A Year Later, Consumers Figure Out the IPad

Strong Purchase Demand Means Now-Iconic Tablet Device Will Remain Disruptive to Other Media

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YORK, Pa. (AdAge.com) -- What a difference a year can make.

At the Consumer Electronics Show in 2010, Microsoft CEO Steve Ballmer showed off a prototype of a Windows-based tablet. This year, more than 80 tablet devices will debut at CES.

And for that we can thank Apple's iPad. With more than 10 million sold in just nine months, the already iconic touchscreen computer has a 90% awareness among consumers, as well as a robust purchase intent of 21% among the key 18- to 34-year-old demographic, according to a recent survey by Vision Critical. While a majority of consumers in a March version of the study admitted they were "not sure what they'd use it for," by a November follow-up they had come up with more than half a dozen needs for an iPad, including internet browsing, apps usage, photo and music viewing, social networking and shopping.

And the tablet device has won over consumers fast. A similar 20% purchase intent was noted for the iPod around 2004, said Matt Kleinschmit, senior VP, media, at Vision Critical, but that was more than three years and several versions after the digital music device debuted.

Even more telling of a product in stellar ascent is that it's also already showing real signs of cannibalizing laptop, netbook and e-reader sales. When Vision Critical asked consumers in March what the device was most similar to, they got more than a dozen responses, from smartphones and laptops to gaming devices and TVs. This time around, that perception remained even or increased for laptops, netbooks and e-readers.

"A year ago, this wasn't even a category," Mr. Kleinschmit said. "After months of learning more about the iPad, what's cut through the clutter is the laptop, netbook and e-reader association -- and potential substitution." He added that the netbook category, while it laid the groundwork for the iPad's success as a lightweight internet-mostly device, will be subsumed by tablets in only a few years.

NPD Group holiday sales data released today confirmed cannibalization rates it had predicted of as much as 15%, or about 1 million PCs during the holidays, noting that sales of notebooks were down 9% in volume, while netbooks dropped a whopping 38% over last year.

And so the tech industry has responded quickly to the threat with the dozens of tablets now set to flood the market. The hardware makers, however, aren't alone in feeling the impact of the iPad. Industries from phones, books, magazines, TV, retail and music are all grappling with post-traumatic iPad stress.

"Surely they've all learned the lessons of the music industry and know they have to embrace the iPad or end up like them, but do they have the resources and skill sets in place to take advantage of this opportunity?" Mr. Kleinschmit said. He talked about the iPad's impact in some of those industries, and what companies can do in response.

The iPad hasn't dented phones sales simply because it doesn't have that functionality. But that could change if and when Apple adds FaceTime, its video-chat feature now on the iPhone 4. In Vision Critical's survey, 21% of respondents said the addition of a FaceTime app would be very appealing, with 37% of 18- to 34-year-olds answering that way. Mr. Kleinschmit said he foresees a familiar Apple strategy at play, in this case where Skype has laid the groundwork in getting people familiar with video chat and making it a mass-market technology, and Apple moving in later and trumping the competition.

At launch, magazine executives touted the iPad as the industry's savior. Yet months later, after a few months of spiked sales for magazines' iPad editions, sales now are mostly flat or dropping. For most magazines, iPad sales represent small percentages of overall revenue, but that will likely change with rapid adoption. Considering consumers' wide range of intended uses for the iPad, magazines could not only optimize their own content but also experiment with other types just for tablet use. Pricing models could also be flexible compared with a straight per-issue price strategy. "Magazines so far have mostly ported the content from their print [versions] as opposed to digging into what types of content consumers want, and more importantly, what content they are willing to pay for," Mr. Kleinschmit said.

Although it seems that not much more damage could be done to an industry already half its size thanks to the iPad's brethren in the iPod family, Mr. Kleinschmit said there is opportunity for the music industry. The iPad could allow a more immersive and visual experience for consumers. Developing and distributing videos, concert footage, artist interviews and even lyrics along with music "are all there for the taking," although execution is key. He cited a meeting with music industry executives several years ago where they talked about the value of lyrics and the potential price premium consumers might pay, but then revealed that their plan was when a person downloaded a song, they would attach a pdf document with the lyrics.

Television and cable
Thanks to its prime-time viewing and cable subscription bundles, broadcast and cable TV are established enough to withstand the iPad's content challenge -- for now. But consumers are increasingly showing a preference for on-demand viewing. The opportunity for Apple is to connect TV content to the iPad, whether it's through streaming videos and shows, pricing tiers for different kinds of viewing or DVR and remote functionality added to the device. The key here is apps, Mr. Kleinschmit said. Rather than imagining what consumers can do with a laptop and an internet browser while watching TV, the vision could give way to that of consumers connecting to a TV show via its app, which could also provide more interactive and tailored content.