How Apple is using iOS to control the iPad upgrade cycle

How Apple is using iOS to control the iPad upgrade cycle

Summary: The bottom line is simple – pundits who are screaming that the iPad upgrade cycle has stalled don't know what they are talking about. The truth is that the iPad upgrade cycle hasn't really started yet.

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TOPICS: Mobility, Hardware
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Following Apple's Q2 earnings there has been concern from some quarters that iPad sales are flagging and that may have hit what pundits call "peak iPad."

That's the hype, but what about the facts? The fact is that Apple is carefully controlling the iPad upgrade cycle.

Before I go on, some facts.

  • Apple sold 16.35 million tablets (which includes the iPad and iPad mini tablets)
  • This figure is down 37 percent on the previous quarter, and down 16 percent on the year-ago quarter
  • However, it still represents the fifth best quarter for the iPad, behind Q1 14, Q1 13, Q2 13, and Q3 12.
Apple iPad sales - historical

Sales of over 16 million over a quarter isn't bad at all, especially when you consider that the iPad is only one of Apple's products. Compare this to top PC vendor Lenovo, which can't shift this many PCs — and think how big that category is — in a quarter.

Similarly, if Microsoft could shift 16 million Surface tablets in a quarter, that would be a very big deal.

OK, with that out of the way, let's now look at how Apple is using iOS to regulate the iPad upgrade cycle.

Since the iPad line first went on sale in March 2010, Apple has released seven different iPad models (excluding capacities and connectivity variants). There have been four generations of iPad, an iPad Air, and two generations of iPad mini. In all, that's over 210 million iPads sold in roughly four years.

Now here's the interesting thing. With the exception of the iPad 1, which first went on sale in April 2010 and was discontinued at the beginning of March 2011, every iPad in circulation is capable of running the latest version of iOS – iOS 7.1.1.

Apple itself admits that it sold over 15 million iPad 1 tablets before the device was discontinued, so this means that around 90 percent of all iPads ever sold are still being supported with updates.

Apple might not be selling the old hardware any more, but only about 10 percent of iPads sold are considered obsolete. Apple never once claimed that the iPad upgrade cycle would follow that of smartphones. This is fantasy straight out of the heads of analysts and pundits. The smartphone upgrade cycle is controlled by the carriers and how often they allow customers to upgrade, and is normally around two years.

The bottom line is simple – pundits who are screaming that the iPad upgrade cycle has stalled don't know what they are talking about. The truth is that the iPad upgrade cycle hasn't really started yet.

Another claim being made is that as iPad sales are dropping and hybrids are gaining ground. This chart based on Gartner data is the one being used to support this idea.

(Source: Gartner)

I have a few problems with this:

  • First, Gartner is making predictions into 2015. As good as Gartner is, it never predicted the tablet revolution until Apple kicked it into action with the iPad. Let's see how things pan out in reality rather than make sweeping predictions based on tea leaves.
  • Even if these numbers pan out exactly as stated here, the hybrid sector is only growing rapidly because it's small to begin with.
  • Also, once again taking these numbers as gospel, even with the hybrid revolution, PCs are doing little more than holding their ground in the face of tablets, and unless Windows gains significant traction in that market then it will see its market share being eroded over the next few years.
  • If the tablet market can become predictable in little over four years, and "peak iPad" is really a problem, then by 2015 won't the hybrid market be at the same position?

Personally, I'm hesitant to try to make such delicate preditions that go so far out. A lot of things can change.

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Topics: Mobility, Hardware

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14 comments
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  • So What You're Saying,

    is that Apple is deliberately scuttling sales in order to keep control of sales and that makes for a good business plan?

    "The fact is that Apple is carefully control(sic) the iPad upgrade cycle."

    "This figure is down 37 percent on the previous quarter, and down 16 percent on the year-ago quarter"


    I'm sure that investors are equally astute and will find your reasoning unimpeachable and this in turn will cause Apple stocks to soar to heights never before imagined. Well done!
    Mujibahr
    • The reality is...

      The iPad 2 is still a very usable product as it's able to run the latest version of iOS. As the owner of an iPad 2, I have no real reason to get an iPad Air right now. However, with the announcement of iOS 8 coming up, there's a great likeliness that the iPad 2 will be dropped from support. This would provide an incentive for iPad 2 owners to upgrade their tablets.

      If Apple were to drop support for a tablet too early, it devalues the product and consumers would rather look elsewhere. Unfortunately as there's no 2 year contract on iPads, Apple's best opportunity to get customers to upgrade is when they drop support.

      This could be described as an organic form of control over the upgrade cycle. Obviously Apple wouldn't want to slow sales on purpose, but they're able to spike sales in this manner.
      NitzMan
  • Hybrid Market

    Many tablets are used as hybrids. At the same time one purchases the tablet they also purchase the keyboard. If you assumed that every tablet keyboard sold changed one tablet sale to a hybrid I wonder what the numbers would look like? I wonder if the pure tablet sales would almost be flat?
    MichaelInMA
  • Weird

    Sounds like someone is apologizing for Apple's earning reports. Which is funny because it's not even bad news. Why must Apple have any slowing of sales because of market saturation explained away while nobody else needs the help?
    gijames1225
  • ecosystem

    I think what we're seeing is Apple trying to first build up the iPad ecosystem to something more than being browser based. On the iPhone an app ecosystem was easy but on the iPad with a bigger screen the browser becomes more of a focus. If the browser is more of the focus, it becomes easier for users to switch platforms whenever it's convenient. By them not forcing a purchasing cycle it can allow a greater chance of customers trying out new apps.

    At some point though upgrades have to happen and the push has been subtle with hardware in the form of the lightning connector. Don't be surprised if we next see the iPad 4 as the lowest on the totem pole for support and skipping the iPad 3 when the 2 goes away. I think it happens this year.

    BTW, the other thing that keeps getting neglected is enterprise sales. That's an area still having not really taken off yet. It's ramping up slowly much like the pc's in business did back in the 80's and early 90's. Apple has a fairly decent lead here at the moment in more ways than one. Android is next to nonexistent and MS is hanging on mostly by those who are strict Microsoft shops.
    Jim68
    • wimdows

      Windows is barely hanging on becuase msft saw an increase in windows sold to enterprise and has 90 of the market. So if msft is holding on to strick msft shops, then they are in good stead. And do not kid yourself. Tablets are not even close to being more than a periperial device in the enterprise.
      revben
      • How much of the enterprise have you surveyed to come to this conclusion?

        I own a mobile oriented company. We develop enterprise grade software and in recent years we've implemented iPad only systems at over a hundred organizations. From rental systems to highly complex trading systems (services built around the backend).

        We've got work lined up for years to come as we're unable to keep up with customer demand right now. Everybody seems to want an iPad application and they're getting real work done with them.

        At one of my clients, they recently got rid of all PCs from the sales floor after trialing their new CRM system on the iPad for 3 months. Employee satisfaction is at an all time high, from what I've been told.

        We've also replaced clipboards with iPads at a hospital, which has lead to a drastic decrease in errors as doctors are now able to scan patient tags and receive accurate up to date information. Nurses also get push notifications and able to provide better care for their patients.

        So if you believe that the iPad is nothing more than a peripheral device, you are very wrong!
        NitzMan
  • Whatever

    The bottom line is that iPad sales have been stuck at around 15-17 million per quarter since 2012. They get a little temporary bump to just over the 20 million mark with new version releases then sales fall right back down.

    Even more to the point, Apple went from 1 new model to 2 new models of different sizes and they still ended up only getting the same sales as when they had just one new model. Apple's iPad sales are limited by price. It doesn't matter how many different versions of the iPad they sell or what versions of iOS the hardware supports - their price range limits their sales performance to that plateau you see in the graph.

    In order to get as many iPads sold as possible to show positive 'growth', Apple had to sell its ancient versions of the device at the lowest price point it can offer that still mostly preserves its super high margins, and so new versions of iOS must always be made to support those much older devices. Once they started doing that, they lost the ability to use iOS to control iPad upgrade cycles because their price range is such that they MUST continue to use the very old devices just to maintain the current sales. If they discontinued them abruptly, the lowest available price of an iPad would rise substantially, the iPad would have even lower presence in stores in the developing markets and quarterly sales would drop even further. Apple's not in control of anything. They lost control the minute they decided to go for more sales volume by selling the much older devices at lower price points.
    eMJayy
    • Say What?

      "...so new versions of iOS must always be made to support those much older devices." I have one of those much older devices and I have no iOS upgrade path.
      1cm2otd1
  • Hm

    d
    MarkDau
  • Whoops...

    Last reply was an accident.

    The author of this article has published 3/4 Apple articles recently, while claiming no allegiance to a particular platform... Yet, one of the articles was about why the MBA was superior to all it's competition, and now, this.

    It's fine to have an opinion - just be honest about it! Lying makes you seem less credible, which *used* to be important.

    Mr. Hughes - You're articles are whiny and defensive. You need to re-evulate your tone of voice as a writer and really be more forthcoming in general. This article is just as speculators as the people you're "calling out" -- perhaps try deeper thought next time, too!
    MarkDau
  • Obsolescence has already started

    if you don't have 64bit ipad, you are already not cool and can't run the latest and greatest 64bit apps.
    without those 64bit apps, you are nothing.
    or so we've been told.
    warboat
  • somebody here said tablets are not significant in enterprise.

    I know that isn't true.. there are quite literally thousands of tablets at the uni where I work, and that is just staff, not counting students.. pretty much all the academics use them in class and for research itself, and the management folks use them for presentations and note taking in meetings and work when they move around.. there are just about as many tablets now as their are PC's.. so I wouldn't be saying that isn't significant.
    frankieh
  • So what if iOS runs on older iPads?

    The author seems to be suggesting that Apple should be applauded for ensuring that the latest version of iOS runs on a 3 year-old iPad. Now, I don't care how many iterations of the iPad there have been in the past 3 years, but if I pay over $500 for a device then I expect to get upgrades for *atleast* 3 years without singling out the company for praise.

    Whether iOS 7.1.1 runs fast, smooth and power-efficient on those older iPads is a different matter.

    Put it this way: you could run Windows 8 on a PC from the late 90s.
    awj100