On Black Friday, nearly everyone sold out of Apple's iPad online and finding one at a retailer in the San Francisco Bay Area at least became a near impossible task. In the meantime, those lucky enough to obtain a good deal on one could fire it up and read this on Business Insider: "Proof That The iPhone 6 Is Killing The iPad." And should there be any doubt of the veracity of the claims surrounding the iPad's imminent demise, the analysts at IDC have already concluded that Apple will finish the year with iPad sales down 12.7%. So this is end, then? After all, Business Insider had proof, right? Maybe not so fast.
The iPad is Cook-ed
Apple seems to understand something that it gets very little credit for. When a product is new -- iPod, iPhone, iPad -- it makes it pretty simple to choose one for purchase. Once people understand the merits of the product and it's more familiar, the company offers it in more shapes and sizes. That's how you wind up with 56 different iPads in a couple of sizes, numerous memory configurations and several colors. A similar proliferation occurred before with music players and smartphones. (It's noteworthy that the company is breaking with that precedent for the Apple Watch, launching three lines, two sizes and dozens of options from the get go.)
Perhaps more than anything, though, the biggest change is that iOS is now available across 5 screen sizes. Apple has the ability to offer tens of millions of each device to scores of markets worldwide while rarely experiencing any stock-outs or shortages once the initial product ramp-up period has occurred. And unlike competitors, it practically never find itself sitting on a pile on a unsold inventory. Much of the credit for this goes to the supply-chain wizardry of CEO Tim Cook.
But what Cook doesn't get enough credit for is also adapting to shifting demands. This is likely because Apple often does so only after the competition has established the market. It was slow to offer a smaller tablet, the iPad Mini, waiting until competing 7-inch tablets began capturing market share (though no discernible profits). The Mini has been a huge success for Apple and now provides a $249 entry point for the product line, which opened at twice that just 4 years ago.
Absolutely phablet-ous
An even slower response occurred on the smartphone side, where Apple watched competitors sell large-screen phones and even bigger phone-tablet hybrids for as long as there has been an iPad. The phablet, once derided by nearly everyone, is on its way to becoming more popular than tablets and PCs combined if IDC is to be believed. With a projected market size of close to 600 million in 2018, phablets will be the primary computing devices for much of the world.
So it might not be a surprise if, like me, someone you know recently suggested they were going to get an iPhone 6 Plus and get rid of their iPad. Or if you read something like this on your Twitter feed recently:
twitter-tweet" lang="en">Phablets & phones, in general, are eating tablets, so says Gartner, IDC, and me earlier this year. :) http://t.co/r9WCotWvrq
— Zal Bilimoria (@zalzally) November 25, 2014
Bilimoria is a venture capitalist with Andreessen Horowitz and is one of those people who has the pulse on many trends before they happen. That said, so do his partners:
@zalzally tablets growing laptops shrinking. Maybe tablets eating laptops. Correlation isn't causation :)
— Steven Sinofsky (@stevesi) November 26, 2014
Sinofsky spent most of his career at Microsoft and primarily uses an iPad Mini as his computer. Yes, a Mini. Which should demonstrate how the lines are blurring. For many of us, the PC remains indispensable in our workflows (myself included), but for the next billion internet users, it will simply never exist. When we talk about the slowing growth of tablet sales, as IDC does, or flatlining PC sales, we should understand that these buckets all start leaking into one another.
What's a computer anyway?
IDC, for its part, calls Google's Chromebooks PCs, but the Microsoft Surface Pro, which runs Windows, a tablet. A phablet with a 6-inch screen gets counted as a smartphone more broadly (except when the firm tries to find the phablets discretely inside the smartphone bucket), and never as a tablet. Are you getting all this? IDC believes phablet sales will increase by 118 million this year while tablet sales rise just 16 million. (Oh, it also believes PC sales are still falling, which there is no reason to doubt.)
So what's happening here? First, we should be clear that some of this is unknown. The length of time people go between upgrades of devices has always been a bit of an unknown. But what's clear is that there are virtually no new customers to the PC market. Nearly every one sold is a replacement for an existing unit with the exception of a small portion of emerging-market sales. Second, while there's little data on non-Apple tablet sales, Cook was quite forthcoming about iPad customers in last quarter's earnings call.
If you look at our top six revenue countries, in the country that’s sold the lowest percentage of iPads to people who had never bought an iPad before that number is 50%. And the range goes from 50 to over 70 ... that's not a saturated market. You never have first time buyer rates at 50% and 70%. What you do see is that people hold on to iPad longer than they do a phone.
What Cook is saying is that most iPads are selling to people who haven't ever bought one. There are plenty of new customers to get. Apple sold twice as many iPads in the first 4 years of the tablet as it did of the smart phone -- nearly a quarter of a billion. Some went to people who'll never buy another. But if that's true, the main reason is probably the iPhone 6 Plus.
Which brings this story full circle. Ming-Chi Kuo, who covers Apple for KGI Securities, believes Apple will ship 71.5 million iPhones this quarter and that 15.1 million of them will be the 6 Plus. In the past two years, the holiday quarter has seen shipments of 47.8 and 51 million iPhones. Subtract out the 15 million phablets, you're left with 56.4 million iPhones. A reasonable argument could be made that many of the iPhone 6 Plus customers are specifically purchasing something with an especially large screen and wouldn't be buying anything from Apple were it not for the 6 Plus.
Even if you were to just split the 6 Plus sales between the smartphone and tablet categories, it seems fair to argue that about 7.5 million of those purchases are would-be iPad customers who get a brand new iPhone in the process. Apple last year sold 26 million iPads over the Christmas quarter. If IDC proves correct and that number falls by 3 million or so, there appears to be no reasonable argument under which iPads plus a reasonable share of iPhone 6 Plus sales apportioned to the iPad category doesn't result in an increase over last year. And, yes, this would still leave the iPhone very comfortably ahead of last year as well. Apple tablet sales are falling? Maybe. Apple "-ablet" sales? Any rumors of their death are very greatly exaggerated.
Such is the convergence of the two categories. No one today confuses the iPad Air with an iPhone 5c yet over Thanksgiving weekend, a friend asked advice on which one to buy. For them, there was a real choice between the two as connected devices for computing and communication. In the next couple of years, foldable, extendable screens are likely to make it possible to convert a 5-inch phablet into a 10-inch tablet in a matter of seconds. When those arrive, there might literally not be a difference.
Oh, and, look back at Cook's quote. Apple has no especially good data on how long people will wait before upgrading their iPads because they've sold the bulk of them in the past 2 years. But they have a really good idea about how often people come in for a new iPhone. And they sell those smartphones -- and now phablets -- for higher prices, as well as more frequently. The iPad is dying? Apple doesn't really see it that way. But they'll sell you just about size tablet you want, even if they happen to call it an iPhone.
