Tablets, which became mainstream devices with the launch of the Apple (NASDAQ:AAPL)iPad in 2010, are already losing their momentum. According to IDC, global tablet sales only increased 7.2% year-over-year in 2014 -- a huge drop from the 52.5% growth the industry enjoyed in 2013. Sales of the Apple iPad, which accounts for 28% of that market, have declined year-over-year for three consecutive quarters.
Faced with those discouraging numbers, many tech companies are moving on to newer products such as smartwatches. But the tablet market could still have room to run, thanks to two unlikely buyers -- restaurants and airports.
Replacing restaurant wait staff
Tablets have appeared in restaurants, including Brinker International's (NYSE:EAT) Chili's and Panera Bread (NASDAQ:PNRA.DL), in the past. At Chili's, table-side tablets from Ziosk can be used to order food and drinks, play games, and pay the bill. Installing tablets helped the chain speed up its service and sell more higher-margin items like appetizers, drinks, and desserts by displaying photos of the items at the table.
As of last July, Panera had installed tablets in roughly 20 company-owned restaurants around Boston and Charlotte, at a cost of about $125,000 per location. Like Chili's, Panera uses tablets for table-side ordering, which eliminates the long lines at its counters. CEO Ronald M. Shaich told The New York Times that profits had increased at all locations outfitted with tablets. That trend is catching on: DineEquity's Applebee's and TGI Fridays restaurants have also started installing table-side devices.
Looking ahead, tablet sales to restaurants will likely increase as commodity and labor costs -- commonly two of the largest expenses for restaurants -- rise. In particular, demand for higher wages might convince restaurants to reduce their headcount and install tablets instead. With analytics software installed, the devices will also be able to closely track orders of menu items to measure popularity and profitability.
Meanwhile, OTG -- a designer, builder, and operator of airport dining outlets -- is installing iPads in dining and waiting areas in airports. OTG's largest customer is Newark Liberty International Airport, where the company has installed 1,500 iPads in Terminal C as part of a sweeping $120 million upgrade. OTG plans to have 6,000 iPads installed in the terminal by the middle of next year.
OTG has also installed iPads in gate areas and restaurants at four other airports -- Kennedy International, LaGuardia, Toronto Pearson, and Minneapolis-St. Paul International. Travelers can use these devices to browse the Web, check flight information, and order food and drinks. In the future, travelers will even be able to order sundries like neck pillows.
Members of United Continental's United Airlines loyalty program can pay for goods with their United Mileage Plus miles. This unique use of airline miles as "airport currency" could convince other airlines to sign on with OTG and similar companies, which should lead to even higher installation rates of tablets in airport terminals.
A bigger (but more commoditized) market
While the modernization of restaurants and airports might fuel higher sales of tablets over the next few years, it could also quickly commoditize the market.
If these two institutions and others start ordering tablets in bulk quantities, it might make more sense to order cheap Android and Windows tablets instead of iPads. That problem appeared last year during the iPad contract scandal in Los Angeles, which convinced some school districts to swap out their pricey iPads for cheaper Google Chromebooks. Cheap Windows tablets recently hit $99, yet the cheapest iPad mini 3 still costs $399. Moreover, tablets for restaurants and airports -- like those from Ziosk -- might not need the cameras, motion sensors, or onboard storage for their specialized purposes.
This means these lower-end devices could start to account for a larger portion of the tablet market, while existing tablet consumers remain split between phablets and two-in-one devices.
The next evolution of tablet tech
Restaurants, airports, and other businesses will likely find new uses for tablets over the next few years, but if we look further down the road, these "stationary tablets" could be rendered obsolete by mobile apps.
With the increased use of Bluetooth low-energy beacons and near-field communication technologies and mobile payments in businesses, consumers can accomplish the same tasks on their own mobile devices. To assist the shrinking group of non-smartphone owners, table-side tablets will likely evolve into other interactive touchscreen devices such as touch screen-covered furniture.
In other words, major retail customers might temporarily boost demand for tablets, but that increase probably won't prevent tablet manufacturers from engaging in a highly competitive race to the bottom of the market. On the bright side, that race would lead to even lower tablet prices for consumers and businesses.