Is the sky falling over the once-hot tablet category?

Yes, Apple’s (AAPL) iPad sales dropped 16% in the first quarter, while International Data Corp. says sales of all tablets worldwide climbed only 4%. But look closer and it’s clear iPad sales are slipping for a couple of reasons that don’t apply to the market as a whole. As the tablet market has expanded quickly to include more mainstream consumers, Apple’s full-featured and lower-priced competitors largely caught up to the iPad. And after introducing the iPad Mini in 2012, Apple failed to adapt its winning strategy with the iPod, not keeping up as entry-level prices dropped further.



Apple so dominated the tablet market a few years ago that its slowing sales have skewed the overall picture. In the first quarter, Apple’s sales of iPads dropped 16% from a year earlier to 16 million devices, while the rest of the market increased by 17% to 34 million, according to IDC. The disparity was even worse for all of last year, when iPad sales rose just 15% to 70 million while the rest of the market more than doubled to 125 million, according to Gartner.





That wasn’t just booming sales of no-name tablets in emerging markets making Apple look bad. Apple’s share in markets including the United States, the United Kingdom and France has steadily eroded as well.

Cook's excuses



CEO Tim Cook, talking to analysts about the first-quarter decline, was ready with excuses, citing shifting inventory pressure and the rapid growth of iPad sales in earlier years. But with iPad growth trailing the market for about a year now, the real answer seems to be straight out of Harvard Business School Professor Clayton Christensen’s famous book, "The Innovator's Dilemma." Apple grabbed an early lead with an innovative new product, only to fade as competitors eventually caught up with cheaper, “good enough” products. Just as General Motors (GM) ignored Toyota’s (TM) crummy little cars and Lucent didn’t see how Cisco Systems' (CSCO) less capable network gear could compete, Tim Cook now seems oblivious to cheaper tablets.





Apple’s efforts to improve the iPad, with faster processors or thinner cases, haven’t been compelling enough to convince consumers they can’t meet their needs with lower-priced gear. It’s true, for example, that Apple’s custom-designed “A7” processor is more powerful than the chips in competing products. But consumers don’t yet see a need for all that horsepower. After all, almost no one’s running the full blown version of Photoshop on a tablet, and typical gaming apps seem to run fine on devices that cost half the price of an iPad.

That was less of a problem a few years ago, when the market consisted of less price-sensitive early adopters. Tablet buyers in 2011 shopped more based on their preferred brand in 2011, according to research by Gartner. By last year, design and price were the key traits for tablet shoppers. These newer buyers have also proven less likely to upgrade their tablet as frequently as early adopters, slowing the replacement rate for the entire segment.

"We're seeing a bit of the natural adoption cycle going on with tablets," says John Barrett, an analyst with Parks Associates. "Early buyers want lots of features, which is Apple's forte. The value shoppers come later and they're more willing to make trade-offs for price."

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