Who Will Buy an iPad?

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Apple iPad

The debate is raging. Man, that’s a wide bezel! How could they possibly leave out support for Flash? Where’s the front-facing video camera? AT&T? Are you serious? Now that the dust has begun to settle on Apple’s announcement of the iPad, though, there’s another nagging question that only time can answer. Who, exactly, will buy an iPad?

Lets face it: Macs fill what is a fairly obvious need. General purpose computing for personal or work reasons–whether web browsing, email, word processing, managing media, buying online–is pervasive, and is a common daily activity for millions and millions of people. The iPhone, first and foremost, is a phone with text messaging, but it is also a portable Internet computer and a gaming device. With the app store, you can make the iPhone and iPod touch what you want them to be. But ultimately, computers and phones have an obvious place in the market. A tablet style computer, not so much, despite Steve Jobs’ attempt to paint a picture to the contrary.

Apple’s 125 Million Customers

The likely market for the iPad consists of several distinct groups of consumers. The first and most obvious is Apple’s existing customers. Apple consistently ranks at the top of industry customer satisfaction surveys, its customers are passionate and loyal, and its ranks for Macs, iPhones and iPods have been growing. In announcing the iPad, Jobs made it very clear that this is a key market for the device. Apple has 125 million customers who have stored their credit cards with Apple, presumably for iTunes purchases. They know, understand, and are comfortable with one-click publishing via the iTunes Store no matter which device they buy from.

Still, if you have a MacBook and an iPhone, do you really need another device, and if yes, does the iPad fit those needs? It is important to remember that despite becoming far more price-competitive in recent years, Apple still plays in the high-end of the markets it addresses. It has no interest in low-cost, low-margin, high-volume products. It prefers higher cost, higher margin products that, while perhaps not scaling like some other companies, are significant businesses nonetheless. That means its 125 million customers either have higher amounts of discretionary income than ordinary consumers, or they simply choose to spend outside their limits for Apple products.

The iPad isn’t necessarily as much about fulfilling an existing need as it is creating desire. Even in a challenging economy, people want Apple’s products, as this week’s financial results clearly demonstrate. The iPhone is far from essential. I can get a cheaper smartphone or traditional mobile for far less and fulfill the need. The iPhone resonates so soundly with customers that they buy it even though it also means higher monthly costs for a data plan. If Apple only got 10 percent of existing customers, or 12.5 million people, to buy an iPad in its first year or two, it’d have a success on its hands.

Retail Store Visitors Who Aren’t Yet Customers

Don’t underestimate the power of Apple’s retail presence to have a major impact on iPad sales. Apple has 283 stores in 10 countries, and welcomed over 50 million visitors to those stores in the last fiscal quarter. Extrapolating a bit, Apple routinely pegs the number of customers in its retail store who are new to Mac at 50 percent. Granted, this includes many iPhone and iPod touch customers who are Windows users, so there is some overlap with the existing customer base identified above. But if you subtract another half, you still have another 12.5 million customers, for a total of 25 million. Because the iPad is less about filling a need and more about creating desire, the retail stores play a key role in customer adoption. Reports from the people who used it in the demo area (alas, I was not one) are very positive. The emotional appeal of the product when people can actually pick it up and use it for 5 or 10 minutes will be huge.

Primary Purpose Users

One of the smartest things about the iPhone design that has been carried over to the iPad is this: despite each device having a primary function, users can make the device whatever they want it to be. Apple is clearly targeting two key user groups with the iPad.

Gamers: The iPhone and iPod touch are very popular game devices, perhaps surprisingly so. The iPad offers similar experiences, but even broader capabilities, primarily due to the screen size. Games were not a big part of Apple’s marketing strategy for the iPhone and iPod touch early on, but they know its being used as a game device. How? Simply by looking at the numbers of game downloads from the iTunes Store. In more recent months, Apple has run several game-specific ads for the two devices. Look for this to increase, and to include the iPad. Imagine the ability to use the iPod touch while you are on road, but the iPad when you get home. Among gamers, who doesn’t want a more immersive gaming experience? Don’t overlook the fact that games played a large part in the demo portion of iPad capabilities.

Readers: Apple has dusted off the iBook brand for its e-book reader embedded in the iPad. The Kindle is the clear market leader in this space, and has the weight of Amazon behind it. But ask yourself, which would you rather have: a single-purpose e-book reader with a (admittedly very good) monochrome screen, or a similar sized, full-color device that does the same thing–perhaps with a more elegant user interface–plus a whole lot more: color, video, photos, and other media in the books themselves, as well as browser, email, calendar, games, and the 140,000 other things from the iTunes App Store? And if you could do that for just $10 more (Kindle DX currently listed at $489, lowest-priced iPad at $499)? No brainer.

The video game market is huge, with likely many non-Mac customers. The e-reader market is not as big, but is likely growing, and the iPad is likely to really juice the market for e-books. Combined, these two markets represent millions and millions of potential customers.

Families

The iPad is light and thin, and supports both Wi-Fi and 3G wireless Internet. As Jobs said, its a mobile device. And though he didn’t come right out and say it, I expect the iPad to become primarily a room-to-room mobile device. I think most iPad buyers will be existing Apple customers. The parents will carry iPhones, the kids iPod touches, and the family will have a laptop or desktop Mac that tends to stay chained to the home office desk and connected to peripherals. So the iPad becomes the device that everyone in the household can use at home when they want a more immersive media experience than the smaller devices allow. The calendar, contacts and notes apps appear to be designed specifically for families. And though the rumored multi-user and sharing features didn’t make it into yesterday’s announcement, my bet is that they appear before the devices ship.

Newbies

Its often hard for us to remember that there is still a huge percentage of the population that doesn’t make computing a part of their daily lives. Many of them have cheap desktop PCs that they occasionally use for email and shopping, but that’s about it. They don’t have game machines, media center PCs, laptops or smartphones. But one of the reasons they don’t have these things is how they fit their lifestyles. Yet all these people read books, watch TV and movies, listen to music, and more and more, browse the web. I conduct software usability testing for a living, and I come across people like this every single day. The iPad will likely meet most or all of their computing needs, and become their primary computer.

Who Will Buy the iPad? Who Won’t?

The brilliance of the design of the iPhone and iPod Touch–and a key contributor to their success–is the combination of incredibly simple, well-made hardware that doesn’t look like anything but a small rectangular thingamabob. Turn it on, however, and it can do some pretty amazing things. With the SDK and resulting app store, you can turn these devices into anything you want them to be. I know some people who use them almost exclusively as iPods, others as game consoles, others still as business communications tools. The big screen is a great new feature that comes with the iPad. But the hardware is a small part of what the iPad represents, and the software will drive its adoption.

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