Please ensure Javascript is enabled for purposes of website accessibility

Does Amazon's $50 Tablet Success Explain Apple's iPad Woes?

By Daniel B. Kline - Feb 4, 2016 at 9:20AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Good enough and really cheap may be more attractive to consumers than pricey and really good.

Amazon (AMZN -5.14%) 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 (AAPL -2.98%) 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. 

Source: IDC. 

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Apple Inc. Stock Quote
Apple Inc.
$137.44 (-2.98%) $-4.22, Inc. Stock Quote, Inc.
$107.40 (-5.14%) $-5.82

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/28/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.