Thoughts on iPad

The iPad is at a crossroads. Introduced by Steve Jobs four years ago, the iPad has gone on to become a phenomenal success (225 million units sold bringing in $112 billion of revenue and approximately $30 billion of profit), but I suspect Apple management will alter the iPad line-up in response to wearable devices and larger-screen phones and in the process iPad’s ultimate trajectory will be more modest and niche than many expect.

 Slowing iPad Sales Momentum 

iPad sales growth has slowed dramatically from 65% year-over-year unit growth in 2013 to a 10% year-over-year unit decline last quarter. Such a contrast is startling given how promising iPad seemed in early 2013. When I first discussed my iPad concerns in 2013 (Apple had just reported a much weaker-than-expected quarter for iPad shipments), I received very strong pushback as many said iPad was fine and just suffering from varying release cycles. I knew that was not the reason for the sales weakness, but it was still hard to see why iPad sales and the overall tablet market were slowing so dramatically. Some pointed to longer upgrade cycles, which has some truth to it, but I wasn’t convinced that variable had enough explanatory power to turn 50%+ growth into sale declines within a few months as iPad was not near saturation (there are plenty of people who don’t own an iPad).  I suspect there has been a much broader ongoing trend for why iPad has been struggling to gain new users; larger-screen phones have been cannibalizing iPad sales and iPhone 6 is going to make things worse for iPad.

 A Different World

For a new product category, iPad’s sales pitch was fairly straightforward; a device that sat between your phone and PC; able to do a few tasks better than both your phone and computer. Web surfing and email were highlighted as prime examples, as well as reading ebooks. Initial sales were very strong and the iPad was off to the races. Fast-forward four years, and iPad faces a much different consumer tech landscape. 

2010 Environment

• iPhone (along with most phones) have small displays.
• MacBooks are thick, heavy, and non-retina.
• People are completely mesmerized by new apps.

2014 Environment

• Phones are much bigger (iPhone now comes in 4.7-inch and 5.5-inch display options).
• MacBooks are thin, light, and retina.
• The paid app (and even free app) ecosystem is tired and somewhat stale.

Apple now has a much harder sales pitch to make for iPad. Why buy an iPad when you could have an iPhone with a screen that doesn’t seem that much smaller than an iPad mini? Why buy an iPad when you can have a more powerful and just as easily transportable Macbook Air? The space between a phone and PC is smaller now than in 2010 primarily as the phone has become more powerful and larger. Tablets are getting squeezed.

Slowing iPad App Innovation

I can’t remember the last time I downloaded an iPad app. Curious to see how others were doing, I posed a question on Twitter, “How many iPad apps have you downloaded in the past month?” On any given question I get a decent number of responses, but this time I received a very muted reaction with a few “0” responses. Why am I not downloading iPad apps? I consider iPad app innovation to have slowed with iPhone continuing to take a disproportionately high amount of attention in the app ecosystem.  Most of my daily mobile usage now occurs on an iPhone.

Messaging: iPhone (iMessage, Facebook, Twitter)

Email: iPhone

Web surfing: iPhone (Tweetbot)

Games: Not many games, but the latest fad is usually on iPhone

Photos: iPhone

Weather: iPhone

Traffic: iPhone

Maps: iPhone

Video podcasts: iPad (for the larger screen)

I suspect one reason for suboptimal iPad app innovation has been that app developers have been too preoccupied with iPhone’s explosive usage to focus resources on iPad and if everyone is focused on iPhone, can you blame them? Of course, I’m not suggesting there is not intriguing software for iPad. Anyone in a specialized field (medicine, sports, film, music, etc.) will be able to point out apps that harness iPad’s potential, but that is niche – and even Apple’s latest iPad commercials reiterate the niche factor. However, for the average person interested in basic tasks like web surfing, email, and photos, phones are very capable devices and are consequently winning a larger share of app innovation. As I wrote after a few days with my iPad back in 2011, the device is all about apps. If I have no interest in downloading or even using iPad apps, I view that as an ominous sign for its future. My interest is moving elsewhere, namely to iPhone, and soon Apple Watch.

iPad’s Primary Use Cases

I don’t want to paint such a grim picture for iPad. Apple is still selling millions of iPads (likely around 12 million during the past three months down from the 14 million last year). How could this be if the space between phones and PCs has been shrinking over the years and there isn’t the same quality of app innovation?

1)      Laptop/Desktop Replacement. Many people are using iPads as their main computer, replacing old laptops or desktops. Interestingly, more people are telling me their parents and grandparents love iPad as it’s the first computer that is truly easy for them to use. In many ways, this is exactly what some saw when the iPad was unveiled – a laptop/desktop replacement. Looking ahead, however, I don’t see there being much to prevent phones from doing a better job at replacing laptops or desktops. Why buy an iPhone and iPad, when you can just buy a larger iPhone?

2)      Education. While there have been high profile cases where large school districts, and even countries, considered implementing iPad programs, success seems to be underwhelming due to logistical concerns as well as budgetary limitations. I also think a lesser discussed reason is the proliferation of larger smartphones leading many students to use their phones much more in 2014 for tasks that the iPad was initially positioned to do. There’s clearly still a market for iPad in education, but I suspect it’s much smaller and more niche than many imagined a few years ago.

3)      Enterprise. iPad in the workplace remains the unknown factor. I suspect iPad sales to the enterprise may represent a growing share of iPad sales. In this context, Apple’s recently announced partnership with IBM takes on a new light - one of offense to find use cases for iPad.

iPad Has a Future; It Just Needs Help

The iPad is a great device that needs some changes to reflect the current landscape.  

1)      Apple should stop selling the iPad mini. As a low-margin response to cheap Android tablets and given the lack of a large iPhone, the iPad mini served its purpose keeping Apple in the tablet game, but today there really aren’t many reasons to keep the iPad mini around.  Consensus seems to think Apple will add Touch ID to iPad mini later this week along with some other updates, but beyond that, unless sales trends improve (I wouldn’t expect them to), I don’t see the iPad mini staying in the line-up for too long and I think that is only for the better.  In order to keep product offerings in the same price range as iPad mini, Apple could work on lowering iPad Air pricing to approach that $299 level over time. 

2)      Introduce an iPad Pro. An iPad with a 12.9-inch retina display, new software that moves beyond just rows of app icons, and capable accessories including keyboard stands and styli. Once again, Apple’s IBM partnership comes into play.  A large iPad Pro with customized software and accessories would certainly be more interesting to enterprise users than an iPad mini with basic office utilities.

Even with a product line-up consisting of an iPad Air and iPad Pro, I would still suspect phones to eventually cannibalize the larger iPad Pro, but Apple would at least be able to get another couple of years of respectable sales out of iPad. When you add Apple Watch to the equation, the scenario where people keep their large iPhones stashed away in a backpack, purse, or satchel, while their Apple Watch handles communication and notification functions doesn’t seem too much of a stretch. Maybe now you can see why I think so highly about Apple Watch’s potential while being more pessimistic towards iPad.

iPad Was the Right Product At The Right Time

I’m convinced if Apple had to do things over, they wouldn’t change a thing.  The iPad was the right device at the right time. The past seven years in mobile has essentially boiled down to people discovering which sizes of glass they prefer in their pocket.  In 2010, it seemed like consumers would want a phone, tablet, and laptop/desktop, with the tablet eventually replacing the laptop/desktop, although many in Asia and emerging markets disagreed. As phones become larger and more powerful and wearables become more popular, I suspect consumers will be content with just a phone and wearable device. I still see a future for iPad, but it looks more like Mac instead of an all-encompassing mobile device next to iPhone and maybe that is what Apple had in mind all along. 

Bendgate Is Closed

Last night Consumer Reports chimed in on Bendgate, concluding iPhones don’t bend under normal use. I think this report, coming from the consumer review site that infamously hit Apple hard with its Antennagate analysis, marks the unofficial close of this completely ridiculous witch-hunt. 

The question all along hasn’t been, “Do iPhones bend?” Of course they bend. iPhones are made of material that will eventually succumb to a certain level of applied pressure. I haven’t tried it, but if I took my heavy-duty tools and machines to my iPhone 5s, I’m sure I will be able to get something to bend. If I really wanted to, I could gather enough arm strength to do something stupid to my phone as well.  One could ask, “Why would I do such silly things?” and I would only be able to shrug my shoulders. The real question everyone should have been asking (if they were desperate to find a question to ask) is, “Do iPhones bend during normal use; walking, running, basically living your daily life?”  All of the evidence (both empirical and anecdotal) support the “no bending” claims.  Now a very select few have claimed their iPhones have become bent (although they also claim to have sat on them a lot - they aren’t sure). These same people admit the bending is hard to see at times and you need to look at it in a certain light. I’m skeptical. If these people are genuine, they can return their iPhone and get a new unit. Apple sells a lot of iPhones and if your phone is one of the very few bad apples that made it through the rigorous quality assurance tests (Apple claims only nine people reached out to them complaining of a bent iPhone), I would just consider myself lucky, exchange the phone, and move on with my life.  

Over the past week I received many jokes from Android users about Bendgate. Nearly every phone marker chimed in with their own unoriginal bending jokes, tweets, ads, and musings. Mainstream media picked the story up and ran with it.  Curiously all of these reports were missing something - evidence.  No one bothered to take a step back and think about this whole debacle for a second and actually see if their iPhones were bending. I suspect one issue is there weren’t many iPhone 6 Plus units out there in the wild to even observe possible bending. Notice how these “-gates” only take place a mere few days after launch. 

It’s 2014. We shouldn’t be surprised that we had to live through another iPhone “-gate”. These spectacles only reinforce my view that iPhone continues to hold significant global phone mindshare (which is much more important these days than market share, but that topic is for another day). Stories of iPhone’s demise have been in the news since 2007. Some have even tried to ridicule iPhone buyers, maybe one of the weirdest, and counterproductive, types of envy a competitor can possess. When you are in the lead, and running forward, competitors can only pin a target on your back and Apple seems to be wearing quite an effective shield.

It’s reassuring to know that while the world has been preoccupied with Bendgate, Apple engineers have been busy creating the product for next year’s iPhone “-gate”; iPhone 6s. 

Apple Keynote Notes

My notes from Apple’s keynote:

• Development. The tech landscape saw this wearable device coming from a mile away. Over the past year, competitors have come out with their own watches, and in many cases, have already shown a few reiterations. I suspect Apple Watch development started in earnest back in 2011 with most features at least thought out by 2013 and everything largely set by early 2014. The growing phenomenon of people using the iPod nano as a watch in 2010 most likely got the ball rolling. Yes, that means Steve Jobs was around for at least the early watch discussions, although Tim Cook told ABC News that Apple Watch development began around late 2011/early 2012. 
• AskTog. In early 2013, former Apple employee Bruce Tognazzini wrote what I term “the iWatch manifesto”, a highly detailed, yet supposedly hypothetical, wish list of what an Apple smartwatch could or should do. As I expected, most of his commentary turned out to be true and was announced today.  I suspect some of his points that were not released today will be included in future versions. One has to imagine competitors were aware of the article and knew most of the features announced today were coming.  
• Hardware & Software. From a hardware perspective, the Apple Watch doesn’t strike me as overly magical (like the iPhone did). However, the software is differentiated from peers. 
• Battery. People are worried about battery life. Apple didn’t say, but implied an Apple Watch battery will last roughly a day. I think a 12-14 battery life is probably the most likely answer and I don’t see much issue with such a span for a first release. I don’t wear a watch in bed now, so I think it would be common practice to charge your Apple Watch every night.  What does this mean for sleep tracking or those with extra long daily schedules? Maybe buying two watches is their answer. 
• Use Case. Apple didn’t go into much detail about why someone should use an Apple Watch, instead demoing a few features that seemed cool or at least interesting. I think most of this is taken from the iPad playbook - show users various things you can do with the device and then step back and see what sticks.  At one point Apple even mentioned there is much more to say about the device, but there wasn’t enough time.  
• Goal. Apple is going after the watch, not the smart watch. 
• Competition.  I suspect Samsung (and many others) will come out with various watches that look very similar to Apple Watch in a few months (some larger or smaller than Apple Watch). 
• Pricing. Apple said Apple Watch would start at $349.  I imagine some of the higher-end models will likely go for over $1000.  I would not be shocked if over time, you see Apple watches retail for thousands of dollars (a special Marc Newson $5000 edition anyone?). Of course, Apple will also work to lower the entry-level price to a more manageable $99 etc. 
• Future. I see a world where the watch will eventually replace the phone.  We aren’t there yet, but I think it’s coming and most major tech players will have a wearable tech platform up and running by 2015-2016. 
• Retail.  Apple will need to figure out a way to showcase dozens of Apple Watch variations in Apple stores, requiring a new way of thinking of wearable retail. Angela Ahrendts has her hands full. 
• iPhone.  New models largely as expected. The iPhone 6 Plus (5.5-inch screen) seems a tad large, especially when compared to the iPhone 6 (4.7-inch screen). The gold version does not look as good with these larger phones. I suspect the 4.7-inch iPhone 6 silver will be a top seller.  These news phones will likely maintain Apple’s iPhone unit sales growth in 2015, especially from strong sales in Asia. 
• Apple Pay. Apple introduced a mobile payments platform and while I am interested, I am a tad skeptical at how this is going to trend in real world implications. If I still need to carry credit cards because there are various retailers who don’t support Apple Pay, how effective is such a service? Certainly Apple Pay represents the strongest movement yet for the mobile payments arena, but for now I am taking a wait-and-see approach. 
• U2. I still don’t quite understand the point of Apple subsidizing a U2 album.  I get that Apple wanted a musical act to close out the event, but U2? 
• Summary. Apple did what it had to do to give Apple Watch a solid chance of succeeding. The hype for today’s event seemed higher than the initial iPad event and I think it’s clear Apple wanted people to know Apple Watch is a big deal and should garner the corresponding attention. For now, I think Apple early adopters will buy Apple Watch (5-8 million units), with a decent uptake in some market niches (another 5-10 million units). While some are expecting 60 million units sold in the first year, I am taking a more measured 2-3 year horizon before we see those kind of sales numbers. Ultimately, I think Apple has a winner with Apple Watch.