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Apple’s Tablet Sales Sag as It Confronts the Challenge of Competing With Free

An Apple iPad Air 2
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An Apple iPad Air 2

Since June of 2013, Apple has struggled to explain why sales of the iPad, which for a brief moment threatened the very existence of laptop computing, began its abrupt slide.

This week, research firm NPD Group came up with data that provides a fresh take: Even as Apple's iPad battled to hold its own amid the growing popularity of bigger-screened smartphones, it also was competing with free.(Tweet This)

The NPD Group reported a dramatic increase in the number of tablets connected to mobile networks in 2014. The research firm tallied some 18.3 million connected tablets in the U.S. — a 90 percent jump from the prior year. Mobile carriers accomplished this feat through aggressive discounting and giveaways as they worked furiously to add customers.

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For the carriers, this strategy paid dividends: The promotion resulted in more than 8.7 million new cellular tablet customers last year, NPD reported.

Apple ended up as collateral damage, as its own wireless carrier partners effectively handed out low-end tablets to subscribers and allowed customers to tap into their existing data plans for a modest additional charge of, say, $10 a month.

Meanwhile, the Cupertino technology giant that ignited the tablet market with its 2010 introduction of the iPad saw sales fall to 63.4 million in calendar 2014, a drop of nearly 15 percent compared with the prior year, according to Apple's own data.

NPD researcher Brad Akyuz expects the growth in cellular tablet subscriptions will slow over the next couple of years, as larger-screen smartphones (those with five-inch or larger displays) gain in popularity — and more people use the mobile hotspot setting on their smartphones to provide tablet connectivity on the go.

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Apple Chief Executive Tim Cook provided a spirited defense of the iPad's long-term prospects Monday, during the company's March quarter investor call. He said the tablet set a second-quarter record for sales in Japan, and an all-time record in China — even as he acknowledged that other markets were "muted."

"The iPad turns five years old this month, and in every year since its introduction, it has been the number one tablet in sales, in quantity and quality of tablet apps, in usage, and most importantly, in customer satisfaction," Cook said. "And based on the latest data from NPD, iPad maintains a very strong leadership share in all the price bands where we compete."

Apple's iPad still blows competitors — including low-cost devices — out of the water, when it comes to usage, according to data from online ad network Chitika.

Cook acknowledged the iPad is being squeezed at both ends of the device spectrum, from the big-screen iPhones as well as from increasingly slender Macs. But he also sought to underscore new opportunities in the enterprise, citing one survey that found that, among corporate buyers planning to buy tablets in the next six months, 77 percent plan to purchase iPads.

That's why Apple partnered with IBM as well as two dozen other makers of business software to develop apps tailored to the needs of a mobile workforce.

"The IBM partnership, I think, is in its early stages in terms of bearing fruit here, but everything I see I like," Cook said. "I'm a big believer in the ability for iPad to play in a major way in enterprise. And so I'm looking forward to seeing that play out as we move forward."

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For consumers, the smartwatch could emerge as the second screen of choice.

It's hard to gauge initial consumer reception to the newly launched Apple Watch, given the company's refusal to disclose any meaningful numbers.

But if the Apple Watch and its competitors catch on, the smartwatch may become the screen that consumers glance at multiple times a day to get text messages, email and calendar alerts and other quick snippets of information. The more spacious screen of the smartphone, meanwhile, might assume some of the activities we now perform on the tablet, from interacting with social media to watching movies and TV shows.

And the tablet? Perhaps that becomes the work tool Cook envisions.

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