The Leveling Off Of iPad Sales

There has been much discussion this past week about the leveling off of iPad sales. From Benedict Evans’ excellent article on the topic:

Tim Cook also explained it on the earnings call: a channel inventory problem.

Fred Wilson asked about whether focusing on tablet sales is the wrong thing to do, and is going to recommend to his portfolio companies to focus on smartphones. Fred later revised his response by saying a drop in tablet pricing may change all that.

Personally, I think the smartphone growth rate was a strange beast because it was built on top of the feature phone business and subsumed its market. The world was already carrying a phone and we used those phones for communication: voice and text messaging. So when we bought smartphones, what apps really helped make it take off? Voice and text messaging. So Twitter took off and Facebook and Instagram and WhatsApp and Line and a bunch of others that are communication platforms. The phone itself was used before for communication and is used still for communication. At its core even Uber is a communication app, or at least that’s where it is revolutionary. A private car paid for with credit card isn’t. It’s the idea that you can do it from a phone and see where your driver is.

What’s the other use case that has done well on smartphone? Games and entertainment apps. These are easy to explain, too. I’m bored, need instant entertainment, and that phone is already in my pocket. My point is that there are long established use cases for the smartphone, a big reason is because we have been using them in a non-smart form for 15 years now.

What about tablets? The device is new. We’ve never had a highly portable piece of computerized glass before, with a day’s battery life, that’s light and compact. So what do we use it for?

I think that’s fundamentally what the slowdown in sales is about, not price. We don’t fully know yet. Yes, it’s an interesting reading device and I think that’s fueled a lot of the sales so far. But the best reading device is the one with us and that may very well turn out to be a 5″ phone.

Even look at the apps we use on them. Most are just slightly reconfigured smartphone apps. In other words, we haven’t really figured out yet what we will use these for, just like it took us years to figure out exactly what we were going to use the PC for. At one point there was a debate as to whether command prompts or GUI was better, too.

This isn’t to say that smartphones aren’t a good bet, just to say that I wouldn’t bet against the tablet. In some ways tablets are more interesting because each one of us has a higher likelihood of finding the business that helps sell tablets. I think the odds of that are less and less in smartphones.