Apple’s rumored tablet computer cannot live up to the hype, which has reached almost ridiculous levels of rumor, speculation and anticipation. The rumored tablet will fall short of expectations, because they are simply too unrealistic. What surprises me most about the excitement and early analyst sales projections: No one is talking about addressable market.
So I’ll assert what should be obvious to anyone thinking rationally and not emotionally: Tablet is a nowhere category. For all the hype about an Apple tablet , it is at best a niche product. The world doesn’t need an Apple tablet, no matter what the hype about rumored features or regardless of what actually releases (if anything).
As I will explain in this commentary, an Apple tablet — no matter how innovative — faces three distinctive market challenges: The greater desirability of smaller devices; overlapping functionality with devices above and below it; and functionality too limited without a physical keyboard. The question everyone should ask: What would you use an Apple tablet, or any other, for? Follow-up: What in the answer to that question is something you can’t do on an iPhone (or other smartphone) or laptop? I encourage Betanews readers to answer these questions in comments.
The Middle Product Syndrome
Late yesterday, I asked my good friend and long-time Mac journalist Jim Dalrymple what he would use an Apple tablet for? He didn’t immediately answer the question, which was unusual for either him or his famous beard. Eventually, Dalrymple told me that he would carry a tablet on his next trip rather than a MacBook. “You’re going to write stories on a touchscreen keyboard?” I asked. Yes — and he has written stories on iPhone. I internally chuckled, because that answer is one of the fundamental concerns about an Apple tablet.
Dalrymple couldn’t give me any good functions that can’t be done with iPhone. He can surf the Web, run applications, send e-mail, share digital content, consume digital content and more using iPhone. Apple’s rumored tablet — if there really is one — can’t functionally be all that different from iPhone, which also is a tablet. The UI may function differently, but cool doesn’t make a product practical. I don’t see how an Apple tablet, or any other, can be practically better than having a smartphone. Just the opposite: The smartphone is practically better because of its portability.
Apple is part of the reason why tablets cannot succeed in the current market. The iPhone already is a tablet, with touchscreen keyboard, always-connected Internet and pocketable size for an affordable price ( for the 3G model, subsidized). Sure, an Apple tablet could be much larger — say, 7-inch or 10-inch screen — but it wouldn’t be easily carried everywhere and likely wouldn’t have a constant Internet connection. How many people are really going to spend for two 3G data plans, just so they can carry a smartphone and a tablet? Others could carry a dumbphone and tablet, but they would still pay for extra wireless service. If there is no 3G, why should most anyone carry the device at all when the smartphone provides connected applications and a Web browser?
A tablet functionally lies somewhere between a smartphone and small laptop — even a netbook. There is too much overlapping functionality between the smartphone and laptop. I call it the middle product (like middle child) syndrome. The overlap won’t justify the price, which for the rumored Apple tablet Piper Jaffray analyst Gene Munster audaciously predicts will be 0. What? Are most users going to buy a touchscreen and tablet or tablet and laptop (and no cell phone) — or perhaps all three? The answer is no, no and no. If you disagree, comments are there for a reason. Use them.
Right now, Apple already sells in iPhone a sensible tablet useful for 90 percent (at least) of what most people might need from a larger tablet. Apple’s priority shouldn’t be a 7-inch or 10-inch tablet but a slightly larger iPhone with higher-resolution screen, faster processor, more memory and the ability to run background applications. Those improvements describe features available on some newer smartphones, including the HTC HD2 or Nokia N900.
Tablet is a Niche Product, Period
I haven’t read any online analysis or commentary seriously asking what an Apple tablet would be used for or what is the addressable market. In our conversation yesterday, Dalrymple asserted that there doesn’t need to be one. Apple will create it. I disagreed, using iPod and iPhone as examples, asserting that the company’s most successful products pushed into established markets, even if marginally created.
For example, when Apple got into the portable music player market, Sony had been there with Walkman (granted, analog tapes) for about two decades and portable CD players (granted, not all that portable) had been available for about half as long. MP3 players had been around in some form for at least four years before iPod debuted. A category existed that Apple extended, capitalizing on content people already owned (from CDs) or had stolen (from file trading sites).
The cell phone market already had an install base of several billion users when Apple released iPhone in June 2007. HTC, Nokia, Palm and Research in Motion had shipped more media-centric sophisticated handsets for years. Apple slapped a better user interface and user experience (UX) on the smartphone, but the category existed. Sure, Apple did in some ways redefine the category, but handsets sold well without iPhone.
The tablet market is different. While established at least as well as MP3 players when iPod debuted in October 2001, tablets are a niche category — and for good reasons. There is little mass-market use for the category; the middle product syndrome is one reason. I’d argue the market for tablets is even smaller today than 2007 because of iPhone and the dramatic increase in number of competing smartphones released in the past two-and-a-half years. A keyboard could extend the market, but whoops other smartphones and netbooks have got those already.
Microsoft has taken three shots at tablets, without much success:
- Tablet PC, as announced by Chairman Bill Gates during Comdex 2001
- Origami — officially known as Ultra-Mobile PC– unveiled in Spring 2006
- Windows 7 multitouch, supported by new tablet PCs shipping from October 2009
Microsoft also is rumored to be working on a new tablet concept called Courier. Plenty of other companies — Nokia and Sony, among them — have released different types of tablet, each failing to achieve mass-market success. The tablet started out as a niche device and, for the foreseeable future, it will remain a niche device, no matter how innovative is Apple’s design or user interface.
Some Apple tablet defenders will write in comments about the publishing possibilities, such as ebook functionality to compete with Amazon’s Kindle, Barnes & Noble’s Nook or the Sony Reader. Amazon had a great holiday season selling Kindle, which would seem to validate the idea that an Apple tablet supporting ebooks could sell as well or better. But most everyone is looking at Kindle the wrong way. The question shouldn’t be “How many Kindles did Amazon sell?” but “How many more Kindles could Amazon have sold if its ebook reader software wasn’t available for iPhone?” For many users, iPhone is good-enough ebook reader.
Will Apple Tablet be another Cube?
There is something about the rumored Apple tablet and its timing that is eerily familiar. History tends to repeat, which for companies is their repeating past mistakes. In summer 2000, Apple released the ill-fated Power Mac G4 Cube. I bought one. It was a work of beauty. But Cube was a niche PC suffering from the middle product syndrome. It functionally wasn’t superior to lower-cost iMacs but cost much more and also couldn’t easily be upgraded, unlike Power Mac towers. Apple overproduced Cube, expecting big sales. They never came, but a recession did, forcing Apple to issue a profit warning in autumn 2000.
Like today, Apple’s share price was soaring to record levels before Cube came along. In April 2000, the company’s stock closed at 1.75, after Apple announced a two-for-one split and strong quarterly earnings results. The day after Apple’s Sept. 28, 2000, profit warning, shares plummeted by nearly 50 percent, to around from .50 in early trading. On Dec. 6, 2000, Apple issued yet another warning, about sitting on 11 weeks of inventory, instead of the typical three or four. Apple shares slid another 16 percent to .31, marking their lowest closing since June 1998, about two months before Jobs introduced the original iMac. On Feb. 9, 2001, following another profit warning, Apple shares plunged another 14 percent.
The point: Apple’s stock has once again reached record levels, buoyed on the hype surrounding a product that may not even exist. If there is an Apple tablet, and the announcement is imminent as rumored, questions about market viability must be asked and answered. I also caution everyone that Apple’s high-flying stock today ahead of the rumored tablet’s rumored announcement remind too much of share price highs nearly a decade ago before Cube debuted. If the tablet can’t meet the hype, or turns out to fill a niche market, what happens to the price of Apple shares?
That brings me back to my assertion that iPhone is functional enough, more portable and better connected than could be any 7-inch or 10-inch tablet. Would you buy an iPhone and iPod touch? I expect that for most people the answer will be “No.” There is too much overlap in features and functionality and few additional benefits. If Apple’s rumored tablet runs iPhone OS (or something close to it) and offers App Store applications, what will really distinguish it from iPhone — other than better hardware, larger size and perhaps flashier UI? Are these features real benefits that would justify buying an iPhone (or other smartphone) and a tablet? You know my answer. Please offer yours in comments.
Update: After posting, I saw in my RSS feeds that John Gruber rightly asked: “If you already have an iPhone and a MacBook; why would you want this?” He concludes that Apple is “swinging big — redefining the experience of personal computing…The Tablet, I say, is going to be Apple’s new answer to what you use for personal portable general computing.” Gruber probably is right about Apple’s intentions, but I still say that the “new answer” is already here: The smartphone, a category where iPhone already redefines “the experience of personal computing.” The smartphone is good enough and it’s affordably priced. In most mass-market product categories, particularly technology, good enough defines success.