Imagine you run a large technology company not named Apple. Let’s say you’re Steve Ballmer, Michael Dell, Meg Whitman, Larry Page, or Intel’s Paul Otellini. How are you feeling today, a day after Apple CEO Tim Cook unveiled the new iPad? Are you discounting the device as just an incremental improvement, the same shiny tablet with a better screen and faster cellular access? Or is it possible you had trouble sleeping last night? Did you toss and turn, worrying that Apple’s new device represents a potential knockout punch, a move that will cement its place as the undisputed leader of the biggest, most disruptive new tech market since the advent of the Web browser? Maybe your last few hours have been even worse than that. Perhaps you’re now paralyzed with confusion, fearful that you might be completely boxed in by the iPad—that there seems no good way to beat it.

For your sake, my hypothetical CEO friend, I hope you’re frightened.

Bear with me; there’s a good chance I’ll run out of superlatives to describe Apple’s tremendous, astonishing, stupendous, unbelievable emerging position in the tablet market. But I think the overkill is justified, as I worry that Apple’s rivals haven’t adequately taken stock of the potential disaster that lies ahead of them. Since the middle of 2010, when it became obvious that the then-new iPad would become a blockbuster, I’ve been sketching out two possible scenarios for the tablet market. First, it could go like the smartphone business—one in which Apple commands a healthy share of sales and an even better share of the profits, but where its fortunes are nevertheless circumscribed by competitive rivals whose products have come to be seen as acceptable alternatives. If the tablet market shaped up like the smartphone market, it wouldn’t be a great outcome for Microsoft, Dell, Intel, HP, Samsung, HTC, or Google, but it wouldn’t be catastrophic, either.

The other potential scenario, though, is far less optimistic for Apple’s competitors. It’s the iPod model. In this story, Apple begins by releasing a novel, category-defining product. Then, as rivals scramble for some way to respond, Apple relentlessly puts out slightly better versions every year, each time remaining just out of reach of the competition. Meanwhile it lowers its prices and expands its product lineup, making its devices more accessible to a wider audience. Then, to finish the game, it finds a way to boost its position through network effects and customer lock-in. (In the iPod’s case, it accomplished this through the iTunes software and built-in music store.) Put it all together and you have a device that’s unbeatable. In 2011, 10 years after its release, the iPod still represented a whopping 78 percent of the market share in music players.

It’s been two years since Apple’s tablet went on sale. Rivals have released dozens of alternatives, but the iPad still represents more than 60 percent of market share. Worse, the rest of the market is dominated by two devices that are being sold at a loss—Amazon’s Kindle Fire and Barnes & Noble’s Nook. At yesterday’s launch event, Apple did everything it needed to do to repeat the iPod story. First, the iPad’s new “Retina” display and 4G networking will improve the device just enough to make it difficult to match, let alone beat. More importantly, Cook expanded his product lineup and lowered his prices. The new iPad starts at $499, as the iPad 2 originally did, but the older version is now selling for $399. See how this shaping up? The iPad market is looking more and more like a sequel to what happened with the iPod. Like most sequels, this one will be bigger and way scarier for everyone involved.

Let’s go back to pretending you’re one of Apple’s competitors. How can you possibly beat the iPad? Well, not on price. Even before the new iPad, rivals were having a hard time matching Apple’s prices while still making a profit. Now that the cheapest iPad cost $399, they face an even tougher road. Because Apple has used its plentiful cash to corner the market on key tablet components—like touch-screen displays—many competitors will find that the only way to make a tablet with comparable features but a lower price is to sell it at a loss. You can’t do that unless you have some other way to make money, like a big digital media store.

OK, so price is out. How about features, then? What if you make a tablet that includes all the stuff that Apple didn’t add to the iPad? That’s precisely what most competitors have been trying to do for the last two years, and it hasn’t worked. Part of the problem is that nobody really wants the alleged improvements to the iPad—Flash and extra hardware ports, for instance. The bigger problem is that, as a technical matter, rivals are having a very hard time beating Apple’s most important features. The iPad’s custom-made processors and battery technology mean that it keeps getting more powerful without sacrificing any battery life. None of Apple’s rivals has managed to even match the iPad’s battery life.

Well, if you can’t beat the iPad with better hardware, can’t you do it with better software? As I wrote last week, I’m eager to see tablets running Microsoft’s fine new version of Windows later this year. But even if Windows 8 tablets prove to be amazing—a big if, considering that we still haven’t seen great tablets to run the new OS—they would still lack all of the tablet-optimized apps that are now clogging Apple’s App Store. I suspect that when people choose a tablet, the number of apps will prove more important than when people choose a phone; you can still get a lot of use out of a phone without extra apps, but what’s the point of a tablet if it doesn’t have great apps?

Microsoft may thus find itself on the wrong end of a network-effects loop, the same position it once pushed Apple into in the PC market: Customers will choose an iPad over a Microsoft tablet because there are 200,000 apps for the iPad, and only a fraction of that for Windows. This will push app developers to favor the iPad over Windows as their primary platform—that’s where the customers are—which will, in turn, fuel more iPad sales. At some point, customer lock-in will become extremely important: If your last tablet was an iPad, your next one will be too, because that’s where all your apps are.

There’s one potential escape for Apple’s competitors, but it’s so unlikely that it seems almost crazy to mention it: What if the tablet business proves to be something of a fad? I’ve heard this theory often from readers who are puzzled by predictions that tablets and phones will grow to replace PCs as the central computing devices of our lives. There’s a vocal contingent who believe that the iPad will never be good for anything other than lazy consumption of media; sure, people are snapping them up now, but once we realize their limitations, we’ll still keep buying and using regular old computers.

I doubt that’s true—every trend in the industry says that many people want smaller, easier, and more manageable computers for home and for work, and that means tablets. But I wonder if the tablet-as-fad scenario is something that Apple’s rivals are secretly banking on.

Because if they really believed that tablets will come to eclipse PCs, and if they saw how thoroughly unbeatable the iPad is becoming, wouldn’t they be running around with their hair on fire? If the iPad becomes the future of computing, the fortunes of Microsoft, Intel, Dell, and to some extent Hewlett-Packard will begin to plummet. Meanwhile Google, which makes all its money through ads, will find itself reaching its customers through a device made by a hostile rival. As I said: Be very afraid.