The iPad market

Apple had an incredible Q1 2017, with record-high sales of iPhone, Mac, Apple Watch, and services. Notable by its absence: iPad.

Introduced seven years ago this month, Apple's late co-founder, Steve Jobs, said iPad had to fight for its right to exist between phone and laptop by doing some things better than either could do on their own. Since then, Apple's ability to tell that story has varied from the heights of "technology alone is not enough"... to not at all. And that's led to a lot of theories about iPad and the future of its market.

Tim Cook, speaking during Apple's Q1 2017 conference call:

The iPad, Steve, we had a 1.6 million unit swing on channel inventory between the years. In the year-ago quarter we increased by 900 [million], in this quarter, we decreased by 700. On top of that, and from an ASP point of view, in the year-ago quarter we launched the iPad Pro 13-inch — that would be the iPad with obviously the highest price on it — we would have done the channel fill plus the launch of the product, and so that would have bolstered the ASPs in that particular quarter. In addition to all of that, we did under-call the number of iPads that would be in demand for the quarter, and that compounded a shortage issue that we had with one of our suppliers. All in all, there was quite a few things going on there.

In other words, the 12.9-inch iPad Pro launched at the end of 2015 but no new iPad launched at the end of 2016, much less a high-end one. Combine that with less inventory and shortage due to a supplier, and there was both less drive and less availability.

OK. Apple lowered iPad inventory. Channel shifts imply better year-over-year demand trends than the 13.1M unit sales reflects.

— Neil Cybart (@neilcybart) January 31, 2017

That takes the edge off the quarter but not off iPad in general, which by any measure isn't accelerating as fast as it did in the beginning. That created incredible expectations around iPad, which has now translated into incredible expectational debt.

The problem with acceleration is that it has no impact on speed limit. If you go from 0 to 60 in 3 seconds or in 6 seconds, and the speed limit is 60, you simply hit that limit sooner.

iPad at 85% tablet market in US for tablets above $200 price.

— Horace Dediu (@asymco) January 31, 2017

In many ways, you could go so far as to say there's no tablet market, only a cheap video/game player market (which Apple wants no part of) and a premium iPad market.

That's what Steve Jobs meant when he called iPad the future of computing. His dream, and the consistent goal of Apple over the years, from Apple II to Mac to iMac, was mainstreaming computer technology. It's also why Jobs spoke of trucks and cars. iPad wasn't a PC, it was something that the majority of people would eventually find more convenient than a full-on PC.

iPad, at its core, made apps and the web accessible and approachable to people, young and old, who either couldn't, hadn't, or simply never enjoyed using a laptop.

It's why other vendors who tried to use "full desktop OS", multi-window multitasking, Flash, and other traditional computer paradigms to compete with iPad failed so spectacularly. It's why Windows on a tablet wasn't considered a selling point but a detriment.

And it's why so many people bought an iPad 2, or one of the iPads since then, and have held onto it ever since. It's not just as much computer as they needed — its as much computer as they wanted — and they'll use it until it breaks down and stops being usable.

That's very different from the iPhone market where people upgrade every couple of years, give or take. It's closer to the Mac but, thanks to it being even more of an appliance, likely has an even longer lifespan.

So, while the popular narrative is that iPad is failing, a counterargument could be made that iPad succeeded too well, too fast. It's the old PC "good enough" problem writ large.

Consumers upgrade when their studs is old and slow. Even old iPads are not old and slow yet. It's a Testament to the products longevity. https://t.co/9AOhOGKTnS

— Ben Bajarin (@BenBajarin) February 1, 2017

Indeed, even this quarter's numbers, hamstrung as Tim Cook explained them out to be, iPad still outsold Mac by more than double: 13.1 million for iPad vs. 5.3 million for Mac.

Some think the solution to this problem is to make iPad a more powerful computer. Bascially, continue what iPad Pro started by adding more features like drag-and-drop and easier filesystem access. Personally, I'd love the former (I've argued for an iPadOS for years) though not so much the latter. Opinions vary though.

Either way, that only solves for "us". For the niche. It adds a relatively small adjacent market to the overall iPad market but does relatively little to solve for the mass mainstream market. Likewise making bigger again iPads. Great for creative professionals who want a digital drafting or drawing table, but also only solving for a relatively small niche.

In order to incentivize mainstream iPad sales, Apple will need to create compelling features for the mainstreaim that spur upgrades in spite of current hardware being good enough. And that's a real challenge.

@jandawson we just retired our iPad 3rd gen this year

— carolina milanesi (@caro_milanesi) January 31, 2017

Most people don't upgrade PCs unless they have to either. Gamers are a notable exception but the types of games that are most popular on iPad aren't typically the ones with the highest hardware requirements.

Many people do upgrade phones even when they don't have to. That typically comes from features that are compelling on phones, especially better cameras. iPads probably wouldn't benefit as much from camera enhancements and the new features that are compelling, like Apple Pencil and Smart Connector again play more to the niche than the mainstream.

Tim Cook again:

If I sort of zoom out of the 90-day clock and look at it, we've got some exciting things coming on iPad. I still feel very optimistic about where we can take the product. When we look at the number of people buying iPads for the first time — which is a good thing to look at from a point of view of whether things are reaching a penetration point or not — the numbers indicate that it's not close to that kind of thing. The customer sat numbers are through the roof; literally, the customer sat for the iPad Pro is 99%. It's stunning.

And so I see a lot of good things and hope for better results, but we are still currently in this shortage issue now, and I'm not projecting to get out of that totally during the quarter. It will damper this [upcoming] quarter somewhat. But again, beyond the 90-day clock, I'm very bullish on iPad.

Cook knows the future of iPad better than anyone on the planet and he typically says exactly what he feels and thinks. There are new iPads coming — Apple isn't getting out of that business — and they'll be better than any iPad that's come before.

Short term, people who bought iPad 2 or iPad 3, the original iPad mini or Air will start to time out and the upgrade cycles will start to kick in.

78.3M iPhones, 13.1M iPads, 5.4M Macs:

Apple still hasn't recaptured iPad story but any other company would *kill* for that business.

— Rene Ritchie 🖇 (@reneritchie) January 31, 2017

Longer term, Apple will have to decide if they want to keep iPad aimed squarely at the mainstream, if they want to continue to explore the pro niche, or if they can do both — If they can avoid making it a truck but somehow nail iPad as SUV.

For that, we'll have to wait and see.