The fate of the iPad?

UPDATE: I just found this piece on the same topic by Jan Dawson to have a few more points that I might have missed in my post below. 

Right from the time the iPad was launched, it was criticized as just being a bigger iPhone. Part of the reasoning for this (other than the fact that iPad looking like a bigger iPhone in its design and layout), was the fact that both iPad and the iPhone ran the same iOS. Bear in mid that though the OS is called the same for both the iPad and the iPhone, they are internally different and though you can run iPhone Apps as scaled up versions on the iPad, there are tons of Apps that are designed for the iPad taking advantage of its bigger screen. One might even argue that its the Apps that differentiate the iPad from the iPhone and not the OS itself. 

This week, Apple announced its quarter results and though it was a blockbuster quarter for Apple, the iPad sales dropped by a good 9% (compared to the same quarter previous year). Of course Apple nay sayers, cited this as a sign for iPad's and eventually Apple's demise. But this post is not about those dimwits, but for logical and sane individuals.

iPad in Business (Source: Apple.com)

iPad in Business (Source: Apple.com)

It is obvious that iPhones and MacBooks have different refresh cycle in customer's eyes, though some MacBooks (Airs) can cost as low as the unsubsidized iPhones. So the iPhone sales growth has been steady for almost 7 years and now and it actually seems to be growing at an increased pace even after so many millions of them have been sold already. However Macs have a more steady and average growth (unless something drastic happens, like recession or halo effect of iPhones being sold in China, recently). So what about the iPads then? If you consider the subsided cost of the iPhones (in US), around $200, the iPads at around $500 and the MacBooks at around $1000 , then the frequency at which customers upgrade these devices should be inversely proportional. Then the the iPad refresh cycle should be fall somewhere between the iPhone and the MacBook? I know it is not fair to compare the subsidized cost of the iPhone with the iPad and the MacBook but that is how customers seem to perceive it. If you don't have to pay for a something right away (rather pay only part of it at the time of the purchase and the remaining in installments over a period of two years), then the installments are not considered as a cost towards the product, at least not subconsciously! Surprising but makes sense, doesn't it?

So based on this theory, the explosive growth of the iPad in the initial few years since its introduction, is what should surprise Industry watchers and not its current sales saturation. Apple however seems to have realized this and are making some obvious public moves (like the recent IBM partnership) and hopefully some initiatives that are yet to be made public (like the bigger/ more powerful 12" iPad Pro). The IBM partnership, I think, will help iPads more than the iPhones as iPhones seem to be doing good on their own and though Apple touts that 98% of the fortune 500 companies embrace iPads, (the number of) iPads penetration in the office space seems to be very low compared to the iPhones, like 20% [9to5mac]. So there is definite room for improvement for Apple with so much more market share to tap into in the business world. 

The IBM partnership, I think, will help iPads more than the iPhones as iPhones seem to be doing good on their own and though Apple touts that 98% of the fortune 500 companies embrace iPads, (the number of) iPads penetration in the office space seems to be very low compared to the iPhones, like 20% or something.

Also the only reason I still have my iPad is that it is much easier to get things done on it compared to the iPhone (thanks to its bigger screen and better Apps) and the only reason I still have my iPhone is that it can fit into my pocket. So both have their unique advantages and caveats. But with the impending release of larger iPhones, the biggest limitation of the iPhone, might no longer exist, hence making the case of the iPad a bit more difficult. Though Apple doesn't mind cannibalizing the sales of its products with its own, I don't think Apple wants the iPads to dwindle away like the iPods are doing now (Tim Cook seems to be bullish on the iPads). So Apple needs to be able to differentiate between the iPad and the iPhone in a more meaningful way to convince customers to buy the iPad even if they already own an iPhone (or some other smartphone). However it also needs to be careful not to make the iPad too compelling that it might encroach in to the MacBook territory, not that, making a tablet work like a laptop is anything easy, look at the fate of Microsoft's Surface. This differentiation can be achieved with the help of software or hardware or most likely a combination of both. Anyway where Apple had two computing platforms to worry about, the iPhone and the MacBook, now it has a third middleman, the iPad to consider and things are a little more complicated now to differentiate.

So Apple needs to be able to differentiate between the iPad and the iPhone in a more meaningful way to convince customers to buy the iPad even if they already own an iPhone (or some other smartphone). However it also needs to be careful not to make the iPad too compelling that it might encroach in to the MacBook territory.

Another point is that smartphones and computers are almost basic necessities in the modern world now. But tablets are still something good to have, more like luxury, in the developing countries mainly. 

Hence while it is not fair to expect the iPads to do as well as iPhones, but it is reasonable to conclude that there is a substantial lot of things that Apple can do to enable more iPad sales.