Tablets were supposed to be the next big thing in technology, and for a while, they were. The introduction of the Apple(NASDAQ:AAPL) iPad in 2010 was hailed as yet another computing revolution, and sales of the leading tablet skyrocketed over the next three years. Amazon (NASDAQ:AMZN)soon jumped on the bandwagon with its own Kindle Fire tablet and regularly touted its success as the best-selling product on its website.
iPads and other tablets found a wide variety of uses from casual consumption to restaurant POS systems to classrooms as schools outfitted legions of students with the new devices.
But then a funny thing happened. Tablet sales fell for the first time, declining 3.2% year-over-year for the fourth quarter and all-important holiday shopping season -- four of the top five makers saw sales drops, according to research firm IDC. For the full year, tablet sales increased just 4.4% year-over-year, much slower than 2013 when worldwide sales jumped 71%.
The drop-off in iPad sales has been particularly noticeable. Sales of the market-leading tablet fell 15% for the year and declined in all four quarters of 2014. In the last seven quarters, only one has seen a significant sales increase. Meanwhile, sales of Amazon tablets fell by a whopping 66% in the most recent quarter. Let's take a look at three reasons tablets are losing their momentum.
1. There's no great need for them
Computers and smartphones have become necessities in the modern world, but it has never been clear what the true purpose of a tablet is, what clear need it is filling. Is it just a way to surf with the web, read books, and watch video? Is it a legitimate business tool that one can use in place of a laptop? Without a keyboard, probably not.
For most users, its utility has never transcended beyond content consumption. It was supposed to fit neatly halfway between a smartphone and a PC, but the device fails to rival the functionality of either, and therefore is not a good substitute.
If the tablet cannot replace the essential, then consumers may be gradually realizing they can do just fine without it.
2. Smartphones and laptops have cannibalized the market
Since the iPad was introduced in 2010, smartphones have improved dramatically, and screens have gotten bigger, giving consumers the ability to own a larger-screen smartphone such as the iPhone 6 Plus or the Samsung Galaxy Note, instead of a smaller smartphone and a tablet. Convenience is king.
Similarly, laptops, especially Macs, have gotten thinner and lighter with better battery power. For the consumer interested in a full-size tablet, a laptop is now a more suitable substitute, while a large-screen smartphone can easily stand for an iPad Mini or other 7" tablet. The "phablet" has eaten away at this segment of the market.
3. Tablets may be reaching a saturation point
The sleek devices lack the upgrade cycle that has juiced smartphone sales over the years. There are no carriers subsidizing tablet sales with two-year contracts the way there are with phones. Similarly, innovations in tablets have not been as remarkable as in smartphones. The iPhone, for example, has seen the addition of features like Siri, a larger screen, fingerprint ID, and Apple Pay in recent years.
Without the upgrade cycle, there is much less of a need to replace an old tablet. Over 600 million tablets have been sold worldwide in the last four years, meaning much of the addressable market has likely been reached. By comparison, there are only 110 million households in the U.S. and unlike a phone, a tablet can easily be shared among the family. With more than 600 million tablets already in circulation, it is easy to see how a saturation point may be approaching.
One quarter may be too small of a sample size to pronounce the death of the tablet, but most tech product life cycles for purchases this big last much longer, and only end when another device renders it obsolete. Tablets came after PCs and smartphones, but it could be improvements in those two gadgets that make tablets disappear.
Jeremy Bowman owns shares of Apple. The Motley Fool recommends Amazon.com and Apple. The Motley Fool owns shares of Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.