A few years ago, Apple held a remarkable competitive position in the tablet market.
The company was not only was first-to-market (Apple basically invented the tablet category). Apple also had both the premium product AND the lowest price. As competitors scrambled to catch up with the iPad, most of the early competitive tablets were both worse than the iPad and more expensive.
That is an extremely rare position for a company to be in. And it’s no surprise that Apple basically had the tablet market to itself for a couple of years.
But in the last year or so, those competitive dynamics have changed.
The launch of smaller, lower-priced tablets by Amazon, Google, Samsung, and others opened up a vast new tablet market. And Apple’s original thesis, that any tablet under 10 inches would be a horrible user experience, proved wrong.
Consumers liked the $100-$400 price points on Kindles and other smaller tablets. And the success of these tablets forced Apple to cut prices on its large iPad and then introduce an iPad Mini.
With the Mini, Apple is now playing in the smaller/cheaper tablet market, which is good. Importantly, however, Apple is no longer the price leader in this category. The iPad Mini is considered by some to be the best of the smaller tablets–the premium choice–but it’s certainly not the cheapest. And that difference is one reason that Apple’s share of the tablet market is now shrinking fast.
(Another reason is that, as happened in smartphones, the competition is catching up. Several of Apple’s competitors have released tablets that even Apple fans admit are pretty darn good–especially when one considers that they cost a third or more less than the iPad Mini).
According to new data from IDC, Apple’s market share of the global tablet market has dropped from 52% in the fourth quarter of 2011 to 44% in 2012.
Meanwhile, Samsung’s share of the market has doubled, as has that of Asus, which makes Google’s Nexus 7 tablet.
Both Samsung and Asus still have relatively small share–Asus especially. And Apple is still the world’s dominant tablet maker, by a mile.
But the same trends that played out in the smartphone market are beginning to play out in tablets, and these trends aren’t positive for Apple.
By choosing to protect its profit margin and price the iPad Mini above the competition, Apple is likely sacrificing market share.
In the short term, this doesn’t matter–it’s a fine short-term strategy to sacrifice market share for per-unit profit. But the tablet market, like the smartphone market, is a “platform market”–which means that third parties build other products and services that run on top of tablets. And Apple’s dominant market share in this platform market is a major advantage (iTunes libraries, for example, don’t play on Samsung and Amazon tablets).
Every point of market share that Apple loses weakens its competitive position as a platform. And if the market share dynamics in the tablet market continue to play out the way they did in the smartphone market, Apple’s decision to protect near-term profits at the expense of market share may hurt it in the end.
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