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Analysis: Apple Widens Tablet Market Gap With iPad 2, But Will Wireless Benefit?

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WASHINGTON, March 17, 2011 - Apple’s initial iPad 2 sales and projections for 2011 say while that Apple probably will not face much competition in tablet sales, the competition for wireless data plans for the device are heating up.

Apple sold over 15 million of the original iPad, and brisk resales of used  iPads on eBay, Gazelle, and other resale sites indicate that the original model is still quite popular. Analyst Mike Abramsky of RBC Capital Markets sees upgrades from the original iPad comprising only a fifth of iPad 2 over the next 12 months. That means that the remaining 80 percent of iPad 2 purchasers will likely be new to the tablet platform.  Abramsky projects Jobs and Company will sell 28 million of its new model touchscreen tablet by the end of the calendar year.

Apple has not seen any real competition in the tablet format. Data from market research firm IDC shows that Apple snagged nearly three-quarters of the tablet market during the fourth quarter of 2010. Samsung’s Galaxy tablet, which the company introduced in late 2010, offered some competition, but for the year the iPad captured a whopping 83 percent of the market. IDC predicts Apple to hang onto an 80 percent market share through 2011 and that the introduction of a the iPad 2 may only serve to widen the gap. Many analyst have pointed to the flexibility Apple offers in having six iPad models which do not require a data contract to achieve a relatively affordable price point.

The iPad 2 comes with an available 3G wireless data option through either Verizon or AT&T, but the device can not switch between these carriers due to their differing wireless technologies.  In order to attract customers, both carriers have created tiered data plans based on anticipated usage, ranging from 250 MB to 5 GB or more if consumers are willing to pay. Given that a recent Cisco analysis points to the average tablet user uses over 400MB of data a month - and that this consumption will likely only grow - the lower bandwidth plans seem like they may be less popular, and may possibly make consumers unhappy if they are charged for exceeding their cap.

Apple iOS users point to the graphics based touch environment on the iPad 2 as a prime reason for higher data use, and the higher likelihood a user will look at a full webpage, pictures, or video on the iPad's large screen as opposed to just viewing text, the way they might on a smaller smartphone screen. The significant graphics improvement may only draw more users to the iPad.  A recent graphics benchmark by AnandTech tested the iPad 2 against the original iPad and the Motorola Xoom, which the company launched a scant two months ago at the Consumer Electronics Show. The iPad 2 outperformed both tablets significantly.

Other wireless carriers are keen to tap into the mobile market as Virgin Mobile, and Sprint have all introduced mobile devices that  are specifically marketed to iPad and laptop users. T-Mobile expects to hop on the wagon in the near future as well.  These devices allow users to connect to their wireless networks through Wi-Fi. In fact many veteran Apple users are hesitant to pay the extra $130 for the ability to use 3G on their iPads.

“With many networks moving to 4G, and cheaper devices that will allow me to share my wireless connection with other Wi-Fi devices, it seems silly to buy a 3G iPad,” said one user who wished to remain anonymous because he works for Apple.

Other current AT&T and Verizon iPhone customers are hoping to use the Wi-Fi tethering feature that was introduced with the most recent operating system in lieu of purchasing a 3G plan with their iPad. AT&T recently increased the data cap from 2GB to 4GB for the users who pay for the tethering feature.

Marguerite Reardon of CNET agreed, pointing out,  “Aside from the $130 premium you're paying for the 3G radio in the iPad 2, AT&T and Verizon also aren't making it terribly attractive to subscribe to the iPad data service if you've already got a phone that can create a Wi-Fi hot spot.”

Nate Hakken is a native of Washington, DC. As the son of two itinerant academics, Nate spent much of his childhood living in England and Scandinavia. He has a B.A. from Sarah Lawrence College, as well as a J.D. from Vermont Law School, where he studied Internet and technology law. Nate is a jack-of-all-trades, having worked as a sound engineer, teacher, camp director, outdoor adventure guide, and medical researcher. Outside of work, he is an avid cyclist who competes across the Mid-Atlantic and has been known to play the guitar when asked nicely.

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