The tablet business really came to prominence when the first iPad was introduced in spring 2010 . While Apple (AAPL -0.70%) dominated the sector for a few years, tablets from companies such as Amazon.com (AMZN -3.65%) 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 (GOOG -4.08%) 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 (AMZN -3.65%) 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.
