iPad Strikes Back at Netbooks, Tablets

To the pitiful netbook rebellion and band of new tablets, now you shall witness the destructive power of this fully armed and operational iPad.

Only a few years ago in a galaxy not so far away, netbooks swept the market in disruption like simple-minded stormtroopers. After all, the country was embroiled in a recession and people were looking for all sorts of ways to save money. Anecdotal signs pointed to cost conscious college students buying netbooks instead of pricy Macbooks, thus threatening one of Apple’s strategic markets.

Apple, of course, struck back with the iPad in April, delivering a much-hyped product with an attractive price tag of $500, rivaling the netbook’s price point. Prior to launch, many industry analysts had predicted that the iPad would cost $1,000 and be unable to compete with netbooks on price.

So began Silicon Valley’s version of the clone wars.

Five months after the iPad’s release, Apple appears to be winning the war. Morgan Stanley reports that retail notebook growth in the United States fell 4 percent in August compared to the year prior.

“We expect tablets to continue to pressure PCs as more vendors launch products (e.g., Dell, Streak and Samsung Tab) and Apple expands its iPad distribution (e.g. China and five Latin American countries by September 17),” wrote analyst Katy Huberty, in a research note.

Best Buy CEO Brian Dunn told the Wall Street Journal that the iPad has cannibalized laptop sales, especially netbooks, by as much as 50 percent. Best Buy plans to expand iPad distribution to the Empire, or all its U.S. stores later this month, and push iPads, tablets and Amazon’s Kindle hard this holiday season.

The iPad’s lightening-fast success has spawned a number of copycats, including seven new Windows 7 tablets. Meanwhile, factories are secretly making armies of Android tablets to compete with the iPad. Samsung, Toshiba, ViewSonic and Archos recently announced tablets running Android 2.2 OS that will support Flash—Apple’s great nemesis in the mobile universe.

Apple can’t take Android tablets lightly, especially not after Android phones came from behind to grab market share from the iconic iPhone. Last quarter, Android devices outsold iPhones for the first time, according to a Nielsen study. Apparently, these are the droids people are looking for.

Cloaked in a black turtleneck, Apple CEO Steve Jobs isn’t one to be underestimated, not even from Padawan tablet manufacturers. The latest rumor has Apple creating powerful alliances with publishers such as Time Inc., Conde Nast, News Corp, and Hearst Corp., to sell newspaper and magazine subscription for the iPad, according to the Wall Street Journal. The tablet battlefield is shifting from hardware to software and services.

Publishers should be wary of Apple’s controlling ways though. After all, it wasn’t so long ago when Apple seized power over music sales with their own proprietary music format. Rumors also have Apple taking a 40 percent cut on media advertising sales and a 30 percent cut on subscription sales.

A newspaper and magazine offering similar to Apple’s iBooks storefront for books may come in the next couple of months, sources told the Wall Street Journal. The idea is to have the iPad become the juggernaut of newspapers and magazines.

If they pull this off, Apple will have dealt a serious blow to new tablets that are still competing on the hardware side.

Tom Kaneshige covers Apple and Networking for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline. Email Tom at tkaneshige@cio.com.