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How did Apple lose its edge in tablets?

The past year has been a tough one for Apple, whose once-dominant role in tablets has shrunk significantly in the past 12 months to where the iPad accounted for just 28 percent of all tablet shipments in the second quarter, while Android devices had a 67 percent share.

The iPad made a big splash when it was first introduced in 2010 and virtually owned the market for 18 months. However, as Android?s influence has grown, the iPad?s share dropped from 61 percent in the second quarter of 2011 to 56 percent last year and then plummeted to 28 percent this year, according to figures from Strategy Analytics.

?It could be almost a year since the introduction of the latest iPads and the introduction of the next ones - this is a long time in such a fast-moving market,? said Peter King, London-based director of tablet and touchscreen strategies at Strategy Analytics.

?It can certainly regain its edge by accelerating the pace of new product development and launches, but it needs to consider whether it want to maintain its high margins derived from its current price tiers, or whether it is prepared to sacrifice margin to gain market share by competing at the low end,? he said. ?This would be a very alien strategy for Apple and one that is hard to justify.

?We expect Apple to end up around 44 percent this year, which is a very respectable market share considering the intensifying competition in the tablet market, especially at the low end of the market.?

News cycle
While Apple brought out the lower-priced iPad Mini last year in part to address the growth in the lower-end of the market, its offerings are still premium-priced.

As a result, Apple is clearly the winner in terms of driving profits from tablet sales.

However, its waning share of shipments suggests there will be fewer iPads in consumer hands going forward.

Part of the problem for Apple is that it has not had any new tablets so far this year to drive excitement around the iPad.

Prior to this year, Apple introduced a new iPad at the end of the first quarter every year at a time when there usually are not a lot of new product introductions.

As a result, it was able to garner a lot of attention for its launches and help boost sales during the typically slow second and third quarters.

However, Apple now seems to have moved new iPad introductions later in the year.

?Before, Apple owned the news cycle,? said Rhoda Alexander, senior manager of tablet and monitor research at IHS/iSuppli, Santa Clara, CA. ?They were getting a tremendous bump [from the first-quarter launches] and still a big draw at the end of the year.

?Now, they are still getting a steep uptick in the fourth quarter, which spills over in the first quarter, but they don?t get that uptick in the second quarter,? she said.

Small packages
Also affeccting Apple?s role in the tablet market is the strong emergence of the seven-inch tablet category, which Apple was slow to react to while there are several strong Android offerings in this category, including the Kindle Fire and the Asus Google Nexus 7.

Once Apple came out with the iPad mini in October of last year, it saw a nice sales boost.

?Without the introduction of the iPad mini in the fourth quarter of last year, Apple would have lost significantly more share,? Ms. Alexander said. ?That grabbed a lot of attention and share focus back in the fourth quarter and the first quarter of 2013.?

While the shipment numbers for the second quarter are troubling for Apple, its share could rebound later in the year when it is expected to introduce a new iPad and iPad mini, which reports suggest will have a retina display similar to its full-size counterpart.

Profit-maker
By manufacturer, Apple still has a commanding lead, with a 44 percent share of all tablet owners, according to Yankee Group figures. The next biggest manufacturer is Amazon, with a 13 percent share, followed by Samsung with 10 percent.

The iPad also dominates the tablet market when it comes to time spent browsing the Web.

A recent report from Chitika found that in June, all iPads had an 84.3 percent share of U.S. and Canadian tablet Web traffic, while the Kindle Fire had a 5.7 percent share and Samsung Galaxy tablets had a 4.2 percent share.

?Apple still has the lead in terms of a lot of the consumption that is happening,? Ms. Alexander said.

?We see people developing for both going forward,? she said. "It does mean there are highly competitive big opportunities for people designing apps in the Android universe and for iOS.? 

While others players are moving to bring out new products more frequently, it is not clear if Apple will take the same step, per Ms. Alexander. This is because the company wants customers to have some security when they hand over up to $600 dollars for an iPad, that it will be a year before a new product comes out.

Also, having a yearly refresh cycle makes the iPad more profitable since the price of components is likely to come down over the lifetime of a product.

?Apple will continue to innovate, but the focus will continue to be on profitability ? it is not necessarily going to sacrifice that to gain market share,? Ms. Alexander said.

Android?s success
Part of what is driving Android?s success in tablets is that there are numerous manufacturers coming out with new products.

Additionally, many players are lowering prices below $200 and even $100, in some cases, to drive sales.

Android tablets are benefitting from the strong gains made by Android smartphones this year. As a result, users are more comfortable with the Android operating system and looking to extend their experience with it into new devices.

Google has helped drive further Android adoption by continuing to fine-tune the operating system, with Jelly Bean ? which is on the Asus Google Nexus 7 ? almost closing the performance gap with iOS.

?I think the Android portion will continue to gain share as you move out based on the sheer volume of players,? Ms. Alexander said.

?We are seeing Android continuing to improve, mature and evolve,? she said. ?We see the library continuing to grow and additional content becoming available.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York