As expected, Apple rolled out new tablets yesterday, but along with the new tablets the old challenges remain. As the tablet market has swung dramatically towards the small, and low-cost device, Apple once again shows that they believe that their place is to guide the market upward and remain the rational player in the segment. Whether that strategy will be successful, as it appears to be in the smartphone market, is now one of the mysteries of the holiday season.
The iPad Air appears to be the coolest iPad yet; at one pound, thinner than a pencil, and with 475,000 apps it is likely to set the bar pretty high in what a consumer might think is important in a large size tablet purchase. But, right now, consumers aren’t in that large-size tablet mindset. In fact, year-to-date sales of tablets 9 inches and above are down 36 percent and total sales volume has been eclipsed by their smaller siblings, according to NPD’s Retail Tracking Service. Now whether that is because the iPad (now iPad Air) has gotten stale between refreshes, or whether the concept and pricing of touch PCs has grown relatively more compelling, or whether consumers are looking for something smaller, like an iPad Mini or small Android tablet is a question that the market hasn’t answered yet, but the Air will help answer that over the next couple of months. However, with iLife now free, the large size iPads appear to be moving inexorably towards a clash with the growing PC touch market and separating themselves from the small size tablet market.
While the future of the iPad Air and the 9 inch and above tablet market is uncertain, the under 9 inch market continues to explode. Sales are up 550 percent year-to-date and 350 percent in September. It is here, we believe, that the choices made by Apple are much more critical. Google and Amazon both made the same decision Apple did yesterday – a high-resolution small tablet is a must – and if the price needs to be raised then that is the cost of delivering the right product.
While Amazon just launched, we have a few months of history for Google to dwell upon. For them the strategy has not yet proven itself. The Nexus at $229 saw a strong start but sales slowed in September, especially when compared to the $199 Nexus of 2012. The question is whether a Mini at $299 is competitive enough to continue to capture the small size market, and whether the $399 Retina Mini is a compelling enough product to allow Apple to maintain its lead in the under 9 inch segment - a lead that is much more tenuous than we track in the larger size tablets.
The betting here is that the positives outweigh the negatives and the $299 Mini will be a rousing success, and the new $399 revamped Mini with a retina display, is just strong enough to keep the volumes balanced. This view is based on the relationship between the iPad 2 and the just discontinued iPad (being maintained with the iPad Air). In that market we see the desire for Apple to be strong, but not at any price, and the iPad 2 has provided a critical floor to the iPad’s market opportunity. In fact, the iPad 2 outsells the equivalent size of the iPad and is the best-selling large-screen iPad. We believe that that successful strategy will work for the Mini as well.