Recent reports, news and analysis have come out that underscore an industry cliche, there is not a tablet market only an iPad market.
From news on the rather weak sales of Android tablets from vendors the last few quarters to the recent news that HP TouchPad sales are dismal, it is clear that the masses have spoken loud and clear – they want iPads.
Those who make tablets entered this market for a variety of reasons. One however I heard often was that they were afraid Apple would “iPod them” in the tablet market. Years ago there was a similar analogy that went “there isn’t an MP3 market just an iPod market.
The logic was if they could get into the market early enough they could hopefully not get “iPoded.”
However this is exactly what we are observing happen today. I believe this will be the case for the next few years. So the question is for the time being should the vendors concede this market and commit those resources to other areas where they have a chance to compete, like Smart Phones for example. Or perhaps they themselves can focus more on RND and create new product categories and innovations all together.
Jim Dalrymple at the Loop makes a great point:
“Apple has spent 10 years working on the iPhone, iPad and the integration with iTunes for app, music and video downloads. The competition would have us believe that in a few short years they too have perfected all of this.”
The bottom line is at this point in time the barrier to entry to the tablet market is actually quite high. There are market forces at work that explain why other tablet makers are having a hard time competing and succeeding.
Harvard Business Review in a foundational strategy article called “The Five Competitive Forces That Shape Strategy,” highlight seven essential points on barrier to entry. I’d like to focus on three that relate heavily to why the barrier to the tablet market is quite high.
Incumbency Advantages
“No matter what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of the most favorable geographic locations, established brand identities, or cumulative experience that has allowed incumbents to learn how to produce more efficiently.” – HBR Five Forces
In this point the HBR article points out how the incumbent has advantages not available to new entrants. Things like brand, forcefully constraining supply chain, holistic experience, preferential access to the best raw materials (at favorable prices), efficient manufacturing and scale, and more are all in Apple’s favor.
Unequal Access to Distribution Channels
“The new entrant must, of course, secure distribution of its product or service.” – HBR Five Forces
Retail is and will continue to be one of Apple’s strongest competitive advantages. I’ve wrote extensively about this “Apple Retail is Key to Their Competitive Advantage.”
By controlling their own retail store, which is in extremly convenient geographic locations all over the world, competitors simply have unequal access to distribution channels.
Also more simply put, in a big box retailer you see vendors competing with each other for retailer and consumer attention.
Walk in to an Apple retail store and you will find zero Apple competitors.
That is what I call unequal access to distribution channels.
Demand-side benefits of scale
“These benefits, also known as network effects, arise in industries where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company. Buyers may trust larger companies more for a crucial product: Recall the old adage that no one ever got fired for buying from IBM (when it was the dominant computer maker). Buyers may also value being in a “network” with a larger number of fellow customers. Demand-side benefits of scale discourage entry by limiting the willingness of customers to buy from a newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.” – HBR Five Forces
This is a big one. Look around and you see tablet makers offering extremely aggressive price promotions. It seems like the prices of competing tablets drop every month. Yet Apple has not lowered the price of their latest generation iPad one single time. What’s more competitors make razor thin margins less than 10%. Let’s just say Apple’s margins on the iPad are significantly more.
In short the cost cutting strategy to undercut the incumbent and gain market share is simply not working.
If competitors are making little to no money, struggling to get distribution, and overall struggling to compete in general how long can they stay in this market?
Conclusion
The reality is the lure of the bright shiny new tablet market is too attractive for vendors to concede to Apple. That however does not change the fact that competing will be monumentally difficult. Even if they did concede I would recommend it only be until the market matured. At which point new entrants have a chance to succeed as the market fragments and consumers begin to shop based on preference. The evolution of consumer markets show us that a standard technology brings a market to maturity and then that market fragments allowing for a more vast variety of consumer choice. The tablet market will mature at some point and at that point consumers may desire a more wide variety of choices.
The brilliance however of Apple in this regard is worth noting. Apple has strategically lured those who compete with them in categores like PC’s and Smart Phones into competing in a category they have no chance in for the foreseeable future.
The result is that Apple competitors are allocating invaluable resources away from other product segments that could be significantly more profitable and competitive for them.
I believe that success will only come to those who want to compete with the iPad by thinking fresh and taking bold and innovative risks.
The thing that amazes me is that for 10 years, a few tablets were introduced to the market but they didn’t sell. Then Apple came along and showed how to make a desirable tablet. Now everybody and his mother has jumped in, but their products are no more successful than tablets were before Apple’s move. I feel like saying “Get a clue, guys!”
Yep. That’s exactly what I tell them. Their lack of control of the total experience is part of the challenge. One of the reasons the Google – Moto deal will be interesting to watch.
Ben, the Asus Transformer does look very similar to the iPad 1. There is nothing hindering other companies from designing a unique looking tablet. For example, Sony’s S1 & S2 tablets have their own unique designs. They look nothing like the iPad.
How ungrudging would the Apple-haters be if Apple came out with a tablet that copied a unique look of an Android tablet? (Not that that will likely ever happen ;-))
The only “unique” feature, if you can call it that, of the Transformer is the proprietary optional keyboard that can turn the tablet into a quasi-netbook. But then again, there are many different choices for adding a keyboard to the iPad, from a wide range of manufacturers.
There are many articles on the Web berating Apple for being “heavy-handed” in suing other tablet manufacturers. The authors seem to be blinded by their anti-Apple bias, and don’t believe that Apple should be afforded the same rights to defend infringement (a.k.a “theft”) of its intellectual property that they would be defending if it was any other company but Apple.
The reason why those other (mostly Android) tablet makers are being sued is because they are trying to profit from the iPad’s enormous success, by copying its hardware and software.
None of these other companies have learned that by following others you will never be a leader. Apple leads by innovating, not necessarily inventing.
Perhaps if they innovated their own unique hardware designs, software, and services, they could be selling products that consumers actually want to purchase, as they do with the iPad.
Exactly. This is why I think the Asus Transformer has been having moderate success. It breaks the mold and is innovative. Could be more innovative but at least it sets itself apart from the pack.
yes, very good analysis. this is what has happened with the iPod/PMP market by the way. Apple is still the dominant developed-world OEM, but its sales/share of this technology-mature market is steadily going down as many variants – including smartphones – have been introduced. and in the developing world, where no one is tracking sales/market share of large volumes of very cheap electronic stuff made by local-brands-you-never-heard-of, you can buy something that kinda works for $10.
what the other OEM’s should do now is back off until they have a polished tablet product with a decent ecosystem to offer – sometime next year presumably. but that takes apps, which foreseeably only Android might really offer, and Google has just thrown everything up in the air with its crazy purchase of Motorola. what OEM wants to forever compete for a distant second place in Android tablet sales behind the latest Xoom?
but anyway, they can’t stop themselves. every OEM is going to bring out new models for the Holiday sales season, and try to hype them, no matter how unready. because they think they have to or fall too far behind the rest, and that’s all they know what to do anyway.
except HP. instead they’ll have to offer $100 instant rebates for the Holidays just to unload the hundreds of thousands of unsold TouchPads sitting in stockrooms today, with the leftovers headed for Overstock.com in January. but maybe that is good. then they can re-group and come up with a much improved V.2 next Spring.
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