November 03, 2012, 7:55 AM — Only seven months ago, Apple execs appeared on stage in San Francisco to a roaring crowd giddy with anticipation. With great showmanship-or is it salesmanship?-Apple CEO Tim Cook unveiled the next big thing: the New iPad.
Apple faithful rushed to get one, standing in lines for hours and spending anywhere from $499 for a 16GB WiFi-only version to $829 for a 64GB WiFi-plus-cellular version. Three million New iPads were sold over the launch weekend. All tallied, Apple has sold 100 million iPads in two-and-a-half years.
Customer euphoria, however, didn't last very long.
Last week, Apple unveiled the fourth-generation iPad with little fanfare, drowned out by the pricey iPad Mini. The fourth-generation iPad boasts a faster chip and a "lightning" connector yet costs the same as the New iPad, which, we're assuming, can now be called the third-generation iPad.
Third-generation iPad customers heard it loud and clear. They had paid for an iPad with only months of shiny shelf-life, whereas Apple normally trots out new iPads and iPhones once a year. A flash poll of 1,427 Apple consumers conducted by CouponCodes4u found that 41 percent had bought a third-generation iPad. Of those, 83 percent said they felt "cheated" by the announcement.
So why would Apple drop a fourth-generation iPad bombshell? The short answer: The iPad upgrade wasn't big but a necessary one, both technically and strategically.
When Apple comes out with a new iPad, the company often discounts previous versions. But there's no option to get the third-generation iPad at the Apple store; Apple discontinued the third-generation iPad last week. Officially, the fourth-generation iPad is called the "iPad with Retina display," even though the third-generation iPad initially introduced Retina to the tablet.
Apple, of course, likely knew the third-generation iPad would be short-lived. In Apple's second-quarter earnings call this year, shortly after unveiling the third-generation iPad, the company reported 2 million iPads in channel inventory, below the target range of four to six weeks.
"Part of the difference in [Apple's] third-quarter sales, we believe, is that they were actually scaling back inventory on hand of the new product, so that they could prepare to launch the next product," says analyst Rhoda Alexander at IHS iSuppli.
It's as if the third-generation iPad never existed.
Technically, Apple needed to get to the fourth-generation iPad. The third-generation iPad powered the high-performance Retina display with an A5X processor, but the fourth-generation iPad does it better with a dual-core A6X processor and quad-core graphics.
"In retrospect, should Apple have waited for the A6 processor?" Alexander says. "They may have pushed it, which required the update at this point."
But it's hard to fault Apple, she adds. "They had spectacular sales in the first and second quarters of this year, just dominated the market, recaptured sales they had lost the previous year."
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Regarding disgruntled customers, Alexander expects Apple will take a customer service hit. But Apple can offset this by giving customers a deal, perhaps letting them trade in their third-generation iPad for credit towards a fourth-generation iPad or iPad Mini.
"You can do this occasionally," Alexander says. "If you do this repeatedly, you'll have a problem. You'll lose some of the value people place on the brand," adding, "Apple can't refresh the iPad in March because it would be unsettling to customers."
All of this raises the question: When will be the next iPad update?
Strategically, the fourth-generation iPad coming on the heels of the third-generation iPad alters the upgrade cycle from the first of the year to the end of the year. "It's a strong possibility," says Alexander. "In the competitive tablet space, the fourth quarter has become the 'it' quarter for new tablet introductions."
But this means that the next iPad won't come out until next fall. Because the third-generation iPad and fourth-generation iPad are basically the same with the exception of a faster chip (and Lightning connector), the next iPad will be the first significant upgrade in 17 months.
Tom Kaneshige covers Apple and Consumerization of IT for CIO.com. Follow Tom on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline and on Facebook. Email Tom at firstname.lastname@example.org
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