Apple co-founder Steve Jobs once predicted the iPad would replace notebooks. A decade since its launch, with laptops still entrenched, it hasn’t achieved that mission. But that doesn’t mean the iPad, which remains important to Apple’s business, has lost its way.
In conversations with Fortune on Monday, the ten-year anniversary of the iPad’s unveiling, analysts say there’s both good and bad in Apple’s iPad division. And whether Apple likes it or not, they say, some things will need to change.
As Apple looks ahead to the iPad’s second decade, here are several key facts and figures that may drive one of the company’s most puzzling products.
The “post-PC” era?
According to data from Statista, PC makers shipped 201 million notebooks worldwide in 2010, the year Steve Jobs unveiled the iPad and called it the beginning of the post-PC era. If the iPad was to destroy the notebook, it would have some work to do.
That same year, according to Statista, just 19 million tablets shipped worldwide. That figure grew to an estimated 134.1 million last year, suggesting the iPad helped build what is today’s tablet industry. Notebook shipments, meanwhile, fell to 166 million units last year, so not exactly the demise Jobs hoped for.
The problem, according to Creative Strategies analyst Tim Bajarin, is that the iPad hasn’t proven to be a suitable notebook replacement. “It has not had the productivity capabilities one still has with a laptop,” he says.
IHS Markit analyst Wayne Lam believes Apple made a strategic error by not focusing enough of its iPad energy on enterprise users and their unique needs. “Tablets are about getting day-to-day activities like email and viewing content,” Lam says. “For heavy computing purposes, Macs or PCs are preferred.”
‘Sputtering’ growth
A combination of slow upgrade cycles and more consumer interest in smartphones than tablets has tempered the iPad’s success, analysts say.
“Initially, the iPad was a resounding market success,” Lam says. Now, though, he says the iPad’s growth has “sputtered.” Apple shipped about 10 million iPads per quarter last year.
This is sobering news for the company, which has watched iPad sales drop for years. In Apple’s first fiscal quarter of 2014, its iPad reached a peak of 26.04 million unit sales. A year later, iPad sales dropped to 21.4 million. In the first quarter of 2016, they fell again to 16.1 million units.
The iPad’s slow sales descent has stood in stark contrast to the iPhone, which despite some small sales drops in recent years, has remained strikingly steady. Apple’s best year for iPhone sales came in 2015, when the company sold 231.2 million units worldwide. In 2018, the last full year of data provided by Apple, the company sold 217.8 million units.
The smallest of big divisions
Despite those shipment declines, Apple’s has managed to keep its iPad business growing—and quite large. For most other companies, that would be a victory, but context matters. Inside Apple, even a division the size of the iPad is far less impactful than you might think.
During Apple’s 2019 fiscal year, iPad revenue was up 15.8% from $18.4 billion in the prior year to $21.3 billion. If the iPad were its own company, it would be big enough to top Lear for the 147th spot in the Fortune 500.
But tucked inside a company that generated $260.2 billion in revenue overall last year, iPad accounts for less than 10% of its total revenue.
By comparison, Apple’s iPhone business generated $142.4 billion in revenue last year. And with $24.5 billion in revenue on 41% year-over-year growth, Apple’s wearables and smart home business is both bigger than iPad and growing much faster. The same holds true for Apple’s Services business, which grew more than 16.5% year-over-year to $46.3 billion in revenue. Even the aging Mac, with $25.7 billion in revenue, outpaced iPad in 2019.
The 7-year wait
Over the past decade, iPad has clung to a chunky rectangular design, with no built-in keyboard, and an operating system in iOS (and iPadOS) that can’t quite match macOS in power or capability. High-priced accessories, like keyboards and the Apple Pencil stylus are required to get more from the tablet.
The iPad’s stuck-in-the-mud reality has become more acute in recent years, thanks to its long-time rival Microsoft, the analysts say.
With hybrid Surface laptops that have keyboard and touchscreen capability in one product, Microsoft has been able to bridge the gap between laptops and tablets. Microsoft has also opted for a full version of Windows on its Surface machines, creating a clear distinction between Apple’s mobile-focused iOS and a more robust operating system in Windows 10.
“If you look at Microsoft’s Surface laptops that are both tablet and laptop, you already see the eventual mobile computing platform of the future,” Bajarin says. He believes “a mobile computer in both modes will eventually displace the traditional laptop.”
The analysts say Apple has felt that pressure in recent years and has taken steps to target the Surface with features like its Smart Keyboard accessory that turns the iPad into a more traditional notebook. Ultimately they believe Apple will have no choice but to go all the way and create a hybrid device that can compete on the same level, productivity-wise, as Microsoft’s Surface.
“Giving people the ability to use a mobile computer in both modes will eventually displace the traditional laptop,” Bajarin says, pointing to the importance of the Surface on the mobile market. “It may still be 7-10 years away, but Apple clearly is driving the iPad in this direction.”
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