a16z Podcast: Apple and the Fate of Tablets

Episode Summary

Executive Summary: Chris Dixon and Benedict Evans discuss Apple’s earnings and broader product strategy, focusing on why the iPad’s growth has stalled, how smartphones have crowded out tablets, the still-nascent Apple TV business, and whether Apple’s next big move could be wearables or a cheaper iPhone. Their core view is that Apple’s current puzzle is less about direct competition and more about shifting user behavior, platform dynamics, and unmet needs.

Main Topics: iPad growth stall and market positioning (Priority: 5/5): They examine why iPad unit sales flattened after years of growth, arguing that the issue is not just product cycles or pricing but a lack of a compelling role between PCs and smartphones. Smartphones crowding out tablets (Priority: 5/5): A major thesis is that smartphones have become good enough for many tasks that tablets were expected to serve, limiting tablet demand and app development. Tablets as PC replacement vs accessory (Priority: 4/5): The discussion contrasts tablets as potential PC replacements with the reality that many consumers treat them as supplemental devices rather than primary computing devices. Platform shifts, apps, and changing human behavior (Priority: 4/5): They argue that major platform transitions create new apps and new user habits, but tablets may have been squeezed by the overlap of the smartphone revolution and changing workflows. Apple TV and the state of living-room tech (Priority: 3/5): Apple TV is presented as a modest business with early-stage economics and unresolved user experience/content problems across the broader TV ecosystem. Potential future Apple products: wearables and cheaper iPhone (Priority: 4/5): They speculate about Apple’s next major product categories, especially wearables and a lower-cost iPhone, weighing market demand, cannibalization risk, and margin impact.

Key Arguments: The iPad’s stagnation is better explained by market saturation and device substitution than by a simple longer upgrade cycle. Tablets were expected to replace PCs, but in practice many users either keep their PC or skip straight to using only a smartphone. Smartphones have a larger opportunity because they are always with the user, have cellular connectivity, and enable new services like Uber-style apps. The app ecosystem follows the bigger platform: developers focus on smartphones because that market is larger and more immediate. Tablet software innovation may have been crowded out by the simultaneous rise of smartphones, limiting the emergence of tablet-native killer apps. User behavior changes with new platforms; people may shorten emails, use SaaS links instead of local documents, and adapt workflows to touch devices. Apple TV is still small relative to Apple’s scale and the broader TV problem remains unsolved due to interface, content, and distribution friction. A cheaper iPhone is now technically feasible for Apple, but the strategic question is whether and when to make it without damaging premium margins.

Data Points: iPad unit sales trend: Flat for the last year after rising in a straight line for several years - Used to explain the iPad growth slowdown on a 12-month trailing basis Apple TV units sold in last year: 7 million to 8 million - Derived from total Apple TV sales rising from about 13 million to 20 million Apple TV total revenue in 2013: $1 billion - Includes device sales plus content revenue Apple TV content/device revenue per unit: About $20 per device per year - Used to assess whether Apple TV is a meaningful business Apple TV content revenue: A couple of hundred million dollars - Approximate revenue from movies/rentals within the $1B total Apple web traffic share on tablets: 80% - Cited as evidence that Apple dominates the premium tablet segment Nexus 7 / Nexus 10 performance: Nexus 7 outsold; Nexus 10 did not sell at all - Illustrates weak competition in premium Android tablets Cheap Android tablet price range: $50 to $125 - Described as generic low-end tablets with limited visible usage Apple TV peak viewing in UK example: 700,000 streams - Compared with BBC TV peak viewing to show limited scale TV peak viewing in UK example: 25 million streams - Used to highlight how small streaming remains relative to traditional TV iPhone average selling price: About $600 - Referenced in the discussion of a possible cheaper iPhone Android average selling price: About $250 - Used as a benchmark for lower-end phone pricing Potential cheaper iPhone gross margin scenario: 30% gross margin and 50 million units - Hypothetical example of a lower-cost iPhone and its impact

Pivotal Quotes: "the smartphone has crowded out app development from the tablet" — Chris Dixon: Explaining why tablet-native software innovation has been weaker than expected "people are not just saying, I don't need a PC. They're saying, I don't even need a tablet. I can get away with just using a smartphone" — Benedict Evans: Summarizing the squeeze on tablets between PCs and phones "Apple has always said we want to make products we can be proud of" — Benedict Evans: Discussing why a cheaper iPhone may now be feasible but strategically delicate

Implications: Apple’s future growth likely depends on finding a new category with a clear user problem, not just refining existing devices. Tablets may remain a secondary category, TV is still unresolved, and a cheaper iPhone or wearable could matter if Apple can define a must-have use case.