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The iPad raises interesting questions in terms of Apple strategy. A product 
that carries so much brand relevancy that it still represents the entire 
tablet market now finds itself the leader of a category that has 
lost all momentum as other product categories marginalize the tablet form 
factor. Although Apple is still selling more than 10 million iPads 
per quarter, there is something about the iPad that just doesn't sit right 
with me. We have gotten to the point that the status quo will likely lead 
to the iPad and the modern-day tablet becoming irrelevant over time. 
A new direction for iPad is needed based on a fundamental rethink of tablet 
computing.

The Current Tablet Market

The tablet market is in complete disarray. Only five short years ago, the 
iPad helped jumpstart the category, ushering in multi-touch computing 
and the modern-day app revolution to large-screen devices. Today, there 
has never been a time when the tablet market faces so much unknown.

A quick look at iPad and tablet shipment data would show that things have 
gotten bad in recent quarters. However, in reality, things are much worse 
than quarterly shipment data would suggest. The seasonality found in the 
tablet segment makes it difficult to see these long-term problems. A much 
better way at understanding what has been taking place is to look at the 
year-over-year change in shipments on a trailing 12-month (TTM) basis, 
highlighted in Exhibit 1. This smoothing effect highlights that the iPad 
and tablet have been on the decline for years and things continue to worsen 
with the overall tablet market hitting negative territory for the first 
time. All momentum has been lost.  

Exhibit 1: Change in Trailing 12-Month (TTM) Tablet Market and iPad 
Shipments 

After kicking off the tablet market in 2010, Apple went on to sell a 
cumulative 84 million iPads in just two years. The iPad's initial success 
was simply unprecedented, with unit sales outpacing the iPhone's relatively 
"slow" start by 2.5x. I suspect Apple wasn't just caught off guard by the 
iPad's success, but was led to believe that the iPad represented the future 
of computing. Many thought the iPad would outshine the iPhone. 

In relatively short order after launching the category, Apple 
uncharacteristically expanded the iPad line to include a completely 
different form factor known as the iPad mini. The motive was primarily 
based on price, making sure there wasn't a repeat of the Windows vs. Mac 
battle from the 1990s in the tablet market due to Apple letting competitors 
underprice iPad. The iPad mini was soon called the best tablet ever, 
evidence that the larger form factor was losing a bit of its luster in just 
two years. Many didn't see it, but tablets were quickly turning into 
content consumption devices where price was a leading purchase decision. 

We now find ourselves with a tablet market where Apple and Samsung are 
losing share to "Others," which is represented by dozens of firms selling 
mostly generic tablets used to consume media, depicted in Exhibit 2.

Exhibit 2: Global Tablet Market Sales Share 

On a profit and mindshare perspective, Apple continues to lead the way. 
Instead of wishing for smart television sets, the future of TV watching is 
taking place with $99 tablets. 

When looking at iPad's declining ASP trends, consumers continue to 
choose older, less costly iPads, another indicator that tablet computing is 
shaping up to be something different than we have been led to believe. A 
product category with a use case summed up by Netflix watching is quite 
problematic since it is that much harder to sell a differentiated 
product, leading to a rush to the bottom in terms of pricing, quality, and 
features. 

Momentum is not on the side of iPad. Larger screen iPhones have been in the 
market for only 10 months. The latest Macbook, which effectively gave us a 
look at where the MacBook is headed, has been out for only a few months. 
These two products are game changers not just in their categories, but for 
tablet computing. It is becoming that much easier to recommend an iPhone or 
Macbook over an iPad.

Tablets Are Being Used for Consumption

When the iPad first started to show signs of trouble, many market observers 
were shocked, thinking Apple must be losing to low end Android tablets. In 
reality, one reason sales momentum was slowing was iPad owners weren't 
upgrading their device. Using Fiksu data and my own estimates, consumers 
have held onto their iPad, on average, for three years, which is longer 
than the iPhone's 2.6-year upgrade cycle. Since the tablet category is 
still young, the iPad's three year upgrade cycle is still extending and 
will likely go out as far as 5-6 years. The theory that a longer upgrade 
cycle was impacting iPad sales began to be used in the press and conference 
calls. 

Exhibit 3: Current iPad Mix (model and model year)

While there is nothing inherently wrong with a long upgrade cycle, as seen 
with the Mac, which continues to report solid sales momentum, the reasoning 
behind holding on to tablets for years is much more troubling. There are 
currently approximately 3 million units of the original iPad still in use, 
or 20% of the devices Apple sold. For the iPad 2, it is possible that close 
to 60% of the units Apple sold are still being used. These two devices are 
not superior tablets. The initial iPad lacks a camera, while the iPad 2 has 
a mediocre camera. When compared to the latest iPads, these first two iPads 
are simply inferior tablets with slow processors, heavy form factors, and 
inferior screens. But none of that matters with owners. This is problematic 
and quite concerning, suggesting that many of these tablets are just being 
used for basic consumption tasks like video and web surfing and not for the 
productivity and content creation tools that Apple has been marketing. 

There are signs that Apple believes there may be some kind of iPad revival 
around the corner. Since the average iPad upgrade cycle is three years and 
counting, does this mean that Apple may benefit from some sort of upgrade 
cycle? I'm skeptical.  Why would someone upgrade an iPad that is just being 
used to watch video?

Potential Isn't Reality 

On the surface, the iPad's declining sales momentum is difficult to 
comprehend. There seem to be so many use cases for larger-screen 
multi-touch computing devices across a number of industries. We hear about 
"iPads in the classroom," new and interesting enterprise apps resulting 
from the Apple/IBM partnership, plenty of anecdotal evidence of children 
loving to play games on iPad, and of course, iPads replacing 
desktops, laptops, and televisions. Apple has consistently referred to 
superior iPad satisfaction rates on earnings calls which support the idea 
that people love their iPads. Yet in the face of all this potential, we are 
just using iPads for Netflix and YouTube. 

On closer examination, there are cracks in the iPad story. School districts 
have seen mixed results with iPad adoption programs. We have seen a few 
high-profile disasters where the combination of a lack of curriculum built 
for the iPad, along with high costs, made the iPad not the magical device 
in the classroom once thought. The idea of replacing student books with 
iPads never materialized due to poor incentives in the textbook industry, 
not to mention technological limitations found with the device.

The scope of iPad in enterprise still remains mostly a dream. We are seeing 
more stories about enterprise embracing Macs, not iPads. Meanwhile, 
consumer usage on iPad has moved away from content creation apps. Take a 
look at the iPad App Store to see the lack of compelling apps for larger 
screens for additional evidence of iPads being used much more for basic 
content consumption. 

Things are Getting Worse, not Better

Back in October 2014, I wrote a post titled "Thoughts on iPad," in which I 
explained the iPad's ultimate sales trajectory would be much more modest 
as Apple was selling large-screen iPhones and thinner Macs. While I 
received an incredible amount of pushback at the time, trends have largely 
materialized as I expected. The continued migration of smartphone 
manufacturers to 5+ inch screens was not just a game changer for the 
smartphone market, but will come to represent a watershed moment for the 
tablet market. Many of the use cases once destined for the iPad are 
permanently gone, now taken up by the iPhone and MacBook.

Another consequence of growing large-screen smartphone popularity is that 
it is becoming increasingly difficult for Apple to market the iPad Air and 
iPad mini.  Features such as cameras and even Touch ID simply don't make as 
much sense on a device that can't be comfortably held in one hand or 
carried in a pocket. Apple has tried to position the iPad as a mobile 
device, emphasizing its ability to take photos and video on the go, but 
it's not realistic to assume people will prefer an iPad to an iPhone in 
such settings.

Not only are tablets being used for more rudimentary purposes, but 
smartphones and laptops are crippling the odds of tablets being used for 
much more. The iPad market is in trouble and if there are no changes made 
to the lineup, Peak iPad is on the table. Peak iPad is a simple concept 
driven by the belief  that underlining structural changes to the tablet 
market would result in the iPad losing most of its value propositions, 
leading to a permeant decline in sales. For example, Peak iPod is alive and 
well as even though Apple is still selling iPods, the product category will 
never reach record quarterly sales. Meanwhile, while some argued that we 
had seen Peak Mac, we instead were just in a sales slump that quickly 
reversed itself with a revamped product line. The Mac's value propositions 
were still alive and well. In a world where smartphones are getting larger 
and laptops are getting smaller, the Peak iPad theory is starting to look 
more likely as time goes on. Something needs to be done to create new 
tablet value propositions, redefining its role in the mobile revolution.

Apple's Plan for iPad

It is time to fundamentally address the problems with multi-tech tablet 
computing. The answer is to introduce a new product subcategory at the 
high-end of the tablet market. With video consumption taking over at the 
low-end, it becomes that much harder to sell a differentiated product at a 
low price. Apple has better chances of pushing the tablet market forward by 
looking at the high-end of the market where a superior experience is able 
to be sold at a premium price. 

By selling a device that is truly designed from the ground-up with content 
creation in mind, the iPad line can regain a level of relevancy that it has 
lost over the past few years. In every instance where the iPad is 
languishing in education and enterprise, a larger iPad with a 
12.9-inch, Force Touch-enabled screen would carry more potential. Simply 
put, the iPad needs to stand out from the iPhone and Macbook. The iPad Air 
and iPad mini aren't doing it.

Education. Instead of pushing the idea of every student having an iPad, 
which is difficult when considering costs and the fact that most students 
already have a smartphone and laptop at home, school districts could set up 
"iPad Plus" rooms with 20-30 of the larger iPads reused throughout the day 
by various classes. A new larger iPad with nearly 80% more screen real 
estate than the iPad Air, dedicated accessories like a smart pen, and 
better covers and stands can go a long way. It can become part of art and 
design classes, not to mention a number of different disciplines, including 
those where writing is involved.  Writing a term paper on an iPad mini or 
even iPad Air is not fun. A larger tablet with full-size on-screen keyboard 
using Force Touch to resemble the haptic feedback of a real keyboard may be 
a game changer. 

Enterprise. A larger iPad could be positioned as a laptop 
replacement whereas today's iPads are stuck in a weird place as a secondary 
computer. Any design-oriented field would instantly see value in using 
these larger iPads while traditional industries such as finance and banking 
would see a much easier adoption rate if legacy products like Excel are 
made that much more easier to use. 

Consumer. A large iPad could continue down the path of replacing old 
laptops and desktops, becoming a user's primary computing device. The much 
easier ability to type means that nearly every possible computing use case 
would be covered. This 12.9-inch iPad Plus will begin to look much like the 
Mac in terms of sales with a slow and steady sales uptick, followed by an 
orderly upgrade cycle. The key for such a device will be once again 
redefining where a tablet should sit in someone's product portfolio. We 
know everyone will have a smartphone. The question would be if a new type 
of device can exist between an iPad Air and MacBook. 

Over the years, we have come up with differing degrees of the "perfect 
combo" for computing. It used to be an iPhone and iPad. Then it became an 
iPhone and iPad mini. Now many say iPhone and MacBook. The question will be 
whether or not a product can be created that will serve as a high-end 
creation device that compliments an iPhone. 

What Does Success Look Like with a New iPad?

An iPad Plus does not need to sell like an iPhone or even like an early 
edition iPad to succeed. As long as the product has use cases that are 
sheltered from other products, Apple would be able to reposition the iPad 
line for a more sustainable path not just for growth, but ultimately 
for outright survival. If the end goal is to ship devices that help solve 
users' problems, Apple will have a winner on its hands. A more capable iPad 
Plus has a much better chance of becoming relevant in a world where the 
iPhone is already the all-powerful device everyone owns. The early days of 
the iPad era provided many opportunities to see how the definition of work 
is changing. A new tablet subcategory that does a better job of pushing the 
definition of work forward is needed. Tablet computing has a much brighter 
future than just being used to watch Netflix and YouTube. 

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