financing, matching the way iPhones are sold — a very low base price, but paying off the bill each month. One could imagine doing this, say, in conjunction with ATT or VZW, so this feels like a subscription rather than buying on a credit card.
    But that's not interesting and is (IMHO) border-line scummy — I'm no fan of selling phones this way — so let's consider something else. That something else would be a really low-end mac.

    What are the parameters here?
    (a) Does it run iOS on ARM? Personally I don't think so, I think that's dumb, at least as iOS currently exists. The point of this device is to provide the laptop experience to people who want that, not to provide the iOS experience to people who already have that.
    (b) So it runs MacOS. And, I think, it runs MacOS on Intel. But not nice high-end Sandy Bridge Intel, crappy state of the art (in 2006) Intel — maybe a low-end AMD chip.
    (c) But Apple naturally doesn't want to make their lives complicated, so the lowest end 64-bit Intel chip they can find.
    (d) Finally — and this is key — new brand name. Mac Lite sounds like you're being cheated of the good stuff; and Apple may want to cut costs by not promising everything Mac implies. So a new device, "Apple NetBook" — which is basically an 11" MacBook Air running a slow SSD, a slow Intel core, and some customized version of Lion with various stuff stripped out, both to simplify the UI and make it run more easily on the HW. Sold at iPad/Windows laptop price points — maybe $600.

    Now this is a big undertaking. The HW is the easy part, the difficult part is committing to a third OS (which is, sure, mostly Lion, but which from now on has to be maintained as its own separate thing). Naturally there will be fears of cannibalization within Apple; and Apple will not want to come across as the type of company that sells a crappy low-end product just to make a buck. All of this may, in fact, make it worthwhile to have the OS be substantially DIFFERENT from Lion — as different as iOS is — and running (at least somewhat different) binaries — "This is not a cheap Mac; it is Apple's vision of what laptops for the whole world can be, informed by both iOS and MacOS". From iOS we have things like no external hardware (no ethernet, no USB, no external screen, etc), the app store is the only way to get software, etc. From Mac we get multiple windows, keyboard shortcuts, a touchpad not a touchscreen. To developers it looks like more like Lion, than iOS, but with a bunch of obsolete stuff removed.

    Would Apple do this? I don't know. As a high end Mac user, of course I am terrified by anything that potentially increases the low-end and sucks oxygen away from the high-end. But I suspect the economic arguments for a device like this are actually very sound.

    • EWPellegrino

      Apple have said many times they're not interested in making a Netbook and the reasons are obvious. Apple makes premium computers, Netbooks are budget computers. Premium-budget computers are neither fish nor fowl. As for a custom OS for such a system, that would not only create a significant develpment overhead for Apple but also needlessly fragment their ecosystem – it would be crazy.

      At some point we may see an ARM powered laptop from Apple, we might even see an iOS powered ultra-laptop. But neither device would be marketed as 'cheap' laptops, they'd be marketed as ultra light, ultra long battery life PCs.

      If Apple intended to head further downmarket in laptops would they really have just killed the white macbook?

      • name99

        Way to miss my point.I used the term netbook because I am no good at thinking up catchy names.Apple scorns existing netbooks for the very good reason that they are crap. They take an OS and a set of UI metaphors appropriate for a larger screen and keyboard, fit them on low-end hardware, and give a result that is slow and painful to use.But Apple has nothing against low-end hardware (and, yes, an iPad is low-end hardware compared to a MacBook Air — the CPU is like 10x slower, the flash is 20x slower, there is way less RAM, which is also slower, the WiFi is one fifth the speed, etc etc) as long as that hardware is utilized appropriately.This is no different from Apple ignoring the tablet market (in the form of devices running Windows, badly) for a complete rethink. And, like the iPad, there is no reason such a device HAS to feel crappy and badly made — that is simply the choice existing PC manufacturers make.This was precisely why I made a big point about a new OS running on these devices — NOT OS X, which would make them feel slow and clumsy.As for why Apple killed the white MacBook. Well, if I am right, the market for the White MacBook are largely the people who would buy a cheaper Mac “netbook” if such existed.

      • S. Mulji

        My guess / prediction is that this cheaper Mac "netbook" you mention will be a new higher-end version of the iPad running OSX Lion.

        Again, its just my prediction.

      • EWPellegrino

        You're still missing the fundamental point – there won't be any intermediate OS between OS-X and iOS, because such an OS would need a ridiculous investment for a comparatively small market. Look at Apple's lineup, they have the smallest number of models of any C-E firm in any category you pick – do you really think they want the distinction of having the most OS families?

        Apple will quite possibly create an upper end tablet, but it will still run iOS apps and grow that ecosystem, not fragment it. Any such product would likely approach MBA prices though, so presumably not what you're envisaging. Apple's vision for PC netbook consumers is likely that they should buy an iPad and a bluetooth keyboard.

        As for the iPad being low end hardware, that's plain wrong, it's ultra-low power hardware. There is a substantial difference. If you want to know what 'low end hardware' feels like get your hands on an Acer netbook, or a Nook Color.

      • name99

        OK, to add some reason back into this thread.

        My starting point was the point that Apple is selling a lot more iPads than Macs — why, and what might they do about it? I posited some explanations as to why, and suggested that IF the problem is that iPad users want laptops but can't afford them, Apple might respond in a certain way.

        It seems, however, that this assumption is wrong; that my initial point (1) is the correct explanation — America is saturated with laptop/desktop computers. See this graph: http://www.wingsofreason.com/wp-content/uploads/2

        What this graph would suggest is that PCs have become a white goods market, where devices are replaced when they break, no sooner. In such a world, the great advantage Apple has had is that (three times now, with iPod, iPhone, iPad) they have created a new market; but it also suggests that, all other things being equal, in time those three markets will saturate. (On could argue that this has pretty much already happened with iPod.)

        Again from a BUSINESS point of view, not a "faith, and here is what I want from Apple" point of view this raises the question of where Apple goes from here. I would submit that the basic project of a suite of devices at different form factors, each optimized for that particular form factor, is largely played out.

        The only two remaining niches I see are
        – a SMART Bluetooth-like headset that could be used to control an iPod touch/iPhone more aggressively than currently. (I say BT-like, because "pure BT" seems such a stupid limited set of protocols, and so uninterested in improving itself, that Apple is probably better off saying "to hell with it" and using its own protocol.) This might in some way tie-in to LCD glasses, though I don't know where we are in terms of the practicality of those — ie they work, don't hurt your eyes, have decent battery life, have a decent weight distribution, etc.
        – kinect style control via the whole body. Are their scenarios where this makes sense outside games? Maybe in the context of home control?

        OK, so then where does Apple grow? We can imagine two different strategies
        – the high end strategy is taking existing Apple goodness into new verticals: iOS in health devices, cash registers, cars. Problem is Apple then has to work with other companies that may pollute and corrupt the vision and the brand.
        – the low-end strategy is to say that the US (and Europe, and Japan) may be filled with laptops and PCs, but China, India and Thailand are not. Which gets me back to my original posting. People who talk about high end iPads completely miss the point. What is a high-end iPad? What problem is it solving that an iPad does not solve? The product category I am describing DOES solve a real problem — I want an Apple device that gives me a keypad, and some sort of multi-window experience — but which fits my $600 budget.
        An iPad with a BT keyboard does not solve this; it is a crappy experience for any sort of real work. I don't understand why people think this is even controversial. For god's sake — have you ever tried to do something as basic as simple research on an iPad? Things that should be trivial and automatic like text selection are constant major challenges. I love my iPad for the tasks it is good at — but I'm not delusional about it.

        If you don't like this suggestion, present your own model for how you expect Apple to grow — but that model has to be informed by the points I have made; you can't just ignore these points and assume whatever you want about the world.

      • kevin

        A few thoughts:
        1. The high-end smartphone market will take awhile longer to saturate, partly because most of these people still buy new models every 12-24 months, and there is still lots of room for further innovation and improvement in new models.
        2. The low-end smartphone market is huge, as the next chunk of the global population moves on over from featurephones. This market is potentially 3 billion subscriptions. Apple can introduce a new iPhone product here.
        3. The iPad has just entered the market (28m sold). The addressable market, consumer and enterprise, is likely more than a billion.
        4. The iPod nano/shuffle still have a couple of evolutions in it. I would expect it to evolve into wearable devices, whether on your head, or on the wrist (bluetooth to the ear). However, this has small revenue impact, and is negligible compared to the others on this list.
        5. There is something there in the Apple hobby of TV. The commercial video content distribution and device market is ripe for disruption, in the US and probably many other countries as well. The TV will be another very valuable screen for content consumption (beyond the iPhone, iPod touch, iPad, and Mac) given the size of the advertising market, and the valued experience of watching together in many cultures. Worldwide, the addressable TV device market is over one billion.
        6. As for notebook/netbook type devices in the near-term, there is little disruption to be found here, thus, Apple has moved on. Apple is far more interested in making these devices smaller, rather than cheaper, given the jobs notebooks are intended to do. Plus the addressable market for notebooks is under a billion, as far more people consume and create at a low-level; jobs the iPad can do today and will do much better over the next 5 years with further innovation and better processors. In this area, Apple would rather inspire people to go up-market to MacBook Airs to do the notebook job than for it to come down-market and create an underpowered device.

      • kevin

        Two more points:
        1. Apple just joined the BT Board of Directors (or something like that). It's more likely now than ever they use BT instead of their own protocol.
        2. The TV product would also be used for gaming, especially casual gaming, which could potentially be a much bigger market than it has been in the past.

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

        My starting point was the point that Apple is selling a lot more iPads than Macs — why, and what might they do about it?

        Put all their money into a giant swimming pool and practice swan dives off of a solid gold diving board?

        There is HUGE room for growth with the iPad and iPhone. Apple is doing just fine with its current model, and will tweak it as the need arises (cf. prepaid phones). The mistake you're making is that using computers to do "real work" is not much of a growth market. It's not where the action is. Still, Apple *is* making money on Macs, so there's little reason to fear they will stop. But if you think Apple should rejigger their plans so that the iPhone and iPad will support Mac Sales, I think you're looking at this the wrong way.

    • Tom Ross

      You know how to do multiple window work in iOS? Use multiple devices connected by iCloud… Really, iOS is the future for Apple. Any low-end Mac would always have to live in the Windows monopoly environment and therefore have severely limited potential. That agressively priced low-end Apple computer could win no more than 2 or 3 % market share, half of it cannibalizing regular Macs.

      From a business perspective for Apple, the best thing about iOS is that it can thrive in a free market, not next to a monopoly. Whenever you think about the Mac, you have to remember the other 95 % that are pulling on its shoulders.

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  • CellBubble

    I think the MacBook Air fills the ‘lower’ end notebook market. Look at the shift from premium to mid level product that has already occurred withe the Air. Only thing is this will take another 18 months relying on factors including SSD costs dropping and an overall restructure of the MacBook range ( already in progress).

    In my mind Apple doesn’t fill the real ‘low’ end notebook market. They do however need to consider filling the low end mobile phone market for the emerging economies.