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iPad 2: Apple still owns the drawing board

You have to feel sorry for companies like — well, every company — facing Apple in the tablet market. It appears Jobs' fleet-footed behemoth is going to keep running away with the market.

iPad user at the Tribeca Film Festival (Photo: Astrid Stawiarz)

You have to feel sorry for companies like well, every company facing Apple in the tablet market. Today Apple announced the iPad 2, followup to the original runaway hit, and it appears Jobs’ fleet-footed behemoth is going to keep running away with the market.

It isn’t even that the iPad 2 represents a significant leap in capability compared to either its predecessor or its competition, because it doesn’t. Yes, it’s faster and more powerful than before with its 1.7GHz dual-core processor and 512M RAM. Yes, it’s prettier and lighter, having shaved several millimeters from its thickness, dropped a couple ounces in weight and improved its graphics display. And yes, it’s got a few more features that should appeal to a broad range of consumers, from front and back cameras to HDMI support. But Motorola’s Xoom tablet hit retail last week and can do all of these things, some of them better.


And that’s the problem for would-be challengers to Apple’s market dominance in this segment. They don’t matter much. Combined with its slick marketing, brand awareness and installed base, Apple’s first-mover advantage may be almost impossible to overcome. A month or two after CES, rivals are only now getting out their first iterations of iPad-quality tablets. Apple is already on its second. RIM’s Playbook is nowhere to be seen. Forrester Research is predicting Apple will own 80% of the tablet market by the end of the year. Should the other players even bother?

The answer, of course, is yes. Even 20% of the multi-billion-dollar market is significant, and we should be reminded who else was once in a similar position in a similar market and left for dead. That’s right, the same company Apple.

It’s probably also true that Apple is feeling some heat. Jobs comments at the unveiling were unusually critical of the competition. As the New York Times noted, “Part of being in a post-PC era, as Mr. Jobs is calling it, is that Apple’s competitors have multiplied, which may account for the aggressiveness. It used to be Apple vs. Microsoft. Then it was Apple vs. Google. Now it’s Apple vs. Everyone, since devices and services could come from anywhere.”

There’s no question that Google’s Android OS (and now its offshoot Honeycomb, which powers the Xoom) is a challenge, not because any one manufacturer poses a serious threat to Apple’s dominance, but because all such manufacturers together do. In theory Apple could die slowly from a thousand little cuts.

Stopping the bleeding is exactly what the iPad 2 is about. And it’s going to work. Apple kept the pricing the same as for the already profitable iPad neatly undercutting the slightly more expensive Xoom and likely forcing competitors to squeeze blood from their supply chains if they want to maintain adequate margins. Expect mass consumer hysteria when the device appears at retail over the next three weeks. You’ll be lucky if you can find one to buy.

So those who would seek to dethrone Apple are going to have to head back to the drawing board. Because Apple’s weakness appears to be in neither its marketing, its technology, its channel marketing (the Apple Stores are proving an invaluable differentiator and branding tool) nor its pricing. The $60 billion war chest is about to grow.