Analysts See iPad Success, Challenges

By Joseph Palenchar On Feb 8 2010 - 8:00am

Apple is trying to create a new product category by launching the iPad media tablet, and although the device will likely be a financial success for Apple, it's not certain whether it will be the game changer that the iPod and iPhone were, multiple analysts said.

The iPad faces the same challenges that any multifunction device encounters when entering a market populated by less-expensive single-function devices, including e-readers, portable media players (PMPs) and handheld game players, some analysts said. But Apple's user interface, wealth of downloadable applications and retail partners guarantees substantial success, as do the legions of Apple acolytes, they said.

“The iPad's success is expected to be substantial because a significant portion of the 200 million-plus users of iPhones, iPods and Macintoshes will want one,” said Egil Juliussen, iSuppli principal analyst.

Nonetheless, said iSuppli senior VP Dale Ford, “with the iPad straddling multiple product categories, and with the usage model for the product still unproven, it likely will be a number of quarters after shipments begin before we know whether the product will have a revolutionary impact on the technology world.”

Apple is trying to “create a new market by stimulating new user behavior and new use cases,” explained Jagdish Rebello, iSuppli senior director. “So while the iPad might appear to compete with many existing products in specialized markets like e-books, tablet PCs and PMP/MP3 players, the success of the product is intrinsically linked to its capability to change consumer behavior.”

NPD Group industry analysis director Ross Rubin believes the iPad has the potential “to win against dedicated devices.” The iPad “will face some of the challenges that have plagued [mobile Internet devices] as another attempt at a 'tweener' device. That challenge is how it competes against less expensive fixed-function devices such as portable game consoles, portable DVD players, digital picture frames, e-readers and portable media players when it is more expensive than many of these.”

“To win against dedicated devices, they [multifunction devices] must fill a critical mass of [multiple] needs well enough to justify the price premium,” Rubin continued. “With the iPad's app portfolio, developer attention and Apple's distribution, it has one of the best chances to date of making that case.”

iSuppli's Rebello, however, believes it might take “a few years” for the iPad to make its case. “While Apple seems to have all the pieces in place with its iTunes store and agreements with many content providers, it may take a few years before the success of this content-oriented strategy will become apparent,” he said.

ABI Research senior analyst Jeff Orr also thinks it might take a few years. “The main focus of media tablets is entertainment. A tablet will not replace a laptop, netbook or mobile phone but will remain an additional premium or luxury product for wealthy industrialized markets for at least several years.”

For his part, Forrester Research analyst Charlie Golvin also tempered his enthusiasm. “It will more likely sell to Apple acolytes,” he said.

“A lot of people who had been thinking of e-readers or netbooks will likely stay with their plans because of the price-point differences and different use cases,” Golvin continued. Although the iPad supports richer media, e-readers are a lot cheaper, more portable and lighter, and they deliver longer battery life, he explained. For their part, a lot of netbooks aren't robust enough to deliver a satisfying video experience, and they don't play back HD video, but they do let users browse the Web, get email and engage in some productivity uses like an iPad, and netbooks are less expensive, he said.

Stephen Baker, NPD's industry analysis VP, likewise said the iPad is “ultimately not a breakthrough device” and that it reminds him of a netbook because it will be a companion to a person's main computer. Like a netbook, the iPad will enable users to “have a more focused Web experience and a more media-centric device at a lower price,” he explained.

Unlike a netbook, however, Apple kept the hardware “simple,” eschewing a camera and focusing on “plain vanilla media consumption” to “prevent the sort of cannibalization and price compression that has occurred in the PC market since the advent of the netbook,” Baker said.

Strategy Analytics is more bullish on the iPad's prospects, contending that the device will cannibalize existing product categories of netbooks, smartbooks, e-book readers and mobile Internet devices. “Purchasers who were considering one of these devices will now reappraise the situation with the emergence of the iPad, which can perform many of the functions of the other products, while providing Apple's renowned usability and multimedia entertainment,” said Peter King, connected home devices director at Strategy Analytics.

Nonetheless, King said, each single-function device “still has its own strength and will retain consumer loyalty from dedicated users.” The iPad, he said, will appeal to consumers “who are mobile and have a further interest in books, music, games and location-based services,” in contrast with road warriors who must carry all their data with them and dedicated book readers who require E-Ink capability.

In-Stat senior analyst Stephanie Ethier also sees dedicated e-book readers appealing to different customers, at least for now. Although current e-readers can support a number of other functions, “fundamentally, customers are purchasing Kindles and Sony e-readers for a revolutionary reading experience,” she said.

Future generations of e-readers, however, will “evolve in such a way that the line between e-readers and tablets will blur substantially,” Ethier said. The “blur between tablets and e-readers starts within the year and will impact the outlook for future Kindle, and all e-reader, sales.”

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