"The question has arisen lately: Is there room for a third category of device in the middle?" Apple (AAPL -0.52%) co-founder Steve Jobs said when unveiling the original iPad in January 2010. "Something that's between a laptop and a smartphone." In order to justify such a product's existence, it would need to do certain tasks better than either a laptop or a smartphone, Jobs argued.
Back then, cheap netbooks were all the rage. "The problem is, netbooks aren't better at anything," Jobs proclaimed. Of course, Apple's alternative was the iPad, which wasn't the first tablet computer but redefined what a tablet could be -- so much so that "iPad" has become a proprietary eponym for tablet computers more generally.
The iPad is now a $21 billion business
Compared to the iPod or iPhone, iPad sales sprinted out of the gate. The tablet was Apple's most quickly adopted new product in recent memory. Apple has never officially disclosed Apple Watch unit volumes, so it's unclear how quickly the company's first wearable gadget was adopted, but here are the first three years of unit sales for the iPad, iPhone, and iPod:
iPad unit sales started to falter about five years ago for a variety of reasons. Consumers didn't feel compelled to upgrade their iPads as often as their iPhones, even as Apple continued to make the tablets more powerful, thinner, and lighter, while adding faster cellular connectivity. Even if the iPad performed certain tasks better than a laptop or smartphone, many consumers still didn't feel it was necessary to buy one. Competitors also started to release cheaper Android tablets, taking shelter under the price umbrella that Apple had established.
The Cupertino tech giant then made a significant strategic shift: Apple started to address lower price points and also offer new features to upsell premium customers. That helped the company capture more sales to entry-level consumers while simultaneously maximizing profitability of high-end, often professional buyers.
"The approach we've had from a product point of view, of bifurcating iPad and iPad Pro, is really resonating with our users," CEO Tim Cook said in 2017. "The iPad launch that we did at the end of March and the iPad Pro announcement from June both were received extremely well and gave us the best [year-over-year comparison] on iPad that we've [had] in many, many quarters."
That strategy helped stabilize iPad unit sales, which Apple stopped disclosing in fiscal 2019. In fact, Apple is doubling down on iPad bifurcation, pushing ever higher in pricing with the iPad Pro ($1,699 with all the bells and whistles) while adding features like Apple Pencil support for the cheapest $329 iPad. Apple has finally realized that the iPad is distinct enough from the iPhone that it needs an entirely new variant of iOS, iPadOS, to truly position the tablet as a laptop replacement.
The iPad segment is now a $21 billion business. Where can it go over the next decade?