Can Android Dethrone the iPad as Tablet King?

Right now, there's not much of a tablet market. It's really just an iPad market.

Although according to a new report from market researcher IDC, Apple's (Nasdaq: AAPL  ) tablet dominance will wind down over the next few years. Who does it think will claim the coveted top dog spot? Google's (Nasdaq: GOOG  ) Android and its army of OEMs.

A tale of two market researchers
IDC says that Apple took home a 54.7% share of the worldwide tablet market in the fourth quarter, a sequential drop from 61.5% in Q3. That's pretty close to IHS iSuppli's figures released last month, which pegged Apple's Q4 share at 56.9%, down from 63.8%. iSuppli and IDC both agree that Amazon.com's (Nasdaq: AMZN  ) Kindle Fire played no small part in that drop, although their unit-shipment estimates vary.

IDC believes that 4.7 million Kindle Fires shipped, higher than iSuppli's 3.9 million estimate. If only Amazon would set the record straight and just give us a number. Barnes & Noble (NYSE: BKS  ) shipped more units, thanks to its Nook Tablet, but couldn't keep up with the overall market's growth and saw its share fall from 4.5% to 3.5% (iSuppli thinks it went the other way).

Source: IDC.

Android market share in the fourth quarter is estimated at 44.6%, a healthy jump from 32.3% in Q3. Going forward, the researcher believes, Android will continue to gain traction largely at the expense of Apple iOS. It even thinks that Android will overtake Apple by 2015, driven by lower-cost offerings, although Apple should continue to lead in revenue and profit share.

Interestingly, there's no mention of Microsoft (Nasdaq: MSFT  ) Windows 8 tablets in the report, which I happen to think will eat Android's lunch. Mr. Softy's tablet-bound OS isn't due out until later this year, but I think it's an oversight not to at least mention it as a viable player in a forecast that goes out to 2016.

A tale of two markets
If you look at the smartphone market, the idea of Android and iOS ruling with comparable shares seems reasonable. Market-share estimates vary, with some figures saying Apple is the smartphone king while others say Google is top dog. Any way you slice it, the unifying theme is that Android and iOS are the two oligarchs in this kingdom, and their combined lead will get larger before it gets smaller.

But the tablet market is a different beast and more appropriately resembles a different segment that Apple defined over ten years ago and still owns: the portable electronic music player market.

The iPod defined that market over a decade ago and still holds a 78% market share. Apple effectively took hold of the MP3 player market in its infancy, defined the standards, and locked users in with integrated content sales and management. Rivals naturally assailed the market in hot pursuit, but have been coming up short for ten years.

In contrast, Research In Motion (Nasdaq: RIMM  ) is actually largely responsible for defining much of the modern smartphone market with wireless email and messaging, while Microsoft Windows Mobile OS (the predecessor to today's Metro-style Windows Phone) was also an early player. There were also companies like Nokia (NYSE: NOK  ) and Palm in the early years, so while Apple has reshaped the smartphone industry with the iPhone, it certainly didn't define it from the get-go.

When we look at how the infant tablet market is playing out, which one of these storylines do you think makes for a more accurate model?

A tale of two alternate realities
Current competition in the tablet market doesn't even come close to Apple's offering, much like in the music player market. The leading Android tablet -- Amazon's Kindle Fire -- sells for roughly break-even money, with the e-tailer making up for it in content sales.

Pure hardware OEMs aren't afforded this luxury, which is hindering their ability to compete. Meanwhile, Apple's iPad 2 carried a gross margin of almost 50% at its original price points, in addition to the company's cut on content sales.

In the coming years, will the tablet market unfold like the music-player market, or more like the smartphone market? Which one of these alternate realities will come to fruition? In all likelihood, it'll probably be a little of both.

The tablet market looks like it's starting off like the music-player market, but rivals have wised up a lot since those days and the competitive landscape may resemble the smartphone market as it matures. Even if it turns out like the smartphone market, with Android grabbing major market share, it will never compete in profit share.

The iPad has started a revolution, but Apple is hardly the only winner. Some of the winners are hard to see because they're buried deep inside the gadgets. Check out this new special report on "3 Hidden Winners of the iPhone, iPad, and Android Revolution" that names a handful of companies that provide the crucial components that these gadgets rely on. It's free.

Fool contributor Evan Niuowns shares of Apple and Amazon.com, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. 

The Motley Fool owns shares of Google, Apple, Amazon.com, and Microsoft. Motley Fool newsletter services have recommended buying shares of Google, Nokia, Microsoft, Amazon.com, and Apple; creating a position in Barnes & Noble; creating a bull call spread position in Apple; and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On March 15, 2012, at 11:19 PM, MBfool wrote:

    Can Android Dethrone the iPad as Tablet King?

    No

  • Report this Comment On March 16, 2012, at 1:46 AM, haysdb wrote:

    I believe Apple's "mote" is a lot larger than the likes of IDC really appreciate. Maybe I'm atypical, but I look around my house and find 7 Apple products, all part of a common ecosystem. It would take a LOT for me to buy a computer, notebook, tablet, or phone from anyone besides Apple. They don't have to be better to maintain their base, they just have to be as good, but they ARE better, and I don't think the margin is trivial. Apple is at least a year ahead of everyone in the tablet market and they are pushing the envelope harder than anyone. Screens, processors, battery chemistry, industrial design - they are leading in all of these areas, and they are selling their devices for prices nobody can compete with. I also am VERY skeptical of the "sales" figures. Amazon may have sold 4 Million Kindles, but how many stayed sold? How many were returned? I'm guessing a bunch. Who else is selling tablets in any numbers? It just doesn't add up for me that tablets other than the iPad sell in equal numbers to the iPad. I don't care how many of them their are if they are all junk.

    Android does not have the same appeal in the tablet market as the phone market. A lot of those Android phones are just phones to their buyers, and aren't used in the same way iPhones are. Tablets aren't subsidized, they aren't pushed by carriers, every brand has their own unique flavor of Android, it's just a fragmented mess.

  • Report this Comment On March 16, 2012, at 8:33 AM, jdmeck wrote:

    Again comparing hardware to software. Am I the only one who understands how stupid that is? If Apple choose to license it's software then there would be a comparison that actually made sense.

  • Report this Comment On March 16, 2012, at 9:05 AM, CluckChicken wrote:

    The only reason why I would think that MS is not in the forecast is may be because they do not consider a Win 8 device a tablet. I say this because the iPad/Android tablets fit somewhere between a smartphone and a laptop and the Win8 devices will basically be a laptop. Personally I think that would be a really dumb reason to exclude MS from the discussion.

  • Report this Comment On March 16, 2012, at 8:52 PM, jdwelch62 wrote:

    I agree, CluckChicken. I think, being IDC, because Win8 isn't out yet, they're not giving it any credence. However, it'll be interesting to see who has what market share at the end of 2013. IDC keeps getting PC sales forecasts wrong, at least if you look at Intel's earnings over the last 8 quarters, so I don't hold much stock in what they say, although I know the Street tends to, as reflected by INTC's current and historical P/E.

    I've found that since I bought my iPad2, I use my iPhone 3GS a whole let less than I used to for anything else besides a phone and texting. I do some light web browsing and other internect connectivity stuff when I'm out and about, but I'm usually at home or at work, so I'm either on my laptop or at home with WiFi for my iPad (when I'm not on my laptop at home). So to haysdb's point about ecosystem, my main ecosystem is based on MSFT's products, so I'm interested to see how things play out after Win8 comes out and there are more offerings for both Win8 and tablets and phones with Intel inside. There will be some players by the end of this year, but the real point in time to look for will be end of 2013; at that point, Win8 will be >1 year old, and Intel's Haswell chips will be in mobile devices, and it will have been over 2 years since Steve Jobs' death, at which point I think Apple will start running out of whatever he left them in their pipeline. I'm not conviced Apple can continue to innovate on their own without Jobs. Just gotta see what unfolds. Patience is a virtue...

    Anyway, good report, Evan, thanks...

    :-)

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