"Because Apple has used its plentiful cash to corner the market on key tablet components—like touch-screen displays—many competitors will find that the only way to make a tablet with comparable features but a lower price is to sell it at a loss. You can’t do that unless you have some other way to make money, like a big digital media store."
That argument was used in regards to the iPhone as well. Apple's supposedly insurmountable component purchases would make it impossible for competitors to ... compete.
And there's Android, out activating the iPhone three to one. Apparently those Android phones are either made out of cardboard, or the manufacturers found components.
In reality, 2012 will be the year the iPad loses its market dominance in tablets. By the end of 2013, Apple will hold 1/4 to 1/3 of the market, which is exactly what their entire business model is designed around: lower market share, much higher margins.
But isn't it the case that the iPad is being manufactured much more cheaply than the competitors can (eg. the Xoom) because of Apple's manufacturing processes? Phones are a slightly different beast.
FWIW, I think it's Apple's game to lose. The iOS 5 today uses the exact same interface as the iOS we saw 5 years ago. Eventually someone is going to iterate their software past Apple, and then we'll see whether Apple has the software vision to keep up (I'm thinking they don't).
>Eventually someone is going to iterate their software past Apple
Actually somebody already did. Microsoft gets a lot of flak for its design skills, but I think they did splendidly with WP7. Having used a Lumia 800 for a week I was extremely disappointed to go back to my iPhone 4S. I believe that the future of the smartphone market is a battle for supremacy between WP7 and Android, and I for one am rooting for WP7. Apple's last 'successful' iPhone might well be the next one they release, unless they have got something incredible cooking.
While I'm impressed with WP7, it's not such a big leap forward like the iPhone was when it launched. That's the big problem for Microsoft. The Zune HD was pretty nice when it launched as well, but it wasn't compelling enough to displace the iPod Touch.
If someone is going to innovate past Apple, they can't just make a sligtly better iPhone or iPad, they need to invent the new product category that will make one of those devices irrelevant.
Foxconn isn't going to hand Apple a permanent monopoly over efficient processes to the detriment of their domestic buddies. That's not how China works.
Every day that goes by, Apple's lead will erode in both quality of product and manufacturing advantage. It's not due to anything Apple will do wrong, it's due to how markets work, particularly in technology.
Actually, the manufacturing process is nothing that's unique to Apple or China. Apple is assembling iPhones in Brazil at the moment in addition to China. And as long as they don't stop innovating in their production processes (like the injection molding innovations of the iPod and the unibody innovations of the MacBooks and iPads) their lead is not going to erode there.
However, Apples biggest advantage is the enormous cash reserve they have, which enables them to get extremely good deals on essential parts such as flash memory and displays. This has nothing to do with where the devices are manufactured. Even when selling plastic tablets, other companies have a hard time matching the price of iPads (and now MacBook Airs).
Foxconn is Taiwanese, if you think they care about their 'domestic buddies' you'll be sorely mistaken. Even if it were mainland Chinese they'd not give a damn about China's domestic industry over making stupendous amounts of money from Apple.
Who owns Taiwan's future? Which huge country doesn't regard Taiwan as being separate?
You don't have to like it, but the answer is: the same country that now owns Hong Kong.
Foxconn is a Chinese company. It's why they're given special privileges that no foreign company can ever get, when it comes to everything from trade protections to labor regulations.
That's a pretty bold assumption. Maybe you have already read the political landscape of 10 years in the future, but to say that China already 'owns' Taiwan, especially comparing it to Hong Kong, which is only superficially similar, takes some big cojones. Like, Unbelievably big. I wouldn't make such bold statements without backing them with real facts, because at face value they seem a bit ridiculous.
Absurd. This has nothing to do with what I like or not. The facts are that Taiwan is not Hong Kong, Taiwan is a separate country who's future may or may not involve becoming part of China and that Foxconn is a Taiwanese and not Chinese company.
You mean China's manufacturing processes. Foxconn isn't going to hand Apple a permanent monopoly over efficient processes to the detriment of their domestic buddies. That's not how China works.
For one, Foxconn is Taiwanese, not Chinese, it's just that it has factories in China.
Second, money is how China works. Where does the delusion comes that China will ...sabotage Apple in chinese factories in order for Chinese device makers to win?
As a matter of fact, China is opening to be Apple's largest market, with raving reception this past year.
Yes I'm well aware of the constantly reiterated technicality that Foxconn is a Taiwanese company.
They're a Chinese company. Period. If China believed differently, they wouldn't be allowed to do what they do in domestic China.
China is nationalistic first, concerned with money second. That has always been the case and will always be the case. There's no amount of money that can buy you a lot of segments in their country; there are countless monster companies locked out of China right now, who would willingly pay countless billions just to get proper access to their markets - China promotes their domestic giants first, always.
Yes I'm well aware of the constantly reiterated technicality that Foxconn is a Taiwanese company. They're a Chinese company. Period.
Sure, after being called on it, you are suddenly "well aware".
Anyway, it's not a technicality by any stretch of the word --it's where the company was founded and where its headquarters are. A different country. Not to mention that they also have factories in 6-7 other countries besides China.
(Plus, it's not like China and Taiwan are in best terms, anyway, such that a taiwanese company could suddenly, by some mysterious process, turn into a "de facto" chinese one. Taiwan and China are not like US and Kayman Islands).
If China believed differently, they wouldn't be allowed to do what they do in domestic China. China is nationalistic first, concerned with money second.
I don't see China being any more nationalistic than the US is. At least they aren't invading all other the place, nor do they play "world cop". As for China protecting it's national interests, more power to them.
Agreed - Apple may be able to keep healthier margins than competitors because of its supply chain dominance, but it won't prevent them from making tablets.
That said, who do you see Apple losing market dominance to this year (or next)? With phones, it was clear that carrier issues would prevent Apple from having massive market share. But carriers have little to no impact on tablet sales.
I'm happy that their business model is designed around lower market share, with higher quality product, but I don't see how they will lose market share in tablets. There just isn't anything comparable for the whole experience of using the iPad (e.g., having access to content from the iTunes stores, including videos; or being supported with software updates for many years; or having access to a local Apple store where I can send my Dad when he needs help). Plus, the potential competitors just don't seem to get that the iPad is more than hardware and software --- the iPad provides a paradigm shift that many customers want, such as being locked down and which can't be pawned while browsing the Internet, and which can't be pawned by incompetent developers (e.g., button bars for the web browser). It is similar to game consoles.
As a kindle fire owner I think Amazon could be beaten in the tablet market quite easily. It's a mediocre device though I don't think Amazon cares that much as it's clearly just designed to consume Amazon sold content.
It's a mediocre device, but that's the whole point of it. It's only 200 dollars. It's the cheapest and easiest way to consume Amazon content and that strategy will happily coexist with the iPad. (I think)
I believe it will co-exist with the iPad as well since it targets two different markets. I simply think another vendor with a slightly better device in that price range could beat amazon at their own game. Slightly better speakers and not using the poorly designed amazon app store would get me to pony up another $200.
The assumptions by the slate article defy the nature of constantly improving hardware with falling prices.
The iPad, unlike the iPhone, doesn't get to benefit from the carrier subsidies that hide the real price from consumers. The radical majority of iPad sales are the wifi model. The iPad will be left to compete straight up on price, much like Apple's PC products.
Cheap tablets will dominate the market, Mr. Moore will make sure of it.
Cheap tablets will dominate the market, Mr. Moore will make sure of it.
And much like in the music player market, I suspect the bulk of those cheap tablets will have an Apple logo on it. You do realize that Apple will also get to benefit from cheaper component prices? Only moreso than their competitors because they will be able to pre-order them in huge volumes.
Higher price performance ratios in things like CPU and RAM, are irrelevant without great software.
Really great software for tablets takes massive resources to develop - e.g. GarageBand or the new iPhoto.
At the moment, Android tablets are caught in a chicken and egg situation - there isn't enough penetration to justify massive development efforts, and this seems to be getting worse, not better.
2011 was also supposed to be the year of the clones. We'll see about 2012 and 2013. As mentioned in the article, by looking at sales numbers so far, the iPad launch looks much more like the iPod than the iPhone.
I'm not convinced that Apple has played the "supply chain" card yet. Look at their prices. They get set on release and don't change for the rest of the year. Their margins probably get slightly fatter over the year. The iPhone starts to look over priced at the end of its life cycle.
If you look at their profits in phones last year, Apple are making (by my estimate) $31 for every $1 their competitors make (8.7% market share 75% profits).
Look at how much Apple can slash prices and still have the majority of profits. We have not seen Apple get aggressive on pricing.
Consumers don't all want to own the same smart phone, in fact quite the opposite: consumers are completely unwilling to all own the same smart phone.
Then to top it off, the smart phone market is roughly 20 to 30 times larger than the iPod market. Which means a helluva lot more competition. There's also no simple blocking method available to Apple to own the smart phone market, unlike the iTunes + music licensing moat they had in music players.
Smart phone? I agree smart phones are different. My somewhat glib inference was that the iPad could maintain the same market dominance as the iPod Touch due to similar reasons.
The iPad has no more of a moat around it than the iPhone does.
The iPod had a moat around it courtesy of the extremely difficult dynamics of dealing with the music cartels. Apple broke the cartels and came to dominate them; nobody else was able to. Such problems don't exist in either smart phones or tablets.
Hah! very true. Also, people are forgetting about the iPad 2. it's $100 cheaper.
"In reality, 2012 will be the year the iPad loses its market dominance in tablets. By the end of 2013, Apple will hold 1/4 to 1/3 of the market, which is exactly what their entire business model is designed around: lower market share, much higher margins."
Indeed. The idea that the rest of the consumer electronics industry is incapable of competing on price/performance even at a component level flies in the face of decades of history in the industry.
Apple has a temporary advantage because they have used their cash reserves well and they have designed good products. But only a sycophant or a fool would believe that their advantage would last forever.
Edit: the comparison to the iPhone is apt, as modern phones such as the Galaxy Nexus are every bit as good as the iPhone in many ways and superior in others (more RAM, faster CPU, LTE, NFS, better front-facing camera, etc.)
> more RAM, faster CPU, LTE, NFS, better front-facing camera, etc.
Beyond bragging rights, how much of Apple's market actually cares about this?
At home I run a PC I built myself and have Linux running in various places and even I don't care what CPU/RAM specs my phone has. My decision to buy an iPhone was driven by my existing collection of iOS apps (I used an iPod as a PDA for a few years) and the general reliability of the iOS experience (stuff doesn't stutter, webpages render properly, few/no OS-level crashes, etc). Things like the camera were a definite plus but not deciding factors. The retina display was probably the biggest selling point of a 4/4S over a 3GS actually since it makes the whole iOS experience even more pleasant.
Apple has iTunes which gives it a distinct advantage over competing with hardware manufacturers. Users care about content. Why else would the top three tablets by sales be the iPad, the Fire and the Nook? Android still doesn't have a viable market there and no one has shown that they can step up to the plate with an integrated, viable marketplace. Once that happens then it's a new game. Until then, I don't see anyone unseating Apple. They can sell the things at a loss and still make money via the long tail if they wanted to.
And there's Android, out activating the iPhone three to one. Apparently those Android phones are either made out of cardboard, or the manufacturers found components.
Those 3-1 are in the cheaper end of the market.
Those devices could as well be made out of cardboard.
You can't compare Android vs iPhone sales by lumping "get for free with a contract" Android devices in the lower tier of the market. They are sold to people who don't even care about the "smart" in smartphones, anyway.
That's why the iPhone has more profit despite less market share, and that's why the iOS App ecosystem makes 5 times the money the Android one does, and that's why iPhone users use 80% of the mobile web traffic while there are more Android devices.
Unsure about your other points, but I believe the most recent statistic is that the Android browser is the most popular mobile browser and that Android users are using the most data of any smartphone OS.
Still, I think the big advantage of Android is the variety. There's pretty much an Android device for whatever it is you require, whether that's a phone with a built-in projector, a phone with a 41MP camera, a top-of-the-range quadcore smartphone or a cheap-as-chips-barely-a-smartphone smartphone.
Your article compares the number of browsers shipped, but batista was talking about mobile data traffic. He's asking, "How many people actually use the 'smart' in smartphone?"
Sure, there is variety but from a market perspective how many people really care about each of those special devices? The whole reason that Apple is so successful is they build the device that just works for most people out there. Most people just don't care about the 41MP camera, the projector, etc...
Most of my circle of close friends are not geeks and Android frustrates them, it confuses them....and none of them, not a single one have even asked me about an Android based tablet other than the Fire and that doesn't even really count. Most of these friends are the ones that Samsung and other higher end Android devices would love to have as customers...highly educated with high disposable income. And they don't even consider their devices.
Variety is over valued in the geek community and just doesn't drive real profits in most cases and I believe this is one of them. Each of those unique phones has a lower profit ratio and drives a race to the bottom in quality because of it. None of them will drive enough sales to have a decent profit margin due to additional engineering, marketing, and support costs due to the different models.
Now, to be sure, Android isn't going away and eventually someone will find a way to make a dent in the iPad's market share but I just think the tablet market is very very different from the smart phone market. Everyone pretty much has a mobile phone and when you can get a smartphone for free you take it...but the tablet market is more discretionary and there and I just don't see people going away from iPad. If anything, the iPad could be what helps continue to drive iPhone sales since you can share your apps across devices.
You can't compare Android vs iPhone sales by lumping "get for free with a contract" Android devices in the lower tier of the market. They are sold to people who don't even care about the "smart" in smartphones, anyway.
Uh, that's a pretty bold assertion to make without bringing any data to back it up. How do you know that those consumers don't care about data access? How do you know that they don't "care about the 'smart' in smartphones"?
Look, I know "plural of anecdote != data", but I know several (5) people who have purchased a smartphone in the past 6 months, including myself.
2 got droids, 3 got iphones. I've know the rough usage patterns of all the folks by asking what apps/services they use.
The droid users use it as a 1) phone, 2) email/message device, 3) maps and 4) one or two apps (not games). Basically, a google core-apps phone.
One of the iPhone users is similar to the droid users (in addition, using the phone for taking photos/videos often).
Now the two remaining iPhone users are heavy data-folks. Both use bluetooth accessories, and in addition to the above uses, also play games, do twitter/social sharing, run lots of web searches.
Not a single of these users tethers or does advanced remote computing (ie, shell/vnc) - so are more "mainstream" users.
I do tethering, remote computing, play games, do not use maps - or phone that often, do social sharing and run A LOT of web searches. And no I am not on iPhone.
Right, but I can counter your anecdote with my own. All of the iPhone users I know are like your Droid users. They use their iPhone for 1) making phone calls 2) checking e-mail 3) browsing the web. None have jailbroken their iPhone or installed more than 10 apps.
I contrast that with the Android users I know (including myself). I know of only one user who is still on a stock ROM. I don't know of any that have less than 15 apps.
If you haven't figured it out yet, most of the iOS users I know are older adults who value simplicity and ease of use. Most of the younger people I know value Android and are more than willing to accept a slightly higher initial complexity for vastly greater control. That's why I asked for data, specifically. It's very easy to draw incorrect conclusions by extrapolating from your own worldview, simply because your friends tend to be like you.
The only comparison I've seen between Android and iOS users is this (http://www.bgr.com/2011/06/17/smartphone-data-usage-jumps-89...) 9 month old study comparing the data usage between Android and iPhone users, and that actually stated that Android users consume more data than iPhone users. So, given that, I don't see how anyone can confidently assert that iPhone users use their phones more heavily than Android users. The (admittedly weak) data tells us the opposite, if it tells us anything at all.
Anecdote: the Android users I see are either: a) engineer types (high end device, many apps) or b) majority lower-income (cheap device, few or no apps)
If they cared how smart their phone was, they wouldn't be running a low end phone with a processor that restricts them from running the "smart" apps. Functionality comes at a cost, and low cost comes at the sacrifice of functionality.
Like Android today, Nokia had a huge market share. but that market share was useless because their users didn't give a shit about their crappy phones. their users were not spending money, etc.
Not really. Maybe you lived in the US, where they've never been popular, but back in the day people absolutely loved their Nokia and never wanted to change to another brand. Nokia was the cool kid at the time.
(myself I always thought they had the best hardware and craptastic software)
Working at Nokia UK tech support, we had people calling up and pleading for us to sell 6310is. There's people out there who have stockpiled those handsets so they can keep using them as their existing handset fails.
Some of those people loved their Nokias entirely too much.
Of course the Android sales dominate the cheaper end of the market. Apple dominates the expensive end of the market, as I said (lower market share, high margin).
I always find it fascinating how the Apple arguments now center almost exclusively on who's making the most money. It's a fine argument to make, but it sure sounds shallow when you stack it up against the supposed Apple ethos.
You'll notice I didn't say Apple wouldn't dominate the profit center, much like they do in PCs.
I said they'll lose their market dominance. Their market share will erode until it finds a balancing point based on the iPad being at the high end of the product category. Apple has no interest in positioning the iPad anywhere else, so they will absolutely hold their pricing high.
The iPod disproves your assertion that Apple will hold their pricing high. They will rather sell high-priced devices than crap, but if they can they will compete on price. Look at the iPhones, where the iPhone 4 sells for $99 and the iPhone 3GS sells for $0. And now, they're selling the iPad 2 for $399.
I always find it fascinating how the Apple arguments now center almost exclusively on who's making the most money. It's a fine argument to make, but it sure sounds shallow when you stack it up against the supposed Apple ethos.
Apple is a company, it's out to make money. What "Apple ethos"?
If anything, the Apple ethos is about designing highly usable, uncomplicated and beautiful devices and software. Which they kinda do --and has nothing to do with what part of the market they target.
> If anything, the Apple ethos is about designing highly usable, uncomplicated and beautiful devices and software. Which they kinda do --and has nothing to do with what part of the market they target.
I'd gladly agree, if that only was true. As an iPhone user, I tend to think, that "highly usable and beautiful devices and software" is on decline. They are more interested in keeping the market share, and more profit than giving people what they want.
The most annoying thing is that Apple is thinking that it does know better what their customers want. And after few weeks of whining, people usually agree. Since there is no point in disagreeing - nobody is listening.
Because the traditional arguments, going back 30 years now, have strictly been in favor of Apple's design and product purity, not that they could get the most cash out of their customers with the highest prices.
Because the traditional arguments, going back 30 years now, have strictly been in favor of Apple's design and product purity, not that they could get the most cash out of their customers with the highest prices.
Actually this thread is about the inverse: how Apple gets the most cash out of their customers providing some of the BEST prices for the device category.
To quote the article:
= =
Let’s go back to pretending you’re one of Apple’s competitors. How can you possibly beat the iPad? Well, not on price. Even before the new iPad, rivals were having a hard time matching Apple’s prices while still making a profit. Now that the cheapest iPad cost $399, they face an even tougher road. Because Apple has used its plentiful cash to corner the market on key tablet components—like touch-screen displays—many competitors will find that the only way to make a tablet with comparable features but a lower price is to sell it at a loss.
= =
Big profit margin != highest prices.
It's because of the streamlined design and product purity that they get to do so. Fewer models instead of confusion multitude of options means huge savings in economy of scale.
Insisting on quality vs quantity, translates to people wanting to buy their stuff despite them being on the high end of the market. Not to mention that given they cater the high end of the market, they do offer the best prices, or near. Can you find a cheaper touch tablet or phone? Yes. Can you find a cheaper tablet or phone that you feel it belongs in the same league? Hardly.
Except if you explain the iPad's success and Apple's 12 year rise with "sheep" and "fanboys" [], no company built something like the iPad, that a large number of people wanted to buy, UNTIL the iPad. And even after, judging from the mediocre sales of competitors.
[] which doesn't even explain how they went from 1-2 million customers and a company close to extinction to 80 million fanboys, much less how 1/4 of the US population can be an "Apple fanboy", or how a "fad" builds up and lasts for 12 years, which is an eternity in tech terms
IPod was not a low market share product. The MacBook likely has more than 25% market share already and it will grow. Apple doesn't need that model anymore, they can have it both ways.
All that said, I do agree their tablet share will go down as competition increases, Android is too mature for someone not to close the gap in the next year.
"Because Apple has used its plentiful cash to corner the market on key tablet components—like touch-screen displays—many competitors will find that the only way to make a tablet with comparable features but a lower price is to sell it at a loss. You can’t do that unless you have some other way to make money, like a big digital media store."
That argument was used in regards to the iPhone as well. Apple's supposedly insurmountable component purchases would make it impossible for competitors to ... compete.
And there's Android, out activating the iPhone three to one. Apparently those Android phones are either made out of cardboard, or the manufacturers found components.
In reality, 2012 will be the year the iPad loses its market dominance in tablets. By the end of 2013, Apple will hold 1/4 to 1/3 of the market, which is exactly what their entire business model is designed around: lower market share, much higher margins.