The iPad 2.5 Years Later: How Wrong We Were
Sam is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
9 Billion Dollars.
That's how much revenue Apple (NASDAQ: AAPL) generated from iPad sales in its most recent quarter, which wasn't even a holiday quarter. To put that in perspective, in the quarter right before the iPad launched, Apple generated $13.5 billion from all its other products, including the iPhone.
Lets take a look back at investor pessimism towards the iPad when it was first announced. Not to single anyone out, because the criticism was widespread, but look at the language used in an article by Fool Eric Bleeker, who actually made AAPL the largest position in his Real Money Portfolio just a year later. The first iPad was often called an "enormous iPhone" or, in the words of Fool langco1, an "instant dud and rare miss for apple." While there were some initial supporters, many focused on what the iPad wasn't, and not what it was. It was "too late on the netbook market" and a more expensive Amazon kindle. From Retired31B5M, "Exactly what am I going to use it for?"
Perhaps the greatest proof of all was the market's reaction to the iPad's announcement. On Jan. 27th, the day of the announcement, the stock opened at $207. By Jan. 29th, the market had pushed AAPL as low as $190. The stock dropped more than 8% on the announcement of a product that now earns Apple $9 Billion in sales in a single quarter just 2 1/2 years later.
Of course the stock quickly rebounded after the iPad actually went on sale on April 3rd, reaching $270 just 3 weeks after launch. In fact, the stock has risen an incredible 250% since the low of $190 following the announcement of the iPad.
I believe there are at least 3 lessons to be learned from the iPad story.
Lesson 1: Upon the launch of a new product, focus on what it is, not what it isn't
The majority of those who were wrong about the iPad were wrong because they insisted on comparing the iPad to other existing products. Those who saw the iPad as a smaller netbook or a larger iPhone were bearish because the advantages of a netbook were its keyboard and classic computing ability and the advantages of an iPhone were its pocket size and classic phone features. The problem is that the iPad wasn't either of these, it was in fact a whole new product, a tablet, which, as it turns out, actually has many advantages of its own. Investors who saw the iPad as having a myriad of unique advantages not found on any other product such as netbooks or smartphones profited immensely.
Lesson 2: Never underestimate the power of branding
While the iPad was a revolutionary product, it's almost unheard of for any completely new product to sell 600,000 units in its first day. So how did it happen? It wasn't advertising, it was branding. The fact is, Apple had built such a strong brand that there were a large number of people who bought the product primarily because it had an Apple logo on it.
Consider for a moment Microsoft (NASDAQ: MSFT) and the various different Windows-powered netbooks that launched a couple years before the iPad. While netbooks inherently weren't as revolutionary a technology as the iPad was, they probably also suffered from a lack of branding surrounding their launch. Microsoft didn't have it's logo on any of the first netbooks, and while Dell, HP, and other netbook manufacturers have ok brands, there was no single hook in the form of a logo that gave consumers an irrational urge to buy. The effect of a powerful brand like Apple is quite remarkable, and shouldn't be underestimated when considering a new product launch.
Lesson 3: The market isn't completely efficient
If markets were completely efficient, the launch of the iPad should have sent Apple stock soaring right away. People should have seen how revolutionary the iPad was and how it was going to be a big driver of growth. But they didn't. The fact is, markets aren't completely efficient, and the iPad presents a strong case of how Foolish investors can beat the market.
With these three lessons in mind, it's still important to consider the other side of the coin. We shouldn't go out and buy every stock that announces a bold new product because not all new products claiming to be the next iPad are in fact revolutionary. In fact, in the case of Microsoft's new Surface tablet, even if it was "the next iPad," so to speak (which it probably isn't), that still wouldn't be enough because the iPad already exists.
Still, new product announcements can present an enormous buying opportunity for Foolish investors if they can make disciplined, far-seeing judgments more times than not.
TMFCinco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services recommend Apple. 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.If you have questions about this post or the Fool’s blog network, click here for information.