The Analyst Lament: If Your First Prediction Doesn’t Succeed, Try, Try Again

May 8th, 2012

Not so long ago I read a piece that quoted a supposedly respected industry analyst suggesting that the iPad’s share of the tablet market would begin to take a huge dump later this year or the next. With more and more Android tablets with which to compete — and don’t forget the Android-powered Amazon Kindle Fire — along with the forthcoming expected avalanche of Windows 8 tablets, Apple’s overwhelming dominance may be short-lived.

Now I suppose the estimates about a declining market share might have been vindicated some because of the apparent success of the Kindle Fire, a 7-inch tablet, in the holiday quarter last year. On the other hand, the latest reports of sales appear to indicate that the Kindle Fire has tanked. While lots of people were willing to try them out as possible gifts, the Fire doesn’t seem to have staying power. That’s clear. Worse, if Amazon does deliver a 10-inch version, as reported, the higher price will put it in iPad territory. Amazon has not yet demonstrated the ability to compete in the general-purpose tablet space.

Now I suppose it’s possible millions and millions of customers will embrace Windows 8 tablets. At the same time, though, it hasn’t been proven that Microsoft’s Metro interface will succeed. It didn’t do so well on the Zune or on Windows Phone handsets, so you wonder why Microsoft is so willing to invest in an unproven interface on one of their most important products. Because Apple is adding iOS elements to OS X? Is that what inspired this potential train wreck?

One thing that Apple has demonstrated is that hardware only counts to a point. It’s mostly about software, except for the third generation iPad’s Retina Display, of course. Otherwise, customers need an elegant OS, and loads of apps to buy. Apple says that over 200,000 iOS apps are optimized for the iPad. There are hardly any on the Android platform, which may be one reason why Android tablets have failed. With a Windows 8 tablet on an ARM processor, you won’t be able to run traditional Windows apps. I realize Microsoft isn’t hiding that unfortunate fact, but it may not be obvious to people who buy a Windows 8 tablet thinking that, since the interface is essentially the same as a PC, it must run Windows apps too.

Sure, it’s quite possible that Microsoft will be able to lure a reasonable number of developers to the platform, though the selection on a Windows Phone handset don’t come close to competing with the iOS and Android in any meaningful way. Developers aren’t going to build new versions of their Windows apps if they don’t see the potential for a decent return on their investments with a Windows 8 tablet. That’s the nasty fact that Microsoft may hope to obscure, or overlook, but customers aren’t going to be rushing to embrace a new platform unless they can run the apps they want. Sure, there will be a tablet version of Office, but what about all the other Windows apps that Microsoft’s customers want?

You wonder if Microsoft will try to allocate lots of money to persuade, some say bribe, Windows developers to deliver their apps for the new tablet OS. But even if a developer is persuaded with some sort of spiff to build such an app, they aren’t going to hang around long if there aren’t many customers.

So, yes, I suppose it is possible that the growing competition will mean that the iPad’s market share will decline over time, and maybe the latest estimate that it’ll dip below 50% by 2017 is true. Or maybe it won’t happen until the year after. But don’t forget many of the same so-called experts who are looking for Apple’s decline were once saying the same thing about the iPod.

In a sense, the iPod is in a similar position to the iPad. In 2001, digital music players had gone nowhere. The iPod turned a failed market around. Imitators jumped in, hoping to get a piece of the action, but the iPod held onto a market share in the 70% range plus or minus a few points. When Microsoft’s Zune arrived, and pretty much killed other potential iPod killers in the process, it basically went nowhere, but it still took a few years for Microsoft to take the hint and give it up — except for the interface that will, it appears, never die.

The iPad also entered a market that had shown promise but little success. The Apple bashers were skeptical, but the iPad took off far faster than I bet even Apple expected. As more and more competitors arrived, they believed it was inevitable that the market would soon be dominated by other players. They came closer, as the iPad’s market share dipped below 60% in the holiday quarter. It’s estimated to be 68% now.

Of course, when evaluating the iPad’s piece of the pie, estimates of competitor sales may be far off the mark. Amazon doesn’t report how many Kindles they have sold, let alone how many of those Kindles are Fires. Some companies will offer figures that are based on units shipped, not units sold. Don’t forget the HP TouchPad, whose departure left dealers with lots of excess inventory because HP flooded the market, perhaps to be able to honestly report that they shipped loads of them. Yes, dealers held a fire sale, selling the things for $99, and lots of people bought them up. But it’s a dead product from a dead platform, and not much more than a curiosity these days. That’s no way to compete with Apple or anyone else if a company hopes to sustain a profitable business.

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4 Responses to “The Analyst Lament: If Your First Prediction Doesn’t Succeed, Try, Try Again”

  1. Don says:

    One thing you didn’t mention was that the Kindle Fire is a “loss leader.” That is, Amazon loses money on each Kindle Fire sold. They sell it at a loss hoping to make it up by selling other products that use the Fire. They can sell a larger Kindle Fire by simply losing money on each one. This matches Microsoft’s sales techniques on the XBox where they lost billions of dollars yearly.

    • @Don, You’re new to this site. We have mentioned Amazon’s marketing plan for the Kindle Fire and other Kindles a number of times in the past.

      But Amazon would likely place a 10-inch Fire in the $300 range, making it a harder sell against a $399 iPad 2.


  2. blad_Rnr says:

    Also, don’t forget that MSFT will only be making money on Windows 8 licenses for any tablets that are sold with their OS (unless they start making their own tablets, which I doubt). How much could that possibly be? How many licenses would they have to sell to equal the revenue on one iPad? Or to equal the profits Apple makes on their iPads? So even if Windows 8 for tablets gets any traction they will never make the kind of money Apple is making. Same with their Windows 7 phones. Apple will continue to make the lion’s share of profits on smart phone and tablets for the foreseeable future.

    • @blad_Rnr, I’m real curious how much Microsoft will charge with the “crippled” Windows 8 — crippled because DVD playback has been removed. While Mountain Lion may, like Lion, list for $29.99, leave it to Apple to make it a free upgrade. It wouldn’t hurt them much, but Windows remains a large part of Microsoft’s revenues.


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