Why the Latest iPad Forecasts Are Wrong

The recent 2012 WW forecast for tablets from IDC which forecasts sales of 106MM units in 2012 with Apple’s iPad numbers at a little under 60MM has been widely picked up and republished across the internet. The report also predicted that Apple could lose dominant marketshare to the Android platform by 2015. Windows tablets do not figure in the IDC forecasts as currently IDC defines them as PCs.

While I’ve a lot of respect for IDC’s ability to identify key market trends, especially in the Enterprise IT market but I’m not convinced they have their finger on the pulse of the Apple iPad market nor Apple’s iOS strategy.

It appears that IDC has consistently under-estimated the iPad market since its launch and their recent forecasts seem to follow that pattern. Just to verify my suspicions I looked back at the IDC forecasts since the launch of the iPad on April 3rd 2010 when Apple sold 300,000 iPads on the first day and 3 million in the next 80 days.

I recall at the iPad launch IDC analysts noting that the iPad would do remarkably well if they sold 5MM units by the end of 2010. IDC subsequently estimated the total number of all tablets to be sold in 2010 at 7.6MM units. But when the final numbers were reported, Apple alone had sold nearly 15MM units. IDC’s forecast for 2011 was set at 44.6 MM units (the final sales for 2011 came in at nearly 69MM units with Apple selling 40 MM units). IDC first predicted 2012 sales of 70.8 MM units – this forecast was increased to 88 MM units and now stands at the 106 MM number announced by IDC a few days ago.

Based on the historical sales growth and the launch of the new iPad it is hard to believe that Apple will sell less than 60MM units in 2012.

With 40MM sales in 2012 – at least a doubling of that number is to be expected. Unlike the original iPad, which initially launched in the US, the new iPad will be sold in 36 countries by March 23rd. The combination of the price reduction on the iPad 2, the new iPad (third generation) and the highly likely launch of the 7.85′ iPad Mini for $299 should drive Apple iPad sales to well over IDC’s forecast number and I suggest that a number well above 80MM units is achievable for 2012 with an annual run rate of over 100 MM units.

IDC is hardly the only analyst firm underestimating Apple’s potential but is one of the most conservative.

The research company also predicts that Android tablets will have a higher market share than the iPad by 2015. Many have predicted that the growth of Android tablets will follow the success of Android smartphones but the markets are very different. The predicted success of Android tablets has not happened so far. The only tablet to get any traction is Amazon’s Kindle Fire. Amazon’s Kindle Fire is a gateway to Amazon’s retail store – it’s not really a tablet strategy – it’s a commerce strategy. To boost their m-commerce platform, Amazon is likely to drive their hardware sales by aggressive pricing – to near zero (perhaps even bundling the Kindle Fire with the Amazon Prime Free Shipping Service).

However, Amazon, if they could negotiate terms with Apple (which is a tall order) could be better off having a Prime app on the iPad rather that being in the hardware business.

At the low end, Android tablets may see some traction where they will be used low cost mobile web browsers and simple readers – especially in emerging countries where low pricing is essential to drive sales. But will customers want a product that has limited functionality, a sub-optimal experience and does not come with a massive eco-system of applications designed specifically for the device?

When Apple launched the iPad many questioned its role as a “Tweener” devices between the smartphone and the PC. Apple was however able to define the category due to the quality of the product, the user interface and experience but more importantly the totality of their eco-system -hardware, software, an apps development platform and a massive distribution system via iTunes.

Related Column: iPad: It’s More Than Just The Hardware

No other company gets close – so today, we don’t really have a tablet market – we have an iPad market. Note that Apple never refers to their product as a tablet – as they associate the tablet with Microsoft’s earlier failures.

Apple’s dominance of the tablet market has significant implications for media companies. Most have assumed that some equilibrium will eventually come into the tablet market, so a strategy of delivering content across multiple devices was a safe distribution strategy, even with the challenge of optimizing for many different devices. The publishers’ consortium Next Issue Media (made up of Condé Nast, Meredith, Hearst, News Corp and Time) decided, after negotiating difficulties, to eschew the Apple platform and support Android. A decision they are probably regretting. The success of the iPad platform lured each of the consortium members to find a way to eventually work with Apple so the value of the consortium is unclear if they remain solely focused on Android.. The question media companies now have to answer is whether the competitive platforms to Apple’s iPad can do justice to their digital publications. Can these platforms meet reader expectations or provide a significant large enough digital distribution channel to drive user and advertiser revenues ?

Apple will never compete for the low revenue, low margin low quality “budget” end of the market. Apple will always prefer a lower marketshare position so long as they maintain a high revenue and margin share of the segment. It’s possible that eventually the sheer numbers of very low cost tablets could outsell Apple’s premium products but I doubt it. Customers won’t be satisfied with an underpowered tablet any more than they were satisfied with the concept of the netbook. It’s much more likely that as smartphones increase in capabilities and significantly drop in price that they will be the mobile devices of choice in emerging markets. The functionality of even low cost smartphones will be superior in virtually every case to low cost tablets (other than display size and even then, foldable displays, 3D and projection could step in to solve that issue).

The tablet expected to take share from the PC market, overtaking it in unit sales by the 2015/16 timeframe. There will be a few specific cases where PC will remain superior to tablets in input and processing power, but that gap will narrow over the next few years and customers will flock to the convenience of the “tablet”. However the size of the tablet market , while significant, is never going to get close to the volume of the smartphone market which will be measured in billions.

We’re living in a world of digital mobility – it’s a multi-screen world – currently the dominant displays are smartphones, ultra-portable laptops, tablets and the TV but as the Corning Concept video suggests that will evolve. Apple’s goal is to take significant market share in each of the segments and bind them all other with an iOS platform that attracts the world’s best developers.

I don’t have IDC’s resources, contacts or detailed knowledge of the industry but I’ve been around the Apple marketplace for 25 years. My predictions are based on both gut and industry instincts – but are far from scientific but I’m willing to wager my 2012 estimates of iPad will be closer to the mark than the IDC forecasts. For the record I predict Apple will sell over 1MM units on March 16th. It will sell close to 10MM new iPad units within the first 30 days of launch as it rolls out t in 37 countries and in 2012 the total sales of iPads will be in excess of 90MM. My colleagues at IDC are willing to bet a nice bottle of wine that they will end up being more accurate than I am. Sounds good to me and no matter who wins I look forward to sharing it while we develop our own 2013 predictions for this exciting, emerging market.

Apple’s stock price is currently around $600, valuing the company over $500 billion. Already analysts are upping their target range to $700. If Apple continues to execute as well as it has this may too be conservative. I only wish I had the foresight to hold the Apple stock I purchased back in 1997.

The Tablet Market in 2012: What it Means for Publishers

Those who planned their tablet strategies based on the predictions of key analysts and the excitement at the Consumer Electronics Show (CES) at the beginning of 2011 may want to be very wary of the wave of predictions for the 2012 tablet market after 2011 remained iPad dominant. Apple is now expected to sell around 39 million units worldwide, and even the top competitor in the tablet market, Samsung with its Galaxy Tab, has achieved very modest sales by comparison.

Motorola’s Xoom showed initial promise but faltered and was purchased by Google. RIM’s Playbook stalled with updates not expected until late-2012. HP launched and then abandoned the TouchPad and Dell shuttered the Streak.

At the low-end of the tablet market, competing against Barnes & Noble’s Nook, the Kindle Fire from Amazon is the only Android-based tablet seeing solid momentum with the company claiming around 1 million sales a week thanks to a $199 price point. However, despite the claims, inventory is still plentiful and the Fire’s software platform has come in for significant criticism (update promised soon) with a lot of customers giving it one to three stars.

A recent report from IDC , who now counts both the Kindle Fire and Barnes & Noble Nook as Android tablets, forecasts that Apple’s worldwide market share will dip to 60% in 2012 although it should be pointed put that the analysts’ firms use shipments numbers for Apple’s competitors that don’t necessarily equate to sales numbers. The current key players are Samsung, Amazon, B&N, Asus plus “others.”

CES 2012 from January 10-13 will no doubt showcase a vast range of new tablets, but if the history of the last couple of years repeats then virtually all will fail to gain any traction. Hardware alone without integrated software and an effective distribution system is doomed. Very few companies can provide the whole digital ecosystem, and Apple has a near unassailable advantage in this regard.

Merrill Lynch predicts growth of tablet market in chart below.

New iPads on the horizon?

Looking at the year ahead, Apple is expected to roll out the iPad3 in first-quarter 2012. The key features are the iPhone4 “retina” display and faster processors to cope with the demands of that higher resolution screen. Many expect Apple to launch a smaller iPad with a screen size of nearly 8 inches later in 2012, and this could help counter any competitive threat from Amazon. A possible pricing structure of around $250-$299 for an 8-inch tablet, $399 for the older iPad2 and the next iPad3 for $499 (or maybe a little higher) would allow Apple to cover the market from value to premium products. According to a recent report from J.P. Morgan Chase, total worldwide tablet shipments will reach 99 million in 2012 and will rise to 132.6 million in 2013. Although it will see some market-share erosion, Apple is likely to remain the dominate tablet supplier for the next few years so needs to be core to any publisher’s digital mobile strategy.
Publisher reset

For many publishers, 2011 has been a year of expensive experimentation. Now, many are reassessing their return on investment in tablet apps. Over-designed multimedia versions of consumer magazines appear to distract readers from the core content. The majority of tablet readers seem happier with simple enhanced PDF versions of their favorite brands or layouts that emphasize the readability of the articles on their devices. Photos and videos that enhance text are welcomed but not unnecessary interruptions and distractions. In a sea of often mediocre publisher apps, there are some real standouts–some of my favorites include National Geographic iPad version, the travel magazine TRVL and The Economist–that deliver an excellent balance that improves the tablet version over the print version.

Now, in addition to Apple’s iTunes, Amazon (and to a lessor extent Barnes & Noble) offers publishers additional digital distributions channels for paid subscriptions and digital newsstand copies. Outside these channels, the general Android marketplace is still searching for an efficient app marketplace for paid content. The industry consortium Next Issue Media (NIM), which represents Condé Nast, Hearst, Meredith, News Corp and Time Inc., has, so far, failed to achieve momentum, but maybe NIM will redeem itself in 2012 with an HTML5 strategy.

Publishers will continue to face a very challenging and fragmented market. They have to deal with Apple’s hardware dominance. Most mainstream publishers have somewhat reluctantly come to the conclusion they cannot ignore the iPad platform and have come terms with Apple–although there are some notable exceptions including Time magazine and the Financial Times. In rejecting Apple’s App store, the FT has developed a sophisticated HTML5 approach allowing content to be viewed in a mobile Web browser.

Although there are many compromises, an HTML5 approach allows publishers to take advantage of the growth of the tablet market without restricting themselves to any operating systems. As HTML5 continues to grow in sophistication, I expect the major publishers will experiment with both an app and HTML5 strategy.

On the iOS platform publishers can distribute directly via Apple’s Newsstand and also via Zinio’s reader app. Neither approach really gives the publisher the customer information they really want. On the Android platform the main app options for publishers are to go through Zinio (for tablets other than the KIndle Fire and Nook). For the Amazon and Nook platforms publishers can deal direct or go through Zinio. The publishers’ life is further complicated by a slew of app content aggregators – with Flipboard leading a very crowded field which recently saw the entry of Google’s Currents. Managing advertising and content metrics across these multiple platforms is extremely challenging.

Further clarification – the Zinio app on the Kindle Fire is not showing up for many users but instructions for downloading the app are available via Zinio’s site.

Where’s the breakthrough?

I believe it depends on the segments being served–the B2B market has always been more of a data information and service business and should see strong opportunities to drive revenues via quality information services targeted to their audiences. The key media brands can continue to play a trusted role aggregating services–content (original, aggregated and peer-to-peer /social), directory and supplier service, links to physical conference and events. Lead generation, premium paid services and sponsorship will be more important revenue streams than CPM-based advertising. In the long term, B2B publishers should really benefit from wider distribution as they can drive revenues outside of advertising.

For consumer publishers, it’s a greater challenge, but the B2B market can provide some pointers. Consumer publishers (and some are moving there) need to be more vested in the (customer) data business. They have to better understand the needs to their customers and engage with them through valuable content and services not just relying on impression based advertising.
The rapid move to mobility

The transition to consumption of content via mobile devices has been evident for several years–the technology and related services are now catching up with the vision. A mobile strategy needs to be at the center of all publishers’ long-range planning. The major challenge is that past revenue models are not transitioning easily to the new medium. Inevitably, the industry will go through a few more years of pain while new revenues models for the mobile world become obvious.

But the good news is that despite all the challenges, premium brands actually become more important as quality content is consumed by a wider audience and audiences look to trusted brands to guide them through an increasingly “noisy” content world.

The road ahead will be a bit rough but all publishers should be excited that in 2012 their content will be distributed much more widely and they will have a change to engage with new audiences.

That’s not a bad outlook.

This article originally appeared at MinOnline