Apple didn’t sell as many iPads last quarter as expected because older models last longer than anticipated. This is both a challenge and an opportunity for the company.
Apple sold 12.3 million iPads in the July-Sept. period, below the 14.1 million sold in the same quarter a year ago, and below the 13 million analysts had predicted. The company also saw year-over-year tablet sales declines in the two preceding quarters. It would be easy to say that this indicates slowing use of tablets on the whole, but that would be an overly hasty judgment that fails to account for important usage data.
According to mobile analytics firm Localytics, the most-used tablet from Apple last quarter was the venerable iPad 2, with a 39% share. The iPad 3 had a 13% share, and the first-generation model from 2010 was holding on to a 6% share, which means devices that debuted more than 2 years ago made up more than half of the ones still in use.
It’s been assumed that a majority of people would treat tablets like phones and replace them every 2 years if not faster, but that’s not what’s happening. And even Apple admits it doesn’t know how long a typical tablet user will wait to upgrade. A CEO Tim Cook said last week, “People hold on to iPad longer than they do a phone. And because we’ve only been in this business four years, we don’t really know what the upgrade cycle will be.”
Phones can be quickly replaced relatively painlessly because carriers subsidize the cost, so millions of customers can get a new iPhone for $200 or less every 24 months. By contrast, people pay $400 and up for a new full-size iPad.
The higher cost causes people to treat their tablets more like PCs, holding onto them until they become genuinely obsolete. And Apple is working hard to keep older devices from becoming obsolete; the iPad 2 can be upgraded to the newly-released iOS 8.1, so even someone with a tablet that’s 3.5 years old might not feel much pressure to upgrade to an iPad Air 2.
Apple doesn’t want these older devices thrown away as out-of-date junk because people using them still contribute to Apple’s profits — it gets a percentage of every app, song, ebook, and movie purchased through iTunes and the App Store.
This can also be taken a sign that Apple is putting customers first. One way it could have spurred sales of newer devices is make iOS 8 incompatible with the now-discontinued iPad 2. This would have angered the millions of people who own the device, but it could have forced many of them to buy a new iPad. Instead, iOS 8.1 runs well on the iPad 2.
The Android Factor
Another assumption about the tablet market is that increasing sales of Android devices is the primary reason iPad sales have slowed, but that’s not the way it works.
Tablets under $200 are a large majority of the Android devices sold globally. For the most part, someone who buys one of these was never in the market for an iPad because Apple targets the mid-range and high-end buyer, who is willing to pay more to get a more polished device.
For the 200 million or so people who are current iPad owners, the fact that there are numerous very cheap Android devices on the market is irrelevant because that’s not what they are looking for in tablet. What is relevant is that the iPad they already own is going strong and not in need of replacement.
Keep iPad Sales in Perspective
Based on diminishing iPad sales over the past few quarters, some have predicted serious problems ahead for Apple’s tablets, but it’s important to realize that this product line has only gone from extremely high sales to very strong sales. According to figures compiled by IDC, Apple has sold 70 million iPads in the past four quarters, which means it has sold more tablets than Lenovo, HP, Dell, and Acer have been able to sell laptops and desktops. If selling 70 million devices in a year is a problem, it’s one that many of Apple’s rivals would probably like to have.
Apple’s strategy of keeping older devices useful and up to date as long as possible means that the company has to look to new first-time tablet buyers for much of its growth. And it’s working — CEO Cook said last week that, depending on the country, between 50% and 70% of iPads are sold to people buying their first one. And the fact that Apple can find new customers in large numbers — at least 6 million last quarter alone — says very positive things about the company’s future.