When Apple (NASDAQ: AAPL ) reported earnings last quarter, its iPad sales were a notable disappointment -- down 14% from the prior year. This quarter probably won't be much better -- Morgan Stanley is projecting sales of 13 million, a 7% decline.
Some analysts have attributed disappointing iPad sales to the lack of a new model. If that's the case, Apple's new iPad Air and iPad Mini with Retina Display should help to revive demand. Yet, a more sinister trend may be taking shape. Tablets running Google's (NASDAQ: GOOG ) Android, including those made by Samsung (NASDAQOTH: SSNLF ) , are finally starting to dominate the market.
Apple's competitors have undercut its tablet pricing
For a long time, Apple's tablets were the absolute best: the best quality at the best price. If you were in the market for a tablet, buying an iPad was truly a no-brainer -- all of its competitors' devices were either more expensive, or lower quality, or both.
Take Motorola's Xoom tablet: When it was released in 2011, it retailed for a full $600. It was $100 more expensive than Apple's iPad 2, running what was widely regarded as a worse operating system, Android 3.0. Motorola was forced to cut the Xoom's price, and then eventually discontinue it, amid disappointing sales. But it isn't 2011 anymore. Nowadays, there are tons of tablets running Google's Android, many of which are far cheaper, but almost as good, as Apple's iPads.
Consider Google's own Nexus 7. Starting at $229, it is almost half the price of Apple's new iPad Mini with Retina Display. Admittedly, the screen is a bit smaller and the processor is a bit slower, but consumers who opt for Google's device will save themselves $170.
Samsung's Galaxy Tab 3 is 10.1-inch tablet that competes with Apple's full-size iPad. Its vastly unpowered compared to the new iPad Air, but also much cheaper -- retailing for just $360. Despite its relative lack of power, consumers seem to be buying -- Samsung's share of the tablet market has grown dramatically in recent quarters, up to 18% from just 8% last year.
The fundamental difference between tablets and smartphones
And when it comes to pricing, the tablet market is vastly different from the smartphone market: there are no carrier subsidies for Apple to take advantage of. Most would-be American smartphone buyers deciding between competing flagship smartphone models (say Samsung's Galaxy S4 and Apple's iPhone 5s) are not factoring in price -- because of carrier subsidies, both phones cost roughly the same, $200 (with the exception of the occasional sale) .
The same is not true for tablets. While some tablet subsidies are available, most consumers buy their tablets out-of-pocket; every dollar difference between Apple's tablets and its rivals is a reason to stay away. That difference in price is finally starting to be reflected in market share. Although Google's Android overtook Apple's iPhone in popularity years ago, it wasn't until earlier this year that Android tablets outsold the iPad. Google's operating system now has 60% of the market, and it likely won't be long until its dominance in tablets matches its dominance in smartphones.
Google is starting to take tablet apps seriously
Still, Apple leads when it comes to quality -- as Apple's management pointed out on Tuesday, there are now some 475,000 apps designed exclusively for the iPad. Google's Android, meanwhile, has many apps, but few designed specifically for tablets. That could change.
Google seems to finally be doing something about its weakness. An upcoming redesign to its Google Play app store will highlight apps designed for tablets. Google needs developers to actually create the apps, but by emphasizing them, consumers may be more likely to buy them -- giving developers more incentive to create them.
Ultimately, developers are in it for the money, and for now, Apple's platform remains a better bet. But as Business Insider points out, the gap between the two is rapidly narrowing -- Android developers now earn 90 cents for every dollar earned by an iOS developer.
Is Apple's iPad business in danger?
To be clear, Apple's two new iPads -- the iPad Air and the iPad Mini with Retina Display -- are, for most people, the best tablets you can buy. They're light and thin, with great battery life and great screens. They also come equipped with Apple's new A7 processor -- the fastest mobile processor on the planet.
Unfortunately, they're also expensive. Google's Nexus 7 is, by most measures, almost as good as the new iPad Mini, but $170 cheaper. Samsung's Galaxy Tab 3 is $140 less than the full-size iPad, and though it isn't as good, for many consumers it may be "good enough."
Investors may expect these new iPads to help turn Apple's iPad business around. Possibly, but if iPad sales continue to disappoint, I wouldn't be surprised. As it conquered phones, Google's Android is now conquering tablets. In fact, its dominance of the tablet market could end up far greater -- without the benefit of carrier subsidies, Apple's expensive iPad is much more vulnerable than its iPhone.
In the end, Apple will probably make the iPad obsolete
Apple has a history of cranking out revolutionary products... and then creatively destroying them with something better. Read about the future of Apple in the free report, "Apple Will Destroy Its Greatest Product." Can Apple really disrupt its own iPhones and iPads? Find out by clicking here.