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Phablets Are Killing The iPad

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Yesterday, Apple Inc. (NASDAQ:AAPL) posted solid financial results for fiscal Q2, mainly on the back of better than expected iPhone sales in China and Japan. However, a lot of discussion seems to be revolving around the sudden slowdown in iPad sales. I think explaining this decline requires a small addition to my previous analyses on usage based segmentation and the structure of the tablet market.

One key point I may have missed in my previous analyses is the interplay between the smartphone and tablet markets. Most industry observers dismiss the impact of “phablets” because they are a “niche in emerging markets”. This view is problematic, mainly because the definition of phablets is too restrictive — Is a 4.95″ smartphone any less of a phablet than a 5.3″ smartphone? Getting caught up in semantics distracts us from the real pattern here — large screen smartphones seem to be cannibalizing computing time from tablets.

When I compared my usage based segments of the smartphone and tablet markets, I noticed a major overlap between smartphones used as pocketable computers and tablets used for media consumption. In effect, the need for today’s tablets seems to be stronger among low-end (non-computing) smartphone users. This explains strong demand for low-priced Android tablets in emerging markets and their usage patterns (primarily video and media consumption).

With this background, the sudden decline in iPad sales may have been caused by a combination of the following factors:

  1. Most high-end consumers who need iPads already own them (and as some analysts have pointed out, replacement cycles are long)
  2. Large screen smartphones have made media tablets somewhat redundant, i.e. the iPad is no longer a “necessary” purchase for “phablet” owners
  3. The iPad is priced out of the market segment that still finds media tablets “necessary”
  4. Upmarket movement is limited because tablet use cases still haven’t evolved to cannibalize more productivity-related computing tasks (I may have overestimated the pace at which this would occur)

This article first appeared over: Tech-Thoughts

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