Long replacement cycle drags down iPad sales

Tablets aren't in trouble, but slower upgrade tempo causes another decline for Apple

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Dawson estimated that the typical iPad owner upgrades to a newer model closer to every three years than every two. Others, like Thompson, equated the iPad's problem to that of PCs, which have also had longer replacement cycles.

Other factors play a part in the longer iPad replacement cycle, said analysts interviewed by Computerworld, including robust design, an active ecosystem that provides apps which run even on older models, and Apple's lengthy iOS support policy. For example, iOS 8, which will launch in September, will run on every iPad Apple has produced except for the 2010 original, including 2011's iPad 2.

Another case some analysts have made is that tablets, unlike smartphones, are a luxury, even in developed markets like the U.S., and that because their owners spend less time on tablets than with their phones, they are less motivated to upgrade regularly.

Even the way Apple markets the iPad works against frequent upgrades, said Benedict Evans of venture capital firm Andreessen Horowitz. "The iPad paradox: by making specs irrelevant, and selling to people who don't want to have to care, it makes it harder to sell upgrades," Evans tweeted Tuesday.

In other words, as Apple boosts the hardware specifications for new iPads -- this fall's model will probably have an Apple-designed A8 system-on-a-chip (SoC), a presumed step up in performance from last year's A7 -- iPad buyers simply won't care. Unlike PC buyers of, say, a decade ago, they're not driven by increases in processor performance to buy the newest shiny.

"The days of spec marketing are over," said Baker, referring not just to tablets, but also to personal computers. "Let's face it, I have an employee with an [original] iPad and she's perfectly happy with it. So the changes from one iPad to the next are not hugely compelling to people."

But the longer-than-expected refresh cycle may have a silver lining for Apple, Dawson said. Because of the iPad's fast initial growth -- much faster, for instance, than for the iPhone, that speed driven by an already-in-place App Store and the smartphone's large installed base -- there are large numbers of iPad owners using a tablet that's more than a year old.

Dawson was convinced that the tablet age bulge represented a large upgrade opportunity for Apple in the next 12 months. "If upgrades continue at a similar rate to what we've seen so far, this bulge in the base should cause a similar bulge in sales over the next year or so, perhaps starting as soon as late Q3," Dawson wrote on his blog.

And there are untapped markets for the iPad, analysts asserted, notably to businesses that buy tablets for their workers, and don't simply adapt tablets owned by employees who bring their devices to work.

Not surprisingly, Apple's CEO spent quite some time on the earnings call talking about the recently announced partnership with IBM, and Apple's opportunity to sell more tablets to businesses as a result.

"[Al]though our market share in the U.S., in the commercial sector, is good at 76%, the penetration in business is low. It's only 20%," said Cook. "And to put that in some kind of context, if you looked at penetration of notebooks in business, it would be over 60%. And so we think that there is a substantial upside in business."

"That's why they're focused on the enterprise, that's why it's right they're focused there," said Baker of Gartner. "Cook would love to see that 20% climb to 60%. So the IBM deal was a very smart move on their part."

Cook said he was excited about the enterprise market for the iPad. "And we win if we can drive that penetration number I spoke about from 20% to 60%," Cook said during the Q&A portion of the earnings call. "That would be incredibly exciting here. The walls would shake. And so that's what I hope for."

This article, Long replacement cycle drags down iPad sales, was originally published at Computerworld.com.

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer, on Google+ or subscribe to Gregg's RSS feed . His email address is gkeizer@computerworld.com.

See more by Gregg Keizer on Computerworld.com.


Copyright © 2014 IDG Communications, Inc.

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