Steve Jobs Was Right ... and Wrong

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“When we were an agrarian nation, all cars were trucks, because that’s what you needed on the farm. But as vehicles started to be used in the urban centers, cars got more popular … PCs are going to be like trucks. They’re still going to be around, they’re still going to have a lot of value, but they’re going to be used by one out of X people.” – Steve Jobs at the AllThingsD D8 Conference June 2010

It was only two months after the launch of the much-anticipated Apple (NASDAQ: AAPL) iPad that Steve Jobs predicted tablet sales would eventually outnumber PC sales. While the prediction has yet to be proven true, the trends are certainly pointing that way. Consumers are eschewing utilitarian PC pickups, and instead picking up sleek sexy tablet sedans.

New research came out earlier this week from NPD DisplaySearch showing tablet sales outpacing notebook PC sales in 2013, and growing to outnumber notebook shipments nearly 3-to-1 by 2017. This information alone doesn’t shed much new light on the trends investors should be watching. Instead, it’s the other piece of research from NPD that I found more illuminating.

The Time Steve Jobs Was Wrong

In 2012, large screen tablets like the flagship iPad dominated the market with a share greater than 60%. However, NPD and IDC analyst Tom Mainelli expect smaller tablets to come into favor in 2013. So, while Steve Jobs may be right about a lot of things (e.g. tablet sales will outpace PC sales), he turned out to be wrong about small-form tablets, calling them “tweeners” because they’re too small to compete with the iPad and too big to compete with the iPhone. Turns out, it’s what Goldilocks might call “just right.”

Competition for 7-8 inch tablets is much more fierce. Google (NASDAQ: GOOG) is particularly exciting. Since it released the Nexus 7 last June, Google has seen steady sales growth and is now selling about 1 million units every month. This figure puts it in line with the other major 7” tablet, Amazon’s (NASDAQ: AMZN) Kindle Fire.

However, NPD expects Apple to cut into Google and Amazon’s increased market share with the iPad mini, the very product Steve Jobs was against producing. In fact, NPD expects the 7.9” mini to be the best selling tablet for years to come. Yet, as many expected, this comes at the cost of 9.7” iPad sales.

I believe NPD may be underestimating the pricing power of companies like Google and Amazon that don’t mind selling products at cost. Additionally, smaller names like Acer and manufacturers in China are sure to capture a large part of the developing market by selling 7” tablets at sub-$100 price points. Surely, Apple will have its place as the premium product, and will likely continue to do well in the U.S., but to expect it to outsell other small-form tablets by a 2:1 margin through 2017 might be giving it too much credit.

A Rising Tide Lifts All Boats

Here’s the great thing about this information though. All of these companies ought to do well, as tablet sales continue to outperform analysts’ estimates. Even if Apple starts to lose market share to Google, Amazon, and even Microsoft’s Surface tablet, it should still see good sales growth in its iPad division as tablets continue their quest to overtake PCs.  

However, some boats (wait, what happened to cars?) will rise faster and higher. I believe Amazon and Google are the best bets for the future of the tablet market: Amazon, for its inexpensive 7” and 8.9” Kindle Fire tablets, which appear to be growing in popularity every year, and Google because it provides the OS for nearly every non-Apple and non-Microsoft tablet on the market. I still believe Apple is a great company, but it appears its run as the tablet maker is nearing its end, and we’re entering a more diversified market.

adamlevy owns shares of The Motley Fool recommends, Apple, and Google. The Motley Fool owns shares of, Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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