Amazon (NASDAQ:AMZN) proved over the holidays that "good enough" might be, well, good enough, for a large segment of tablet buyers. That's bad news for Apple (NASDAQ:AAPL) since it shrinks the market for the company's higher-priced iPads, though the top-tier iPad Pro seems to be competing for a different user altogether.
In the fourth quarter of 2015, which includes the tablet-friendly holiday season, sales for all devices fell to 65.9 million units shipped -- a 13.7% year-over-year drop, according to preliminary data from the International Data Corporation (IDC) Worldwide Quarterly Tablet Tracker. Total shipments for 2015 were 206.8 million, down -10.1% from 230.1 million in the prior year.
Overall, the market had few bright spots in the the year or the quarter, but two clear winners emerged -- Amazon's $50 Kindle Fire and hybrids powerful enough to serve as PC replacements. Shipments of those devices, led by the iPad Pro, reached an all-time high of 8.1 million devices, according to IDC.
But, while Apple continued to lead the market, the company saw a -24.8% year-over-year decline in Q4, and you blame a lot of that on Amazon.
What did Amazon do?
When iPad was first released, it was a best-in-category product worth a premium price. There were always cheap Android products, but they either weren't cheap enough, or they were simply too big of a performance compromise for people considering not buying an iPad.
That gulf has shrunk in recent years, with a number of decent Android and Windows tablets priced around $100 hitting the market. But, it seems it was $50, not $100 that served as the magic number to get people to forego a superior iPad for an inferior, but still pretty good, Kindle Fire.
"Amazon's latest Kindle iteration piqued everyone's interest with its low price point, allowing Amazon's annual growth to reach 175.7%, the highest among the top 5," IDC wrote. The research company said Amazon's "success in the tablet market has thus far been purely based on price," which it does not believe it will be able to sustain outside of Q4.
That sounds a bit like wishful thinking, and it goes against what clearly appears to be happening in the tablet market. Consumers are willing to spend big money for a PC replacement like the iPad Pro or Microsoft's Surface line. But, when it comes to a tablet being used purely for entertainment, light productivity, and other traditional tablet uses, price will be a factor for many consumers.
Put simply, why pay extra for filet mignon when a hamburger gets the job done just fine?
This is how it's going to be
Going forward, tablets are going to become a lot like the computer market. Some people will pay more to have an Apple product, but a lot of that audience will go all-in and buy a top-tier iPad Pro. The rest of the market will balance features against price, opting for cheap, good enough devices even if their hearts really want iPads.
It's nice to think that people would pay more for a better product, but most people won't if they can spend a lot less and get something that's pretty good. It also hurts Apple that Amazon is not an off-brand -- it's a major company with a strong user base as well as a reputation for quality. A cheap Kindle may not have the cache of an iPad, but it's not embarrassing to carry, and in certain circles, some might even get applauded for their frugality.
In a market where cheap, good options from name-brand companies exist, the iPad is simply going to get crowded into a Mac-like niche. Short of launching its own low-cost tablet -- something Apple is almost certain to not do -- there's really no way the company can fight this.
iPad will have its place among discerning buyers, and iPad Pro may dominate the PC-replacement hybrid market, but the great mass of tablet customers will ultimately opt for cheaper, good-enough alternatives.