Peak iPad Mini
The iPad mini's best days are behind it. Using app analytics data from Fiksu and Mixpanel, along with my own iOS device sales estimates and projections, I was able to derive iPad mini sales since launch. Over the past two years, iPad mini sales trends have deteriorated much faster than most people think. When taking into account the move to larger iPhones and iPads, the iPad mini's value proposition has likely been weakened to such a degree that the decline in sales is permanent. We have experienced "Peak iPad mini." More importantly, by analyzing the iPad mini's sales trends, we have better insight as to where the iPhone and iPad product lines are headed and the iOS platform's overall direction when it comes to form factors.
iPad Mini Has Fallen Out of Favor
Conventional wisdom would suggest that the iPad mini has been the better performing iPad line due to its low price and feature set. In reality, the iPad mini has seen much weaker sales trends compared to its larger 9.7-inch screen sibling. As shown in Exhibit 1, when looking at iPad mini sales on a trailing twelve month (TTM) basis, the device's multi-year sales decline becomes quite obvious. Apple would need to sell close to double the number of iPad minis sold over the last 12 months to set a new sales record, a feat that is looking very unlikely.
Exhibit 1: iPad Mini Unit Sales (TTM)
While everyone is aware of the iPad's sales troubles, one surprising observation is that most of the iPad's sales decline can be attributed to the iPad mini line. As seen in Exhibit 2, the 7.9-inch screen form factor has seen a dramatic 50% drop in sales on a TTM basis over the past two years while the 9.7-inch iPad line has seen much more resilient sales. This trend seems counterintuitive but provides a very strong clue as to how consumers are thinking about the iPad. When taking into account this granular iPad sales data, Apple management likely had a much easier time deciding to launch the larger iPad Pro. The trend towards larger iPads has already been years in the making.
Exhibit 2: iPad Unit Sales by Screen Size (TTM)
What Happened?
There has been a polarizing debate as to what happened to iPad sales. Some have blamed slowing sales on longer life cycles while others have pointed to iPhone cannibalization or a combination of the two. The latest theory is that iPad software issues and a flawed App Store are to blame. When considering that the smaller iPad mini is becoming less popular than the larger models, many of those reasons fall by the wayside.
In reality, the iPad was a victim of its own success. The combination of a very popular iPad 2 (decent weight, okay screen, and good battery) and the launch of a smaller iPad mini (with a low price) led to a boom in sales that resulted in iPad sales growth peaking only three months after the iPad mini went on sale.
In retrospect, the iPad mini served as a great precursor to the phenomenon known as larger screen iPhones. There was likely significant demand for an iOS device larger than the current iPhone at the time (iPhone 5's 4-inch screen) but a bit less bulky than the 9.7-inch screen iPad. Soon, all of these reasons began to be wiped away with new, larger iPhones and thinner iPads. While the iPad mini's low price meant the device was the more popular iPad for gifting around the holidays, which is likely still true today, the need for an iPad mini was increasingly being met by the iPhone and larger iPads.
iPad Mini's Declining Value Proposition
A slowdown in iPad mini sales is not enough to lead to the conclusion that the product line will see a permanent reduction in sales. The Mac serves as great example of this as the product seemed to have seen peak sales, only to come roaring back in subsequent quarters. Instead, the Peak iPad mini theory is predicated on the idea that the device's position in the market has fundamentally changed, leading to a weaker value proposition and corresponding cut in sales. One example of this type of value destruction is found with iPod and how the smartphone led to less demand for dedicated music players. Peak iPod occurred in 2008, a year after the iPhone was released.
The very significant move towards larger screen iPhones has altered the iPad mini's ultimate sales trajectory. As shown in Exhibit 3, when the iPad mini was first introduced in 2012, the world was predominately using 3.5-inch screen iPhones. Meanwhile, the Android phablet movement was only just beginning to take off. Over the course of the next two years, iPhone sales trended towards bigger screens. Today, a vast majority of iPhones sold include a 4.7-inch or 5.5-inch screen. These larger devices are increasingly serving as better consumption devices, taking away a key value proposition previously held by the iPad mini.
Exhibit 3: iPhone Sales Breakdown by Screen Size
Meanwhile, on the other end of the spectrum, the iPad Air's resilient sales (as shown in Exhibit 2) suggest that an increasing number of consumers are looking to use an iPad as a laptop and desktop replacement. Accordingly, the iPad mini's smaller screen is not preferred as the reduction in screen real estate leads to a less useful product for media consumption, web surfing, and other basic computing tasks.
Some have said that the iPad is being squeezed between the iPhone and Mac. In reality, the iPad mini is being squeezed between larger iPhones and the iPad Air and iPad Pro.
iPad Mini's Price Advantage is Overrated
The iPad mini was launched in 2012 as a defense against Android OEM competitors potentially underpricing the iPad and risking a repeat of the Windows vs. Mac battle. In reality, the iPad mini is still too expensive to compete with pure media consumption devices running Android, but there is no evidence such devices pose a threat to iOS. Many now point to price as the iPad mini's secret weapon that should not be underestimated. In reality, this strength is likely overrated. At $399, a new iPad mini is only $100 less than a new iPad Air and the same price as a year-old iPad Air. This pricing dynamic likely explains why the iPad mini sales have declined more than sales of the more expensive iPad Air models.
Meanwhile, the year old iPad mini is still $70 more than the entry-level iPod touch, which is the lowest cost entry point for the iOS ecosystem. While some may look at the iPad mini as holding a better future than the iPod touch, that isn't exactly saying much considering the iPod touch's lackluster sales.
iOS Sales Spectrum
The iPad mini's declining sales provides clues as to iOS form factor trends. Instead of looking at the iPhone and iPad as separate product categories, I like to think of them as existing on the same iOS spectrum but occupying different screen size segments. The fact that iPhone and iPad rely on the same mobile operating system makes this view reasonable. In Exhibit 4, iOS sales according to screen size are depicted for 2013 and 2015.
Exhibit 4: iOS Sales Spectrum (2013 vs. 2015)
In the span of two years, screen size preferences have shifted to larger screens (reflected by the blue line in Exhibit 4 shifting to the right in 2015). Notice the iOS screen sizes that saw the largest sales declines between 2013 and 2015: 3.5-inch iPhone, 4-inch iPhone, and 7.9-inch iPad. A better way to see this trend is to picture the lines in Exhibit 4 as waves, depicted in Exhibit 5. Note two differences: The new sales peaks (in blue) are now found with 4.7-inch iPhones and 9.7-inch iPads while the amplitude of the wave at 4.7-inch iPhones is increasing. Over time, it is conceivable that the wave in blue continues to shift to the right with a higher iPhone crest.
Exhibit 5: iOS Sales Spectrum (2013 and 2015)
A few takeaways:
1) Consumers are increasingly allowing iPhones to play a greater role in their lives. Consequentially, purchasing habits are trending to larger screen iPhones. Apple will likely look to the 5.5-inch iPhone form factor as positioned well for potential sales growth, not to mention increased revenue and profit share. There is room for Apple to slim the device's bezels, making the device easier to hold in one hand while maintaining the 5.5-inch screen.
2) The iPad Pro is positioned well to see an increasing share of iPad sales as consumers position the device as a laptop and desktop replacement. While this replacement transition is not possible for everyone at this time, the definition of work is changing and for many consumers typing is becoming one of the last barriers to switching completely to iPad.
3) The 7.9-inch iPad from factor is caught in the middle. It is too big to be put in a pocket or held in one hand but too small to replace a laptop or desktop.
iPad Mini Is a Fading Star
Apple is still selling too many iPad minis for the product to be mothballed. However, the more likely path will be a slow yet steady slide into irrelevancy. The product will see more sporadic refreshes, which has already happened with the iPad line, while the value proposition continues to become less compelling. Holiday quarters will represent iPad mini's best sales times, and it will possibly even outsell the iPad Air during certain months, but the elephant in the room will keep a lid on iPad mini's upside. Ultimately, the iPhone is the single biggest threat to both the iPad mini and the broader iPad category as Apple pushes forward in differentiating the iPhone Plus line. Such a device holds the best chance of being the most popular and useful iOS form factor. From Apple's perspective, having the iPad mini be cannibalized by an iOS device with a higher profit margin may actually turn out to be a long-term positive from a financial and strategic perspective.
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