Even though Apple led the smartphone revolution with the iPhone, it ended up losing the market share battle to Google.
The reason Apple lost is that Google sprayed Android on more carriers, and more handsets at more price points.
When Apple raced out to a lead with the iPad some people thought the same thing would happen. Apple takes the early lead, then Google puts Android on more devices at lower prices, and steals the market share.
It's still early, but so far it hasn't exactly worked out that smoothly for Google this time.
Unlike with smartphones, you don't need a carrier for your tablet. And so, there is no loyalty to Verizon or AT&T that would stop you from buying an iPad. Also, you're not going to go to Verizon's store to buy an iPad, which could lead to a retailer selling you on an Android tablet.
Apple's retail stores are a huge advantage over Google's Android. Apple has hundreds of stores where people can buy iPads, and the sales people only offer you two choices: the iPad or the iPad 2. (We suppose a third option is, hit the road.)
As a result of these factors, some people started readjusting their outlook for the iPad. It's not going to be like the iPhone, it's going to be like the iPod. Apple will define the market, and dominate it. People will not be held in check by carriers, so they will buy the best on the market.
But, there's one big difference between the iPad era and the iPod era. In the iPod era, Apple's primary rivals felt compelled to make money selling their iPod wannabes. In the iPad era Apple's primary rivals have secondary revenue streams to subsidize their hardware.
This difference could lead to Apple losing the tablet battle just like it lost the smartphone battle.
Amazon can sell its tablets at cost, or perhaps a loss, and hope to make up the money selling videos, music, and physical goods. Google can sell its tablets at cost, or at a loss, and hope to make money on advertising.
The result is Amazon and Google selling $199 tablets that makes Apple's $329 iPad mini seem overpriced, even though Apple says its is making significantly less money on the mini than it is on its other products.
Some critics might think the iPad is worth the $130 premium, but for your average consumer, it might not be so simple. That's a lot of money for a luxury item that is basically used for surfing the web.
Over time, tablets will evolve to be more than just luxury items. Which is why winning the early customers is important. Apple, Amazon and Google want consumers locked into their platform. The more apps, music, and movies they buy, the more likely they are to upgrade to the more advanced tablet later.
We don't know if the cheaper tablets are affecting Apple's sales yet. But the company did miss analyst expectations for iPad sales badly last quarter. Initial estimates were around 17.5 million. Apple sold 14 million. On a year over year basis, shipments were up 26%, and iPad revenue was only up 9%.
The iPad is supposed to be a mega growth story. Those aren't mega growth numbers.
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