Why PC Vendors Are Compelled to Compete with the iPad -- but Probably Can't

In two years, the iPad has gone from being a "frivilous" and "unnecessary" device to outselling PCs. Yesterday Apple unveiled the "3rd generation iPad" or "the new iPad," if you prefer. It boasted a range of upgrades, including the "retina display," 4G models, improved cameras, improved software and a new quad-core processor, among others.

Last week ad network InMobi surveyed North American users and found that 30% of respondents were interested in buying the new iPad (many would also buy an iPad2 at a reduced price). The following was a list of most desired features according to the survey:

Interestingly Apple delivered on almost all of these except "size & weight" (smaller, lighter iPad). On battery life the iPad already does incredibly well, better than any laptop or other tablet (except the original Kindle). So that was probably something of an unreasonable expectation. The fact that it was able to deliver 4G with a nine hour batter life is pretty remarkable actually. 

Users also got the ability to buy the iPad2 at an entry level price of $399. Apple is going to sell a lot of those also. The price is close enough to Amazon's Kindle Fire that it could affect sales of that device. 

It's not clear how many people pre-ordered a new iPad, although the initial batch of white 4G models may have sold out based on the absence of a March 16 delivery date on the Apple site. 

During the press conference yesterday, Apple CEO Tim Cook showed what was perhaps the most significant slide of the event:

Screen shot 2012-03-08 at 12.02.02 PM

Amazingly the iPad outsold PC vendors in Q4 2011 -- not collectively but each individual vendor. And because consumer PC sales are flat this will likely continue to happen in the future. Tablets are an emerging "necessity," not just for gadget savvy consumers but for PC makers who could see their fortunes decline dramatically if the trend holds.

Thus all of the OEMs on this slide shown yesterday are compelled to enter the tablet market. They literally can't afford to ignore it now. They can choose from the Android OS or the forthcoming Windows 8. Dell is banking on Windows 8 to boost its fortunes. 

Windows 8, which is supposed to be a cross-platform OS and which has received some favorable early reviews, remains a wild card. There's not going to be a Windows 8 tablet until Q4, if then. In the meantime Apple may have sold 20 - 30 million more iPads, including in the enterprise. (If Microsoft builds an iPad version of Office, that will partly undermine the case for Windows 8 tablets.)

Among the OEMs that have chosen Android, they confront the problem of competing without many specialized tablet apps and against the price pressure created by Amazon's Kindle Fire ($199) and the WiFi iPad ($499). In other words, if they try to price their tablets to create PC-like margins, they won't sell. If they price tablets aggressively (as they must) they may sell units but they won't make any money.