RBC Expects (Erroneously) Android to Dominate Tablets by 2014

| Analysis

RBC analyst Mike Abramsky believes that Google’s Android OS is going dominate the tablet market by 2014, though he defined “dominate” as Android having 40% market share by that time. The deciding factors, according to the analyst (who also covers Apple), will be innovation from Apple’s competitors and the appearance of cheap Android tablets from Asia.

“While Apple’s iPad may continue to set the bar high for experience, we expect Android to dominate (40% share Tablets by 2014), given its broader support from OEMs and carriers and expected budget-priced Android Tablets from Asia,” Mr. Abramsky wrote in a research note to clients obtained by Boy Genius Reports.

Innovation & Cheap Competitors?

This despite the fact that so far few Android tablets have shipped and those that have are markedly more expensive than Apple’s iPad line. While many and more Android devices were shown at CES, most of them haven’t yet shipped. Apple’s main competition in tablets so far has come from the $799 Xoom ($599ish in WiFi only), and the Galaxy Tab from Samsung, priced at $899.

Apple’s iPad line starts at $499 ($399 if you want the models that the Galaxy Tab and Xoom were designed to compete against in the first place), or $629 for a 3G model ($529 for the original iPad with 3G). Which is perhaps why Samsung said today that it wants to rethink its Galaxy Tab line to be more competitive with iPad 2.

This is the best Apple’s competitors have been able to turn out so far, and the so-called competition has defined Apple as the price-leader and chief innovator, not the other way around. This isn’t likely to change any time soon, either.

For one thing, Apple reportedly has 60% of the global supply of capacitive touch displays locked up in contract, and the company has similarly locked up supply of other critical components. This is a big part of how Apple has been able to crush it when it comes to price, and it’s not something that can easily be overcome by even large competitors (for instance, Samsung and Motorola), let alone smaller competitors. Apple’s buying power earns it the best prices, period.

For another thing, the entire smartphone, PC, and tablet industry is trying to copy Apple. Not one competitor has so far shown any bit of innovation at all. Almost all of the competing tablets we’ve seen look like iPads, and Google isn’t doing much of anything to differentiate its OS in terms of look and feel. Indeed, we have to look to Microsoft (of all companies) in the smartphone market to find any example of a company not trying to copy iOS, and Microsoft isn’t close to ready to try to bring a new OS to the tablet market.

With all of this reaction from Apple competitors, it’s hard (i.e. impossible) to imagine where the innovation Mr. Abramsky is predicting will come from.

Apps Matter More on Tablets

Another deciding factor in what we believe to be Apple’s continued dominance of the tablet market is the company’s huge lead in apps. It is our belief that apps matter more for tablets than they do for smartphones. Most folks need phones, and if you need a phone anyway, a smartphone makes the most sense for a lot of people. The ability to surf the Web, do Google searches, and get directions is the killer app of the smartphone.

Apps, on the other hand, are the icing on the cake for smartphones. Great games, Kindle apps, and Craiglist apps aren’t so much selling smartphones as they are making smartphone get more use. Apple’s iPhone has done well in the smartphone market because a lot of people like and appreciate that improved “more use” experience you get with Apple’s ecosystem. Android phones have taken the lead in unit sales because they are smartphones (i.e. surf the Web) and many are cheap.

Tablets, on the other hand, are all about the app. We don’t need a tablet, we want one, and we want one because it does a lot of things better than either a laptop or a smartphone (to borrow from Steve Jobs). Those things are defined by apps — if a tablet doesn’t have apps, the ability to surf on the couch without a laptop just isn’t a good enough reason for most folks to get one especially if they actually have to pay more for it than they would an iPad.

When it comes to tablet apps, Apple’s lead here isn’t just crushing the competition, it’s defining what a tablet is and how it is used. While there will eventually be more Android apps than there are today, we don’t see the platform catching up to Apple’s iOS platform as a whole, let alone on the tablet-specific side, and if there are no (or relatively few) apps, consumers won’t buy Android tablets, which will perpetuate this cycle.

Again, this is in stark contrast to the smartphone market, where Internet access is the killer app and all the other apps are just the icing on the smartphone cake. Android smartphones surf the Web quite well, and that’s good enough, especially for the good enough crowd that has allowed Windows to dominate the PC market for so long.

Analyze This

Any analyst making projections fpr the tablet market based on the smartphone market (or, heavens forbid, the PC market) have missed the forest for all those damned trees that keep getting in the way. Apple’s buying power combined with its app lead and the importance of the app experience in creating demand for a tablet in the first place are going to allow Apple to maintain the kind of dominance the company had (and still has) in the digital media device market with its iPod.

Smartphones are not tablets, and every Wall Street analyst following this market needs to do what they can to grok that notion if they want to be able accurately predict where it goes.

Comments

daemon

Smart phones may not be tablets, but they’re not PC’s either, yet what’s happened?

BurmaYank

As we watch the iPad explode into the Enterprise, government, academia and elsewhere, and we debate how well its pad-rival systems will compete in this expansion, I can?t see how there could ever be any room at all for Android in the Enterprise and government (+/- academia).

Since Google must always exploit/capitalize on its users? personal data, and since Google?s webcloud engine is the lifeblood of Android (Linux is only Android?s skeleton & Java only its musculature), how can any corporation?s ITO afford to tolerate any functional interface between his/her corporation?s information system and an Android portal to Google?s datamining suction?  (And if those institutions could somehow contrive to effectivlely block that datamining suction on their Android devices, how could Google afford to support them without getting any compensation from it?)

So, if there thus could never be any room at all for Android in the Enterprise, etc., how much longer will Android be able to continue successfully competing in the world at large against its rivals (iOS, BB,  WM7 &/or WebOS), which have no such inherent bureaucratic firewall blocking them out of widespread incorporation into institutions?  Mightn?t Android thus eventually be relegated to a Linux-like niche role outside the social mainstream?

Scottw01

Wow, a techie pi$$ing match.  How original.
My dad can beat up your dad.

jon

yes, the “we have more apps” will help apple maintain a dominate lead in the tablet market, just like its helped them keep the lead in phones…

you can talk all you want about the variety of apps that are available for apple products that arent available for android, but the difference between 250000 apps and 350000 apps isnt really that significant, especially when you consider the apple stores censorship policies, the fact that there are significantly more devices available on the android platform.

saying apps will keep apple in the lead is a theory that has been proven wrong. apple is losing the smartphone war, and recent surveys show that they are tied with RIM, which has no significant app store to speak of.

it seems presumptuous to state that a device is going to crush its competitors, which havent even been released yet, based on a theory that has failed in a similar market.

John

I love that Apple fan boys whine after someone says something bad about apple.  Come on Apple is not perfect, no one is so stop your chest beating over nothing.

bruce.wayne

youre saying that a bunch of android devices that havent been released yet CANNOT POSSIBLY beat a device that is built on a platform that has been steadily loosing ground to android sometime in the next three years? solid analysis.

acseric

fyi - most of the android apps wont run on android 3.0

Andriod may catch up, but the problem is that they are pretty much starting from square one app wise.

Magu

Even if android become the market leader how will google make profit out of it? By selling ads on the device?

Jao

I think Burma hit it on the head, and the article had some good points too.

eboda

well, correct me if im wrong, but i think apple is lacking in native support for something… i dont remember what it is… but i think it was important to web browsing….

Kevin

I just sold my iPad. Apps only get you so far when the OS is limiting them. How many useful applications for desktops/laptops are there that can’t integrate themselves with other applications? Tablets will never catch on completely if all we have are fart apps and apps to tell us where to eat dinner.

TrthHurts!

You techies sound like you are speaking a language from the planet Voltron!

teamtactics

@burma,

yes, apple does compile less data on its users, but how does maintaining complete control over every aspect of the device and all software developed for said device make it more enterprise/government friendly?

Bosco (Brad Hutchings)

fyi - most of the android apps wont run on android 3.0

Wow, you obviously aren’t part of Charlie Sheen’s #winner campaign, because #winners know what the hell they are talking about. #FactCheck

Lee Dronick

well, correct me if im wrong, but i think apple is lacking in native support for something? i dont remember what it is? but i think it was important to web browsing?.

It isn’t important for browsing

daemon

It isn?t important for browsing

It is if you’re interested in fashion.

mhikl

how can any corporation?s ITO afford to tolerate any functional interface between his/her corporation?s information system and an Android portal to Google?s datamining suction?

Right on, BY! The only bit of sense in comments.
You have awakened some good points which I shall be putting to some thought.

Apple’s cake looks better baked more and more and more.

Bryan, one of your most insightful columns. Kudos.

OS11

It seems people are forgetting the iPad will retain 80-90% tablet market share for the next 4-10 years, so “haters” need to check facts before they post.

OS11

t 5:02 PM:
Come on Apple is not perfect, no one is so stop your chest beating over nothing.

And nobody has ever said Apple was perfect, but everyone agrees Apple is the closest to perfection there is by a very wide margin, so that’s what we all agree on.

David

saying apps will keep apple in the lead is a theory that has been proven wrong. apple is losing the smartphone war, and recent surveys show that they are tied with RIM, which has no significant app store to speak of.

Define losing? Just because they don’t sell as many iPhones as there are ‘android’ phones doesn’t mean they are losing. Because there aren’t any android phones, just smartphones that run the android os. It’s like calling a Dell computer a Windows computer - it’s not, it’s just a computer that can run Windows. Apple makes the hardware, the software, and the app store so I’m guessing they are making a lot more money than Motorola/Samsung, etc..copycats…are making selling their phones.

Michael P

As a former Mac maniac,owning every iPhone and a macnut since 1997, I can assure you, Android buries os X/ios etc apple in every respect. The annalist is correct, the ‘I’ days are numbered…

BurmaYank

“@burma, yes, apple does compile less data on its users, but how does maintaining complete control over every aspect of the device and all software developed for said device make it more enterprise/government friendly?”

As I said, above, Apple is obviously much more enterprise/government friendly because it does not market or otherwise share any of the information it compiles on me with anyone else, whereas Google must sell the information it compiles/mines on its users like me to advertisers (and who knows who else) if Google it wants to stay in business.

Enterprise/government users obviously cannot afford to interface their information systems with such datamining & personal info-selling services as Google/Android.

OS11

youre saying that a bunch of android devices that havent been released yet CANNOT POSSIBLY beat a device that is built on

yes, we all know nobody can beat the iPad in the 4-10 year timeframe. the iPod was never beat and it’s been 10 years!

nobody has come even close to the iPhone and it’s been 4 years, so we all need to be glad Apple will have the best tablet devices for at least 4-10 years.

who out there is even geared to compete with the iPad? nobody has appeared yet don’t forget.

Apple has worked on tablets for over 28 years, so it will be at least 20 years before we see a serious competitor.

OS11

control over every aspect of the device and all software developed for said device make it more enterprise/government friendly

it makes it more user friendly, that’s obvious.

Lee Dronick

It is if you?re interested in fashion.

I am not, are most fashion sites Flash based?

OS11

yes, the ?we have more apps? will help apple maintain a dominate lead in the tablet market, just like its helped them keep the lead in phones?

but the iPad has 65,000 apps, Android tablets have less than 100. Nobody wants Android devices, programmers HATE the Android since there is no programming environment and they can’t make any money. The Xoon ended up as the next Zune.

It’s the disaster of Linux all over again.

Check facts before you post.

BurmaYank

daemon said:  “It is if you?re interested in fashion.”
I am not, are most fashion sites Flash based?

Oh great!  Just what I needed:  Another compelling reason to loathe anything related to fashion, and to avoid Flash at all costs.

When oh when will I ever attain a steady mind of serene equanimity?

mhikl

Sir Harry, I’ve seen your pic so smart move to skip the fashion. Me too. Skinny legs and a grin that has no off button.

Keep words as your sport and you’ll do fine.

Have you noticed a lot of Droid fleas about lately or have I been at the pipe too long.

mhikl

OS11 Did you just wake up from a coma?
You’re on a role, man. smile

Lee Dronick

Sir Harry, I?ve seen your pic so smart move to skip the fashion. Me too. Skinny legs and a grin that has no off button.

Keep words as your sport and you?ll do fine.

Have you noticed a lot of Droid fleas about lately or have I been at the pipe too long.

I am not into fashion, but I am into style. Hey, if you have skinny legs you could be a model. Anyway, getting back to Flash, I have noticed that fashion and themovie.com sites aside I am seeing less and less Flash on webpages.

I think that the Android fans subscribe to Google alerts or something similar and come here to make their case.

jon

Define losing? Just because they don?t sell as many iPhones as there are ?android? phones doesn?t mean they are losing. Because there aren?t any android phones, just smartphones that run the android os. It?s like calling a Dell computer a Windows computer - it?s not, it?s just a computer that can run Windows. Apple makes the hardware, the software, and the app store so I?m guessing they are making a lot more money than Motorola/Samsung, etc..copycats?are making selling their phones.

no, its like saying that pcs are beating macs. android is “winning” becuase it is the platform with the largest market share, which is what the RBC guy said would happen in the tablet market in the next three years.

yes, apple may be selling more of its own devices (considering that the only real google phone is the nexus). but that apple will outsell any single device isnt the point this article is trying to make. its that the ipad platform will stay on top of the android platform. so in this case, “winning” is exactly what i said it was, overall market share, not individual device sales.

OS11

i dont remember what it is? but i think it was important to web browsing?.

apple supports everything related to open browsing, they even passed the ACID test at 100%, so they are the king if you want to surf the web based on open standards.

jon

but the iPad has 65,000 apps, Android tablets have less than 100. Nobody wants Android devices, programmers HATE the Android since there is no programming environment and they can?t make any money. The Xoon ended up as the next Zune.

same argument was used to say that android phones would never take a lead on iphones. whats the stats on that now?

check your facts before you post

Lee Dronick

OS11 Did you just wake up from a coma?

I used to go by the handle of Edison Carter, you know Max Headroom and it being 20 seconds into the future.

Getting back on topic. A lot could change by 2014. Steve could be gone and Apple become Balkanized and giving some other OS a chance to be ascendent. Would it be Android, or something new. If it is something new they better be working on it now.

jon

nobody has come even close to the iPhone and it?s been 4 years, so we all need to be glad Apple will have the best tablet devices for at least 4-10 years.

again, the article said android, not one specific android device. in that respect, the iphone has been behind for a while now.

jon

Enterprise/government users obviously cannot afford to interface their information systems with such datamining & personal info-selling services as Google/Android.

yes, but they can deal with apple deleting their products or disabling their devices for no real reason

jon

it makes it more user friendly, that?s obvious.

tell that to users and developers who have had their apps removed for arbitrary rationales.

jon

Getting back on topic. A lot could change by 2014. Steve could be gone and Apple become Balkanized and giving some other OS a chance to be ascendent. Would it be Android, or something new. If it is something new they better be working on it now.

exactly.

theyve been the #2 platform for desktops/laptops for decades. they became the #2 platform for smartphones after 3 years. why is it so hard to believe that they might become the #2 platform for tablets some over the next few years?

jon

It seems people are forgetting the iPad will retain 80-90% tablet market share for the next 4-10 years, so ?haters? need to check facts before they post.

how can we be forgetting something that hasnt happened yet? and how can you fact check an opinion about the future? “haters” need to look up the definition of “facts” before they post.

corphater

Isn’t the Apple also an Asian product?  I don’t see any Apple factories here in the US, only the Corporate Headquarters.
When will we stop supporting businesses that take advantage of poor countries to product less than quality goods?
Android and Apple need to reevaluate their priorities.

jlucb

Well, a really useless and blind article, one more among so many others…

First of all guys: competition is good.
It is good for customers, for quality of services, quality of products, for lower prices, ...

Second, accept it or not, today Honeycomb is just an amazing OS, just as webOS is - Honeycomb is better than iOS in many regards (notification, multi-task, widgets, desktop metaphor, ...). just as the iOS ecosystem is better than android plateform in many other regards (quality and number of apps, battery life, ...).

And this competition between ever improving products is fantastic for us all, whatever system we individually choose.

The reason why iPad would remain leader of the tablet market for at least one or two years are factual: ealier start for a now captive market, sublime product (hardware in particular, which is today unmatched), formidable provisionning (high volumes of Ipad 2 shipping earlier than competitors), and -surprisingly- lower prices ...

The reason for loosing grounds quickly to the competition (android) are equally obvious: Honeycomb is a fantastic OS, android has a gigantic user base (market leading in smartphone), broader support in terms of networks and manufacturers, and -soon-to-come, decreasing prices ....

The “application” argument is non-existant: Apple is today far ahead, Android will catch-up at light speed, as it already did for smartphones…

So, rather than playing blind fanboys, let’s enjoy healthy competition between fantastic, competing, products ...

jlucb

Well, a really useless and blind article, one more among so many others…

First of all guys: competition is good.
It is good for customers, for quality of services, quality of products, for lower prices, ...

jlucb

Second, accept it or not, today Honeycomb is just an amazing OS, just as webOS is - Honeycomb is better than iOS in many regards (notification, multi-task, widgets, desktop metaphor, ...). just as the iOS ecosystem is better than android plateform in many other regards (quality and number of apps, battery life, ...).

And this competition between ever improving products is fantastic for us all, whatever system we individually choose.

The reason why iPad would remain leader of the tablet market for at least one or two years are factual: ealier start for a now captive market, sublime product (hardware in particular, which is today unmatched), formidable provisionning (high volumes of Ipad 2 shipping earlier than competitors), and -surprisingly- lower prices ...

The reason for loosing grounds quickly to the competition (android) are equally obvious: Honeycomb is a fantastic OS, android has a gigantic user base (market leading in smartphone), broader support in terms of networks and manufacturers, and -soon-to-come, decreasing prices ....

The “application” argument is non-existant: Apple is today far ahead, Android will catch-up at light speed, as it already did for smartphones…

So, rather than playing blind fanboys, let’s enjoy healthy competition between fantastic, competing, products ...

spyderboy

Apps are SO 2010.  How many ‘APPS’ do you use on your desktop?  Sure, Photoshop, Dreamweaver, etc.  But for games and facebook and email and 99% of what you do? 

Give me a mobile browser that does EVERYTHING my browser on my desktop does. Android devices like the Xoom don’t do that yet, but it won’t be long. 

iOS looks like it is patently against a fully functional browser, since that would provide competition for their iTunes only path.  Unless they change that, 2011 will be The Year Apple Lost The Plot, and they will continue to fall behind.

Jmd

acseric said:fyi - most of the android apps wont run on android 3.0
Wow, you obviously aren?t part of Charlie Sheen?s #winner campaign, because #winners know what the hell they are talking about. #FactCheck

Neither do you. Here’s a quote from a TechCrunch Xoom review re v2 apps:
http://www.crunchgear.com/2011/02/23/review-motorola-xoom-the-android-tablet-redefined/
“I had quite a few app crashes and many apps designed for 2.x devices crashed. Google Body, remade for Honeycomb, crashed every other try.”

Yah, sounds like v2 apps work just fine wink

Great, you pay more for a Xoom and even Google can’t get it’s own apps to run on it. Don’t panic, I’m sure perpetually beta android will run all that malware available on the app store just fine wink

Then again the same review says everything will be sorted out by 3.1 or maybe 3.5. If your lucky your carrier will even let you upgrade to it.

And that review was from TechCrunch who everyone knows just love Apple gear wink

Wow, Android is such good value. Pay more and get less.

wab95

Bryan:

Great post, well-reasoned. Interesting responses, even if some are a bit off-topic. A notable exception being BurmaYank’s excellent summary of the enterprise dilemma. This will be a challenge to Google’s model, though not insurmountable.

I just want to underscore a key concept here that you mentioned; a tablet’s OS creates the user experience, but the apps define it. App developers need to eat. They are going to go where they can make money, and right now, as several websites have pointed out, earnings are 10:1 Apple over the competition (5K vs 0.5K per average app).

User uptake follows functionality. The key functionality of a smartphone is connectivity (phone, email, internet - the essentials). The key functionality of a tablet is, thus far, content consumption and production (books, games, magazines, journals, productivity-related including composition and presentation). This will evolve. The point is, one cannot conflate the market performance of a smartphone, simply because it shares an OS, with that of a tablet. They are distinct in functionality, a distinction that will be drawn into only starker contrast in time. (And BTW, in my opinion, the iPhones are doing just fine.)

But many of the posts above seem to confuse market share with market presence (we will come back to profit share in just a moment). As you’ve pointed out, it is Android that is imitating Apple, as well as OEMs porting Android, and not the other way around. And for good reason. Apple have defined the tablet, and everyone (as you’ve said, except Microsoft, curiously enough) from OS makers (Google, WebOS), to hardware manufacturers (Samsung, RIM, HP) are rushing to imitate. Why? Because prior to Apple showing the way, they had no idea what a tablet should look like, what its OS should be and do, or even what exactly anyone would do with it. Indeed, they appear to have not even priced its specifications, hence theirs are more expensive than Apple’s even when comparably spec’d. To paraphrase a newspaper cartoon regarding the iPad, ‘The last time there was this much excitement about a tablet, there were a few commandments written on it’. Apple is the pace setter here, and where it leads, others are following (with derivations on a theme). Why is that important?

Because market share is of little consequence if it is not accompanied by profit share. Why? Because consumers are drawn to innovation (something that does what nothing else does, or at least not as well). Innovation is driven by R&D. R&D are fed by dollars, which in turn are derived from profits. No profits, no R&D, ergo no innovation and hence, no consumers. That is the beauty of the market place; the warp and woof of its poetry of success and failure. The reason why Apple has dominated the industry, not just in its iOS devices (I know I just said one cannot conflate phones and tablets, but I’m talking devices generically), but the computer space as well in profits, design and market gains, is innovation. This brings the greatest prize for a ‘for profit’ entity, consumers. Apple dominates because it has won and retains public and industry mindshare - a consumer derived phenomenon. Google, HP, Microsoft, Dell, Samsung, Sony (one could go on) would die to have it.

And unless and until a competitor differentiates themselves with an innovative alternative and not a pale imitation, or Apple implodes under the weight of foolishly accepting to be the centre of mass for the tech world as MS once was (which hopefully Apple will eschew), this is not likely to change. This then is an irresistible magnet for software (app) developers, hence the apps continue to expand and evolve.

As for mere market share, currently Nokia is king among the handset makers, and an object lesson as to why, in the absence of profit and mindshare, it is of little comfort indeed.

BurmaYank

“... A notable exception being BurmaYank?s excellent summary of the enterprise dilemma. This will be a challenge to Google?s model, though not insurmountable.”

I appreciate your kind recognition of my question, wab95 - Thank you.

Here are a few more thoughts on this, which I’ve lifted from the Forum discussion on this topic “Mustn?t all Android devices always be taboo in the Enterprise?  (Ergo, won?t only iOS, BB,  WM7 &/or WebOS ultimately be the dominant mobile OS?s?)”.

“Google has mail and calendaring systems that they sell to academia.  My college is about to buy it.  They do not practice exploit the personal information of users in these systems, I am told by someone on the committee evaluating several products.  I have no details other than that, and being close to retirement I am not pursuing a lot of detail on it.  Implementation will happen as I ride off into the sunset.”

That’s encouraging to know, roni, but does that really provide enough information control for institutional needs on an Android device?

In order for institutions to adopt an Android device as an integrated component of their institutional information management systems, won’t they need much more security of personal/institutional information on that Android device than just what their specially-modified Google/academic mail and calendaring systems might be able to offer?  Doesn’t Google still need all its licensed (i.e., US & European, at any rate) Android devices to make money for Google by exploiting all user’s websurfing histories? 
- If so, mustn’t Android’s architecture therefore necessarily be inherently designed with too much external/foreign information-sharing proclivity & innate openness for most organization’s IT Systems to adequately control?
- If not, mustn’t that special institutional Android device’s specially-modified OS architecture therefore need to be so fundamentally re-designed, in order to (“artificially”) block such normal-to-Android external/foreign information-sharing & openness, that it would no longer work like Android for many/most Android apps?  And how much would such an institution need to compensate Google for the privilege of depriving Google of all that data-mining revenue from those specially locked-down Android devices?

wab95

Here are a few more thoughts on this


Many thanks for that link, BurmaYank. You raise some important questions for acadaemia. I am in process of introducing a tablet solution to my South Asian field site for field and clinical data collection, and Android, of course, is on the list. Given our needs to please a number of masters, including the FDA, for our clinical trials, and the need to ensure security of all clinical data to meet GCP (Good Clinical Practice) standards, I am going to have to look more closely at this with my IT/Data security people. Your questions were helpful!

CityGuide

how does maintaining complete control over every aspect of the device and all software developed for said device make it more enterprise/government friendly?

In the enterprise I work for, it makes it very friendly indeed. In a world where many corporations have to comply with electronic communication regulations from Sarbanes-Oxley, Combined Code, the SEC, FINRA, HIPAA, NASD and FSA, the idea of a curated environment is not only welcome but mandated. One of the biggest complaints of our Blackberry users is that we impose additional restrictions onto the devices by way of activation policies. Apple’s corporate implementation of iTunes provides similar functionality. Android is not quite there yet.

Craigor

Bryan has one part of the puzzle with his assessment of the key functionality of the tablet being its applications (and not connectivity).

wab95 has got another part describing clearly how the economics of software development drives the health and dominance of once ecosystem over another.

Here is a third part: with the iphone, Apple was an entrant into a smartphone market dominated by RIM, Nokia, and Microsoft+partners. It redefined the smart phone and took market share from these incumbents.  Android was a fast follower and took market share from these same incumbents by offering a similar value proposition.  Apple’s exclusive with ATT and lack of a CDMA phone allowed Android to replicate its value proposition without directly competing with Apple and thereby establish its own ecosystem.  This was a strategic blunder on Apple’s part.

The tablet market is different because Apple was first to market.  It is the incumbent.  Any entrant must take market share from Apple.  There is no slow-moving incumbent, no Microsoft, no Nokia, no RIM to steal share from.  Only Apple.

These three factors together suggest that the smartphone market is a POOR comparison for the tablet market.  I think the PC market is actually a better comparison.  Here again, Apple was first to market.  Will the iPad go the way of the Mac - high end, niche and highly profitable?

Well, for one thing, times have changed.  Apple today is the largest (by market cap), most profitable technology company in the world, not a scrappy startup.  It also seems to have learned something over the years about foreclosing on a market.  Witness the iPod and its dominance over the market for MP3 players.

Here, maybe, is a fourth piece of the puzzle: switching costs.  My guess is that Apple continues to dominate the MP3 player and digital download market because people have a lot of money tied up in their music libraries.  The switching costs, for most consumers, would be enormous (is there a way to port your iTunes downloads to a Zune?).

Where switching costs are high, an entrant must offer a dramatically superior value proposition (in terms of functionality, price, or both) to gain a foothold.  So my question is this: how much do people invest in their apps?  For example, I just paid $150 for a Chinese dictionary, handwriting, OCR software for my iPhone.  Unless I can port this app to another platform for cheap, Apple has me locked in as long as it continues to offer a phone with functionality comparable to its competitors.

So I repeat my question: are people investing in their tablet apps? If so, it would suggest that tablet entrants must focus on new tablet adopters; forget about winning over switchers from the iPad. The problem for the entrants is that it will be hard to win new adopters if their value proposition/ecosystem is clearly inferior. Again, in the tablet market, superior/inferior is defined in reference to Apple; not a slow moving incumbent like Nokia.

Innovation is perhaps a fifth piece of the puzzle (the nail in the coffin?)  Unlike a slow moving incumbent like Nokia, Apple is a fast moving innovator. Try to offer a superior head-to-head experience using essentially the same technology as Apple in a consumer product market where Apple is defining the category?  Good luck.

We haven’t even gotten to price leadership and market power over the supply channel (number six?).

Ecosystem superiority
Developer support
Incumbent position
High switching costs?
Innovation pace setter
Price leader

So what is left for an entrant: think niche.

wab95

Here is a third part: with the iphone

Excellent points, well reasoned. Your points number three and four have been discussed in other forum posts, but are important reminders.

I think one thing many analysts do not pay adequate attention to, and is so obvious that it is hiding in plain view, is the change in consumer behaviour since 1984 and today. Consumers have become far more tech savvy about purchasing computer-related products than they were back then, but more importantly, they are less likely now to make purchasing decisions based primarily on what is being used in the office, and the attendant fear of not being ‘compatible’ with that space, than they are on servicing their own needs.

People with purchasing power are looking increasingly for personal and business (with an emphasis on personal) integrated digital management solutions with more than a passing lifespan. They want those solutions to be robust, simple to use out of box, integrate across devices and have a future. This is something else regulars have discussed at TMO, but touches on your point five.

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