Death of the tablet market, long live the iPad

Recent weeks have seen both the launch and the death of what was supposed to be a major competitor to the Apple iPad; HP’s webOS and TouchPad tablet. All wars have victims, but i’m sure even Sun Tzu would agree that the tablet market is making it too easy for Apple at the moment.

Fact is that the tablet market did not really exists before Apple launched their iPad so they immediately defined the category and set the benchmark for which all other tablets would be judged. So what did the competition do, they tried to capitalize on the consumer interest in tablets by launching a bunch of ‘copy cats’ that although might have equal or better technical specifications, failed to have produce a different, relevant, and credible alternative to the iPad. Don’t get me wrong, i believe that the Android OS provides a credible alternative to iOS, and it is clearly different. This is not an issue of operating systems, although the whole infrastructure surrounding it plays a big part, but rather of positioning in the market. So far the competition has been “me too” followers, and in this case, the consumer is not stupid.

As Sam Grobart in his Gadgetwise article correctly pointed out, there has been a lack of competition in the tablet market that has played right into the hands of Apple that during the last year has not had to discount or reduce prices on their iPad to continue to dominate the market. They are the category leader and it is up to everyone else that seriously wants to compete in that market to challenge them, or at least to find a niche where they can be different in a relevant way to the target customers. Instead what we have got is a run of tablets that visually don’t come close to the iPad, lacks the same suite of applications and choices, but at the same time charges the same price. Where is the logic in that?

There are of course several factors in play here, and the strategy each competitor has in the tablet market is largely unknown to most of us. When Apple launched their iPhone they changed the smartphone market through design, user friendliness, and the application market. They spent time building up their relationships within the supply chain, and they created demand amongst consumers. They built up an infrastructure that has been the key factor in the successful launch of the iPad into the tablet market, a market that many experts did not necessarily believe in. By building a whole ecosystem around their products that promote ease of use, and in many ways a lack of open flexibility, they reeled the customer in and built up barriers of entry for future competitors by making the potential cost of switching higher for the user, or barriers of exit if you like.

Supporting the closed and exclusive Apple ecosystem is a myriad of patent rights that we now see are being used to (a) stop competitors from applying the same/similar design as the market leader, and (b) to increase the cost of entry through licensing deals.

As this article in The Economist pointed out, once HP had made their decision to exit the tablet market and reduced the price of the TouchPad to clear stock, their tablets flew of the shelves. Of course selling a tablet for $99 that cost them over $300 to produce does not make good business sense, unless you are looking to gain new customers that will spend significantly more money buying associated products from you. Production cost of a tablet makes it difficult for anyone to compete head to head with Apple, which already is either the leader or close to it when it comes to production cost for a tablet.

So, how can anyone challenge the Apple iPad in the tablet market? They have to be strategic about it and have a clear understanding of how it will fit with consumer needs and their own business objectives.

One of the key success factors for Android based smartphones have been their relative lower entry cost for consumers compared to the iPhone, and the sheer volume of handsets being introduced into the market trying to fill the need of different market segments. We are seeing something similar with Android based tablets, but the problem is that the tablet market is much smaller than the smartphone market, making it more difficult for any manufacturer to achieve any economies of scale. Google buying Motorola Mobile could be a step in the right direction as it, besides the patent rights, turns Google into a producer of tablets and not just a platform provider. Hardware is not Google’s priority however, but strategically it can make sense to get better control over content delivery and how they can increase their core markets of delivering content and advertising.

That is the same reason why Barnes & Noble can sell their Nook at a lower price, and why perhaps the biggest threat to the Apple iPad comes from Amazon. The Kindle changed how we consume books and literature, just like how the iPad has helped change how we consume and interact with media. Amazon has the content ecosystem in place to allow them to launch into the tablet market with a competitive product and price, allowing them to make their margins selling digital content through their already established and successful stores.

It will also be interesting to see how Microsoft will approach the market going forward, with Windows 8 trying to merry up the user experience across all platforms (computer, tablet, smartphone). Given how many people already own a PC and are familiar with the Windows platform and their suite of products, if they get the content side right there could still be hope for Microsoft in the tablet market. They are not likely to be able to convince the early adopters that have already jumped on the Apple wagon, but as the tablet market matures there could be some great opportunities for those that get their strategy right.

So while i proclaim the death of the current tablet market at the hands of the Apple iPad, the war of the tablets is still up for grabs if anyone is willing to truly play the game right.