Apple’s iPad challenge

bird_bringing_report_lgApple recently announced its third-quarter results, and the company again accomplished what it does so well. It sold lots of products, particularly iPhones, and made loads of money.

As always with an Apple earnings announcement, one can find both optimists and pessimists sifting through the details.

One such detail was the progress, or lack thereof, of the iPad. In Q3, Apple sold 13.2 million iPads, which was a 19% decline from last quarter.

If you’re a pessimist, the iPad has peaked, is in big trouble, has seen better days, is doomed, is being passed over by people buying large smartphones, is seeing increasing competition from other manufacturers, and so on. Certainly, there’s a grain of truth in many of these pronouncements.iPad_Air

If you’re an optimist, you’re not worried. The decline is a cyclical thing. It’s summer, people are doing other things with their time and money. The back to school push is just starting.

The iPad’s number one optimist

cook_hero20110204Tim Cook, Apple’s CEO, continues to be bullish on the iPad. In the conference call following the earnings announcement, Cook said:

iPad sales met our expectations but we realized they didn’t meet many of yours…But what’s most important to us is that customers are enjoying their iPads and using them heavily. In a survey conducted in May by ChangeWave, iPad Air registered a 98% customer satisfaction rate, while iPad Mini with retina display received an astonishing 100% customer satisfaction rate…We’re very bullish about the future of the tablet market and we’re confident that we can continue to bring significant innovation to this category through hardware, software and services. We think our partnership with IBM, providing a new generation of mobile enterprise applications, designed with iPad’s legendary ease of use and backed by IBM’s cloud services and data analytics will be one such catalyst for future iPad growth.

An evolving tablet market

The iPad was released in 2010, and in its first three years, sold more units than the iPhone did in its first three years. This trajectory probably led some people to think that the iPad would be every bit the monster product the iPhone has proven to be.reality_check

But, let’s face it, the iPad will never sell in the same volume the iPhone does. And that’s fine.

The iPad is not inexpensive, and people hold onto their iPads longer than their smartphones.

The iPad is still a compelling, popular product, and as Cook states, there are still a great many people who own smartphones and laptops who have not yet purchased a tablet.

So there’s still a lot of opportunity for Apple with the iPad.

The iPad’s future

A lot of analysts and columnists are calling for Apple to go down-market. Reduce the price of the iPad and capture the low end of the market is the clarion call.

iPad_futurePersonally, I’m of the opposite opinion. I think Apple, as it pretty much always has, will find ways to go up-market. Keep the iPad priced as it now is for current models, and continue to innovate in the space to increase the tablet’s perceived value.

Looking out over the next year or two, I believe Apple will do some or all of the following things:

  • Add at least one new form factor. A 12-inch iPad has been rumored, and this is probably the minimum size that a true laptop replacement in the enterprise would likely be. Apple could sell it at a higher starting price, as well.
  • Implement TouchID in all iPad models.
  • Develop iPad accessories, for example, keyboards, styli, and camera lenses, that would complement the iPad in various workflows.
  • Further leverage technologies such as AirPlay and AirDrop to improve workflows in various vertical markets, such as retail, healthcare, architecture, interior design, banking and finance, sales, sports, and many more.
  • Continue developing iOS to make it more enterprise-ready, for example, by adding functions such as multi-tasking and centralized management, and continuing to improve security.
  • Continue developing its own productivity apps, and aggressively work with other software companies to develop enterprise, productivity, and creativity apps.

Where the growth truly is

Those and other initiatives will enable Apple to go where it needs to go to continue to grow the iPad installed base, and that’s in the enterprise. In all kinds of businesses. In all kinds of markets.iPad_growth

Down-market, the iPad is an aspirational product. Based on income, people will settle for the device or devices they can afford.

Why on earth would Apple compete down-market, when there are huge mountains to climb in areas where people and businesses still have significant dollars to spend?

Apple has made huge inroads to industry already. Employees in droves are bringing their own iPads and iPhones to work, and this BYOD phenomenon has inspired senior management—and, therefore, has motivated IT organizations—to embrace these devices.

Apple is perhaps one to two years ahead of other device manufacturers in realizing wider-spread adoption in business. The iPhone has largely supplanted BlackBerry in a large majority of businesses.

Apple’s challenge with iPad growth is fundamentally to supplant PCs in industry. I believe two factors will help Apple meet this challenge.

First, the iPad will become more and more capable in terms of productivity applications, particularly applications that are built by businesses themselves.

Second, business managers looking for ways to reduce capital equipment expenditures to improve profit margins will be more willing to take a look at what iPad has to offer. At $399 or $499, excluding volume discounts that might be negotiated, the iPad looks like a pretty inexpensive solution.

Apple_IBMThe IBM factor

The recent joint announcement from Apple and IBM is one such example of Apple not resting on its laurels.

Back in the day, Steve Jobs would not have touched an IBM partnership with a 10-foot stylus.

But times have changed at Apple. Before he died, Jobs famously told Tim Cook, Apple’s current CEO, not to ask what Steve would do, but “just do what’s right.”

Cook has been a steady hand at the wheel since the death of Jobs in 2011. Over the last year, however, Cook seems to have emerged as a strong leader, and has proven that he can take Apple in new and interesting directions.

It remains to be seen how significant the deal with IBM turns out, but clearly IBM knows business, is embedded in enterprises all over the world, and apparently has been using iPads and iPhones widely for its own employees and business processes.

The Microsoft factor

I still haven’t fully grasped why Microsoft was willing to release a touch-enabled Office product on the iPad first. After all, the company has been aggressively marketing its Surface line of tablets. You’d think a touch-enabled Office would appear there first.Satya_Nadella

Either Satya Nadella, Microsoft’s new CEO, is a realist and understands that Office is likely to fare much better on a platform that’s selling in the 100s of millions. Or he doesn’t really believe in the Surface and is simply letting it sink or swim on its own.

Either prospect is bad for Microsoft. But it’s good for Apple, and is another puzzle piece that figures to increase the iPad’s strength in the enterprise market, where Office has a dominant footprint.

What about the rest of us?

Apple would hardly abandon its traditional user base, those of us who simply enjoy their products because they are so well designed, and a joy to own and use.

Making the iPad stronger for business, in this view, will not in any way make it less friendly, less elegant, or less versatile.

In fact, just the opposite is true.

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