Apple tightens grip on tablet market with iPad 2 and 3 pincer move

Just when you thought it was safe to go into the mid market ...

Apple New iPad 3 tablet

Comment Following the launch of Apple’s new iPad the company has been criticised again for the lack of design overhaul, with some arguing this will inhibit sales. But the 7 March actually saw yet another Apple masterstroke – for two reasons.

Firstly, while largely unchanged on the outside, the New iPad’s launch focused on the software rather than hardware and on apps putting content creation at the fore – vital in developing and further strengthening the iOS ecosystem and also in the conversion of PC users to post-PC users.

Broadly, iPad apps until now have largely been consumption-orientated: they allowed punters to read books, check emails, watch films, browse broadsheets etc. Most of these experiences, while enhanced on a tablet, did not present the need for consumers to buy one. A Kindle and smartphone would have sufficed.

It's what's inside that counts...

But now Apple taking a different tack. For the iPad-maker, the battleground is no longer design but software and consistency of experience. This move targets areas in which iOS’ only competitor, Android, falls desperately short. The fact that much of Apple’s unveiling focused heavily on apps is a testament to this. Apple demo'd Sketchbook, an upgraded iWork suite and added iPhoto to its iLife family. Users can now create, edit and share content on the go in a way that was relatively limited with the two previous iPads.

Meanwhile Google’s fragmented, oft-updated Android OS and ecosystem is disappointing and has been for the most part of 2011 – and on most tablet devices, it's not fit for purpose. With the latest OS update, Ice Cream Sandwich finally shows Android’s potential: Google and non-Apple Tablet vendors (Amazon aside) would do well to stick to a unified, unmodified UI. Samsung Touch Wiz and HTC Sense need to go, and for that to happen, Google needs to develop an OS which vendors feel does not need to be altered in order to succeed. Google would do well to note that the reason why the iPad was so easy to pick up and use was because iOS users had practiced on the iPhone. On the other hand, someone who uses an HTC Desire HD would find picking up a Galaxy Tab 10.1 a new experience.

So we can see that the focus on apps from Apple was not, as some media sources suggested, to shift attention away from a product with no design overhaul and only incremental changes in specification. Rather, it emphasised that for Apple the iPad’s unique selling pont is no longer its shape, weight and thickness but its apps and ecosystem. As Samsung very aptly demonstrated throughout 2011, most vendors can now manufacture high quality, lighter, faster, thinner tablets with an impressively fast turnaround time. For Apple to now define the iPad by these features would be futile. A unique design may have defined the iPad 1 and 2’s success, but future iterations will likely have only incremental spec upgrades and focus will be on the quality of the ecosystem. Thus, Apple’s chance of dominance now lies in forging a platform-centric business model.

Tablet-bombing the mid-market

Apple’s second masterstroke was to continue to sell the iPad 2, pitching it squarely at the mid-market – which up until 6 March looked as if it would be virtually non-existent in 2012. Not only will this target a large base of customers who want a tablet but found the £399 price point too dear (and they are out there as the TouchPad fire sale demonstrated) but it will naturally lead to other mid-market competitors being made practically obsolete. If the Kindle, sold at a loss, is to cost £199 and an iPad 2 costs £329 and both devices have a largely complete well-resourced ecosystem, where does this leave mid-market competitors, pricing their device at around £300 running Android?

Add to this the fact that Retina Display alone is likely to be enough of an incentive in itself for early adopters and iPad 1 owners who did not upgrade to iPad 2. We expect 2012 to be a year when, incredibly, Apple will actually capitalise on its dominant position in the market in Europe. With Context* shipment figures for Q4 2011 giving Apple an 89 per cent share of the Western European market, the expected increase in market share is all the more impressive.

It is worth noting in parting that the price point of the iPad 2 is still relatively high for a year-old tablet and most consumers are likely to opt for the newer model. But Apple has a challenging balancing act of volume versus margin in its iPad 2 pricing, particularly as a bigger price move would risk cannibalising sales of the newer model. The iPad 2 has been deliberately been priced high, with iPad 2 pricing flexibility a likely option if and when competition intensifies.

With the high-end market cornered, and sceptics convinced of the need to carry around an additional mobile device, a strategy to define the tablet space by providing an easily accessible, well-resourced ecosystem balancing content creation and consumption is the tablet industry’s next battleground – and the next gauntlet Apple has thrown down for its competitors. And now, with the iPad 2 placed squarely into the middle market – expressly targeting consumers who think iPads overpriced – the challenges and the rewards of the tablet market will be all the greater. ®

*Salman Chaudhry is a mobile computing analyst at Context

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