Can Android Dethrone the iPad as Tablet King?

IDC seems to think so.

Evan Niu
Evan Niu, CFA
Mar 15, 2012 at 12:00AM

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'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.

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