The iPad's Falling ASP Signals Price Disruption In The Tablet Market

iphone vs ipad asp

The average selling price of iPads fell again last quarter.It was only a $3 drop mind you, (to $535).

But the iPad’s ASP has been on a downward slope and is off more than $100 since the second quarter of 2011. 

The decline was partially expected. Apple had first-mover advantage in the tablet market, and there was no way the company would maintain its dominance forever.

To be fair, Apple still dominates competitors in terms of tablet market share.

The ASP drop partly stems from the continued popularity of the iPad 2, released in March 2011. With each new generation of iPads, Apple drops the price on the iPad 2, and consumers keep buying it.

That’s a bit worrisome for Apple. The company has a tried-and-true strategy of pumping out a new generation of its cash crop device lines every nine to 12 months. Even the release of a new iPad (aka the iPad 3) in March 2012 wasn’t able to arrest the ASP’s fall.

The iPad line’s ASP struggle contrasts with the iPhone, which has had a relatively stable ASP since mid-2008, when the iPhone 3G was introduced (even as the overall ASP of smartphones plummeted). 

If Apple, the teflon don of pricing, can’t maintain ASPs on its flagship full-size tablets, that’s an indicator of increasing competition in the tablet market.  

The iPad ASP decline may help explain Apple’s surprise release of the iPad 4 this week. The new iPad should help boost the flagging iPad ASP by finally weaning consumers away from the iPad 2. 

Apple also released the iPad Mini, the company’s first entry in the burgeoning mini-tablet market (we explained earlier this week why they needed to make this move). At $329, the iPad Mini is priced much higher than competitors’ tablets such as the Kindle Fire HD and the Google Nexus 7, which sell for $200.

Apple’s aggressive pricing strategy is probably meant to prop up the ASP of the iPads as a whole, along with margins and the bottom line.

Of course, the lower-priced iPad Mini will pull down the iPad line’s ASP. But on the other hand, the product gives Apple a shot at gaining a share of the fast-growing mini-tablet market without dropping its price point to competitors’ levels.  

Prices have fallen drastically in the wider tablet market: from $647 in 2010, to $536 in 2011, and an estimated $443 in the first half of this year.

Mini-tablets accelerated this price disruption. According to Strategy Analytics, Android tablets, which are primarily mini-tablets, accounted for 41 per cent of global tablet shipments last quarter. We are close to seeing mini-tablets account for half of global tablet market shipments.

The consumer is the biggest beneficiary of the fierce competition. As we discuss in our tablet market forecast, tablets are not just a superfluous luxury device for the leisure class, as some have argued, but a disruptive media consumption device. As the price continues to fall—the regular Kindle Fire now costs $159—adoption will pick up. Within five years, the majority of Americans will own a tablet.

We forecast that tablet shipments will top 450 million by 2016.    

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