Just ask any upset-minded team this week during the NCAA Tournament: the games don’t end in the first half.
A week after Apple’s second-generation iPad made its debut, it’s pretty clear Apple (NSDQ: AAPL) has another winner on its hands. Lines were longer than expected across the country at Apple’s retail stores and supply was short, leading to increased shipping times online. And once you got past all the hoopla, it became clear that the iPad 2 really was a cut above its fledging competitors: clearly a #1 seed going into the tablet tournament against a brand-new Android tablet operating system and devices from RIM (NSDQ: RIMM) and HP (NYSE: HPQ) that have yet to even take the court.
But such an early lead doesn’t mean it’s guaranteed a trip to the finals. After Apple previewed the device two weeks ago, entrepreneur Mark Sigal looked at the state of the tablet market on O’Reilly and argued that not only is Apple well on its way to dominating the market the way it came to dominate the portable music player argument with the iPod, but that it was “running up the score.” (Sigal’s column was highlighted by John Gruber of Daring Fireball earlier this week, who wrote “… count me in with Sigal on the big picture: the iPad is more like the iPod than the iPhone, and that’s bad news for Android.”)
Somewhat surprisingly, Apple has yet to release sales numbers for the iPad 2, so we don’t exactly know what the score is quite yet. There’s little doubt that Apple is out to a big lead, but despite Sigal’s well-argued piece it seems a bit presumptuous to declare the tablet market essentially over basically one year into its existence for one major reason: the tablet, unlike the MP3 player, is a platform for multibillion dollar media and software constituencies that are essential to making the device a hit with consumers.
Sigal makes several excellent points regarding why Android competitors won’t be able to chip away at the iPad the way they did at the iPhone. Unlike the iPhone, Apple has managed to secure iPad sales without required wireless contracts, meaning that carriers have less control over how the iPad is distributed and promoted. Apple’s network of retail stores is unmatched by any would-be tablet competitor. And hardware makers, like Motorola (NYSE: MMI), Samsung, RIM, and HP, are notoriously bad when it comes to their history of innovative and intuitive software development, the true differentiating factor in the modern mobile device and Apple’s greatest strength.
I’d even add a fourth: the iPad defined a category previously unknown to consumers, whereas the iPhone was merely the first smartphone that made the average person–not the traditional smartphone customer, the harried senior executive–pay attention to the concept. The iPhone was really chipping away at well-established brands like the BlackBerry, the Treo, and various Nokia (NYSE: NOK) devices, whereas the iPad didn’t really have a competitor until late last year in the Galaxy Tab, and didn’t have an inspired competitor until Google’s Honeycomb tablet software was ready for Motorola’s Xoom.
But the fact is there is simply too much at stake as the world shifts its computing habits more and more toward mobile devices like tablets for an industry to coalesce around a single player. MP3 players like the iPod didn’t offer other service providers a chance to play atop the device: it was Apple’s smart hardware design choices combined with the breadth and depth of the iTunes Store, rather than software and services running on the device, that made the iPod such a runaway hit. With the notable exception of the iPod Touch (really a phoneless iPhone), iPods didn’t really do anything except play music, videos, and maybe a few rudimentary games.
Tablets, on the other hand, offer enormous opportunities for media companies, game developers, and budding entrepreneurs with ideas no one has thought of yet to build businesses on these devices. They also give carriers–even without contracts–chances to sell more expensive data plans and another lifeline at avoiding their eventual dumb-pipe fates.
It’s true, however, that right now there’s no incentive to spend time building services around Android tablets: those businesses aren’t short-sighted enough in the near term enough to overlook the fact that Apple has both the best device and the most volume. But Apple’s insistence on keeping strict control of its platform tends to rub many of those people the wrong way, and there are still enough people in this business who remember chafing under Microsoft’s dominant thumb in the 1990s. They’re going to want options, and they’re going to want to help at least one other player keep Apple on its toes.
There’s no question that several things need to happen before Apple’s lead is threatened, but it seems unimaginative to say they can’t happen.
First, Google (NSDQ: GOOG) and its partners need to find something to set their products apart from the iPad. Whether that’s pricing (the first Android tablets were too expensive), exclusive deals with media companies (like, say, the rights to the NFL’s GameDay package for streaming in a special app), or highlighting areas it already does better than Apple (wireless syncing, for example), the Android crew needs to find a way to replicate the “Droid Does” campaign that turned Android into a household name for phones. They’ll likely be able to find help from partners both among wireless carriers or software/media companies who are looking for an alternative to Apple’s way of doing business.
Second, the software has simply got to get better: even if Google and partners manage to cut extremely compelling deals, like the hypothetical NFL deal, if the software is subpar people just won’t buy the product. But Google operates a very quick iteration machine, releasing Android updates at a rapid-fire pace that made the original G1-era Android phone much more competitive with the iPhone in about a year, and HP’s advantages in areas like notifications may be more interesting on a tablet than on a phone.
Third, some combination of Android, RIM, or HP (to be sure, they won’t all pull this off) has to secure prominent shelf space at places like Best Buy and find a way to incent salespeople to promote their products. This was a huge problem for Palm (NSDQ: PALM) when trying to sell its Pre smartphones in Verizon stores; the salespeople simply didn’t understand or didn’t care about promoting the Pre. On a recent visit to Best Buy, Motorola’s Xoom tablet was buried in the computer department, just about the farthest away from the front door and main aisles as one could get in that department. Even Samsung’s Galaxy Tab got better placement than the iPad, which at least had its own placard next to the Apple-only tables at Best Buy.
To be clear, this is not a recipe for an “iPad killer,” or any of those other tired clichés about how the computer industry is going to evolve. All I’m talking about here is a scenario in which both Apple and other tablet makers fight for market share on the merits of their product, rather than the timing of their entry. It’s very likely that Apple settles once again in a comfortable role as the most profitable vendor in the space with excellent market share, and that’s a spot that would keep the company flush with cash.
For all their bluster, it’s unlikely that Apple executives are taking tablet competitors lightly. The first Android smartphone, the G1, didn’t arrive until October 2008, a year after the formation of the Open Handset Alliance, which itself was only formed about 5 months after the iPhone began shipping in June 2007. The first Android phone to really take off in the market, the Motorola Droid, didn’t arrive until a year after the G1 made its debut. And yet about a year after the original Droid was launched, Android-powered phones had eclipsed the iPhone as measured by market share.
There’s certainly no guarantee the same thing will happen when it comes to tablets, but neither should we all assume Apple has locked up a market that has barely gotten started.