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The iPad Halo Effect – A coming boost for Apple

ipad

The heyday of the iPod was a huge deal for Apple. For many people, it was the first Apple product they owned, and those who fell in love with it often went on to buy other Apple products. This was sometimes referred to as the iPod halo effect, and gave Apple a mass-market reach it had never had before. Without the iPod, Apple wouldn’t have been anywhere near as successful in the past decade.

Much of that halo effect has since moved over to the iPhone, which the last couple of years has been an even more successful entry point, funneling millions of people into the Apple ecosystem. The effect of the iPod is still there, but it’s not as prominent due to the massive success of the iPhone.

Enter the iPad, the new entry point

As we showed earlier this week, iPad is almost completely dominating the tablet space, at least for now. If we see a repeat of the way Apple handled the MP3 player market, they may never release that dominance (the iPod still has over 70% of the MP3 market).

So Apple has a huge hit on its hands. They just sold 17 million iPads in three months. Extracted over a year, that is 68 million iPads, and it’s quite possible that those numbers will be even higher as the iPad grows in markets such as China, not to mention the possible impact of a smaller, more affordable iPad if Apple does release one as rumored.

iPad sales

Note how sales have been more than doubling year over year when you compare the same quarters, e.g. from 7.3 million in Q4 2010 to 15.4 million in Q4 2011. If this pattern holds, we will see Apple sell more than 30 million iPads in Q4 2012.

These numbers may seem fantastic, but the iPad is Apple’s most successful product launch ever in terms of unit sales. Considering how popular the iPhone is, that is saying something. Earlier this year, Horace Dediu of Asymco put together a very telling chart, showing how fast those iPads are selling compared with other Apple products:

apple device sales

Now imagine a few more years of that. Where will the iPad be then? (And the iPhone…)

With the iPad selling like ice cream on a hot summer day, it will pull in more users to Apple’s ecosystem. The iPad will create new Apple fans, which is exactly what Apple is counting on. The company is waiting with open arms

Apple’s ecosystem approach

Apple’s entire product line is designed to maximize the halo effect between different devices. All of Apple’s devices play nice with each other, and that has been getting better and better over the years.

Apple is really good at this, and since they have full control of both software and hardware they can integrate their products in ways most other companies can only dream about.

We’d be extremely surprised if the good people at Apple weren’t very aware of how people flow between their different products and how new users arrive. And being aware of that, of course they want to funnel as many of their new users into other Apple products as well. Sales begets more sales, like a chain reaction.

Apple’s retail stores enhance this halo effect

Over the past decade Apple has built a significant physical retail presence. The first Apple retail store opened in 2001, and today there are 373 worldwide. Millions of people walk through those doors.

And what do consumers see in these stores? They see the entire Apple ecosystem; iPhones, iPods, iPads, Macs, all displayed together. In a regular store with many brands competing for attention, that cohesiveness would not be as visible. Here, however, it is obvious.

It’s another way Apple can say, “look, we have this for you, but we also have these other things here, and they all play nice together.”

The iOS feedback loop

The similarity between the iOS-based iPad and the iPhone is very convenient for new Apple users. If you can use one, you can use the other, your interaction with them is very similar.

Since it’s very easy to go from the iPhone to the iPad, and vice versa, and both act as entry points into the Apple ecosystem, this creates a positive feedback loop. What we mean here is that iPad sales are bound to trigger iPhone sales, and iPhone sales are bound to trigger iPad sales, and so on. And some of that will also spill over into other Apple products.

(With that in mind, Apple’s increasing “iOS-ification” of Mac OS X makes perfect sense; it delivers a more uniform experience for Apple’s users across iOS and Mac OS X.)

Apple’s tablet advantage

Even in a tablet market that is barely getting started, Apple is catching a whole slew of new users thanks to the iPad.

Android-based tablets, on the other hand, haven’t seen anywhere close to that kind of success. When looking at tablet market share based on web usage, Android only has 13%, compared to 86% for iOS (iPad). So there should be almost no halo effect in place for Android (not to mention that it’s a more fractured device lineup with many different tablet makers).

This, we suspect, bodes well for the iPhone. And what is good for the iPhone is good for the iPad. Again, that positive feedback loop in effect.

Final words

For this to turn into a good thing for Apple, people need to be satisfied with their iPads. If users don’t fall in love with their iPads, there won’t be a halo effect. Good thing for Apple that the iPad is so well received (it wouldn’t be selling as well otherwise, of course). For example, there is a recent survey from ChangeWave showing a 98% satisfaction rate, with 82% being very satisfied.

It’s also interesting that with its ease of use, the iPad could well be casting a net wider than even the iPhone. Most people today don’t have smartphones, but many are getting tablets, and most of those are iPads. And when those people finally decide on getting a smartphone? It’s very likely that’s going to be an iPhone. And so they take another step into Apple’s garden. There is a certain time delay involved, but it will happen.

We don’t have hard statistics to lean on here, but anecdotal evidence indicates that this is already happening. We asked around, and several of our friends have parents who don’t have Macs or iPhones (or even smartphones) but recently got iPads. And they love them. And guess what, some plan on getting an iPhone soon, or at least the next time they replace their mobile. That’s the iPad halo effect in action.



4 comments
SteffenJobbs
SteffenJobbs

Although the article seems to make sense showing impressive Apple product growth over the past several years, then why does Wall Street have a valuation of Apple indicating zero growth over the next couple of years.  Also, the article talks about Apple's halo effect for products thanks to all those products working well together, Wall Street, in fact, claims that all of Apple's products will be commoditized by competitor's cheaper products and Apple will be left with nearly no customers.  Why is it that Wall Street sees a completely different outlook for Apple than many of the Apple bulls?  Wall Street giving Apple a P/E of 14 is pricing its growth in line with Microsoft's growth.  Currently, Apple has an even lower P/E than Microsoft.  Why is that?  Shouldn't Apple have a P/E of at least 16 or 18 which would seem appropriate enough?  Wall Street doesn't see any boost for Apple despite the iPad.

SteffenJobbs
SteffenJobbs

Although the article seems to make sense showing impressive Apple product growth over the past several years, then why does Wall Street have a valuation of Apple indicating zero growth over the next couple of years.  Also, the article talks about Apple's halo effect for products thanks to all those products working well together, Wall Street, in fact, claims that all of Apple's products will be commoditized by competitor's cheaper products and Apple will be left with nearly no customers.  Why is it that Wall Street sees a completely different outlook for Apple than many of the Apple bulls?  Wall Street giving Apple a P/E of 14 is pricing its growth in line with Microsoft's growth.  Currently, Apple has an even lower P/E than Microsoft.  Why is that?  Shouldn't Apple have a P/E of at least 16 or 18 which would seem appropriate enough?  Wall Street doesn't see any boost for Apple despite the iPad.

Pingdom
Pingdom moderator

 @SteffenJobbs Hard to respond to this without any specific sources in your comment. How Wall Street values Apple has historically had little to do with actual current performance. It is by its nature a speculation-based market. That said, we are also speculating here. If we knew how to accurately predict the future we'd all be billionaires here at Pingdom. ;)

Pingdom
Pingdom

 @SteffenJobbs Hard to respond to this without any specific sources in your comment. How Wall Street values Apple has historically had little to do with actual current performance. It is by its nature a speculation-based market. That said, we are also speculating here. If we knew how to accurately predict the future we'd all be billionaires here at Pingdom. ;)