The Future of Apple Is the iPad 2

Matthew Yglesias makes a smart point about Apple and the iPad:

The iPad is already the market leader to such an extent that simply coming out with a better one doesn’t change the landscape. But if Apple’s supply chain allows them to ramp up production of a new high-end product while continuing to sell the iPad 2 in volume as a cheaper option, that shakes up the landscape.

If you look at iPad sales compared to competitors, it’s hard not to conclude that the “tablet market” is a fiction—what we have is an iPad market, with a few companies operating outside of it. Moreover, high demand means that the iPad market continues to have tremendous room for growth at premium price points.

But—as demonstrated by the success of the Kindle Fire—its also true that there is room for growth at the lower bound of the tablet space. And, because Apple doesn’t have much in the way of competition, the price of iPads depends mostly on Cupertino’s ability to produce them. If Apple rereleases the iPad 2 as a lower-end alternative for those who can’t (or won’t) pay for the newest version, it could dominate the tablet market entirely by challenging the price advantage of competitors like Amazon.

Exactly why the iPad is so popular is a different question. I would argue that the caliber of hardware isn’t the issue—its the software ecosystem and service quality that counts, and only two companies (Amazon and Apple) can compete at that level.

Indeed, as much as its tempting to compare tablets to smartphones, the more natural fit is MP3 players. There were alternatives to the iPod, and some of them, like the Zune, were cheaper, sleeker devices with better hardware. But none of them could overtake the iPod. And while you can attribute some of this to Apple’s immense cultural capital, a good deal of it comes down to an efficient supply chain—which could provide a steady stream of devices—the availability of iPods at all price points, and the iTunes ecosystem, which made iPods easy to use. Apple’s competitors could never match the whole shebang, and lost out as a result. In a few years, I think we’ll say the same for iPads.