2 Reasons the Tablet Boom Might Be Over

The tablet business really came to prominence when the first iPad was introduced in spring 2010 . While Apple (NASDAQ: AAPL  ) dominated the sector for a few years, tablets from companies such as Amazon.com (NASDAQ: AMZN  )  and Samsung are threatening to take bites out of its business. However, two big trends threaten the growth trajectory of the tablet business, and no company is immune.

Connected kids and concerned parents
The first troubling trend is the adoption rate of tablets among children and babies. According to recent research, 36% of kids had their own tablet and 38% of children under the age of 2 were actively using a tablet. The concern here is how the use of tablets might affect children's development

According to the American Academy of Pediatrics, "A child's brain develops rapidly during these first years, and young children learn best by interacting with people, not screens." The academy recommends zero passive screen time for children under two.

Of course, the companies selling tablets know that kids can be a big driver of purchases. Apple's iTunes store has an entire section of apps called "Kids." In this section, four of the top 10 free apps are labeled as "Games" or "Entertainment." Some of the apps labeled as "Education" stretch the meaning by offering videos and games alongside educational content.

Google (NASDAQ: GOOG  ) and its Android partners have gotten into the act by allowing for have separate accounts for each member of the family on a tablet. On Google Play, at least four of the top 10 grossing games are kid-friendly.

Not to be outdone, Amazon.com (NASDAQ: AMZN  ) prominently displays a section describing how the "light, durable design and Kindle FreeTime" should appeal to the whole family. Granted, Amazon is taking the limiting of tablet use to heart by offering parents the ability to set limits on what apps, games, videos, and more their kids can access.

Sometimes parents just want peace and quiet. With the ability to pacify kids with an iPad-equipped bouncy seat, or some time on a Kindle or Google tablet, it's likely the threat of too much screen time will become even more pronounced.

Parents may begin to question whether their child needs a tablet, or at least limit the amount of time spent using the device. Apple generated about $4.5 billion in iTunes sales last quarter, Google's "other" division generated over $1.5 billion in sales, and Amazon has made the Kindle a major focus product. Investors in all three companies should realize that some early tablet adoption has been driven by parents trying to get some quiet time. This may not continue in the future.

This happened in the PC industry, and tablets are next
When most people were first exposed to a PC, they were in awe of its capabilities. However, the normal reaction after time with the unit was "why is this thing so slow?" For years, better and faster versions of the PC drove sales growth. However, each successive improvement in performance was less perceptible than before.

This leads us to the second trend that threatens the tablet business. The replacement cycle in the tablet business seems to have already hit a wall. The move from a standard resolution screen to a high-definition display signaled the beginning of the end.

The iPad's promise of 10 hours of battery life might have won fans initially, but now many mainstream tablets make the same claim. Whether you're reading email or using Facebook, most tablets offer similar responsiveness.

According to research by IDC, tablet shipments grew by just 3.9% year over year. In the same way that PCs hit a wall when the fastest computer no longer mattered, many tablet buyers seem perfectly happy to continue using their existing unit.

Apple should be particularly worried because its iPad makes up about 20% of total revenue. With a 16% drop in iPad units sold versus last year, Apple has a problem.

Google still benefits from Samsung's growth, but overall tablet growth of 4% isn't going to help the search giant collect big revenue increases from more searches. The research showed that Amazon witnessed a 47% decline in tablet sales. If the company hopes to push future sales of goods, digital video, and music with the Kindle lineup, it appears the flame is faltering.

Tablets are a great device, but the market may be maturing before our eyes. Investors expecting huge growth for Apple, Google, or Amazon from tablet sales may be disappointed.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 11, 2014, at 3:13 PM, twolf2919 wrote:

    "With a 16% drop in iPad units sold versus last year, Apple has a problem" - that is a misleading statement - iPad sales for the latest 12 month period over the previous 12 month period ARE NOT 16% lower. The 16% the author is using is just one QUARTER (this latest quarter vs. the same quarter last year.).

  • Report this Comment On May 12, 2014, at 10:04 AM, xanyx wrote:

    After watching the computing habits of a very small sampling of individuals, my gut tells me that the glory-days desktop computing are over (long-live desktop computers). Tablets will increase in functionality, laptops will shrink and your "computer" will be a wearable device.

    New "wearable" display technology will make-up for limited screen space and voice, movement and gesture technology will replace the mouse/trackpad.

    Sound like a pipe-dream? Think again, think different...

  • Report this Comment On May 12, 2014, at 12:09 PM, vernr75 wrote:

    I think the problems are a bit simpler that that. The tablet is not a necessity. It's just a form factor that has to compete with smartphones for relevance...and it was always going to lose that battle because it's only real asset is screen size. The limiting factors to tablet growth are not exactly the same in the West and in developing markets. In the West, there are two sets of consumers - those interested in tablets and those that aren't. Most of the interested consumers live in the US...and already have an iPad. Because the smartphones are now bigger with sharper screens, the number of interested folks inside and outside the US has now fallen. The iPad in particular has a pricing problem. It's just too expensive. Some of the families who are buying tablets now are buying multiple tablets for the entire family...and that automatically rules out the expensive iPad.

    In the developing markets, interest in tablets is actually higher than in the West because of low PC usage and increasing affordability of tablets. However, history is working against growing tablet adoption much further. The developing world has always had a low consumer adoption rate for traditional PCs because they were just too expensive to buy locally. The result was low fixed line Internet usage and therefore low WIFI availability on the go and at home. That's the problem that tablet are having. They're mostly WIFI only and LTE hasn't taken off yet in most developing market territories. The folks in the developing world who have bought tablets so far are mostly the ones who are ok with just using them offline. This makes a huge percentage of Android tablets mostly invisible to tracking methods that can track iPad usage in Western markets. So basically, the only way to keep tablet usage growing in developing markets is to solve the WIFI usage issue. Consumers aren't going to get fixed Internet just to use tablets, especially now that they now get Internet access via their phones. I think wireless carriers are going to have to start selling MIFI devices on a much larger scale in those markets if tablets are to ever see the kind of growth that smartphones have now.

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