Apple evolves iPad but it isn’t the star attraction

Apple's most interesting figures are often casually dropped into the preamble to the main show: yesterday's iPad 2 announcement was no exception. As expected, the iPad 2 focuses on evolutionary features, whilst crucially maintaining the pricing advantage Apple enjoys over its competitors in the tablet market.

The iPad 2 is all about refining the experience. Beyond the CPU, GPU and camera changes, critically many of these "upgrades" are perceptive rather than technical; something that - in Apple's opinion - will leave competitors scrambling to copy the ergonomics, simplicity and appeal of its devices rather than fighting a battle on specifications alone. A telling sign of this strategy was reflected in the amount of stage time given to the improvements in the device vs. the demos of their movie and music software yesterday - a rapid run-through on two slides of the internal changes vs. 40 minutes of app demos. Again, the Smart Covers released alongside the iPad focus on solving an engineering problem at a level of detail that several vendors wouldn't consider. A signature move for Apple who understand experience is king, and that consumers see it the same way. During the presentation, Jobs himself said "It’s in Apple’s DNA that technology is not enough."

Aside from the device then, Apple's "state of the nation" figures were typically illuminating. Firstly, 100 million iPhones have now been sold worldwide. For context, we heard back in June that 100 million total iOS devices (including the iPad and iPod touch) had been sold which compared to an iPhone-only figure of 60 million. We've written before about the importance and success of contract-free devices to the iOS ecosystem and, in particular, the iPod touch enjoys a market that - for now - Android isn't attempting to match in volume. The low-barrier admission to the platform is responsible for not only consumer attraction but developer interest. Clearly the iPhone remains the driver of the iOS ecosystem, but devices like the iPod and iPad substantially add to this momentum.

Secondly, 15 million sales of the iPad in the first nine months of its life garnered US$9.5 billion in revenue. Some basic extrapolation here reveals an average iPad selling price of US$633, well above its US$499 entry pricing. This excludes factors such as variable exchange rates in all of the markets that Apple offers the iPad but aligns with typical purchases anecdotally offered by sales staff, namely that iPad owners are purchasing devices with upgraded capacity and 3G connectivity.

Going forward, this will become harder to track over time as the iPad follows the natural price erosion trend seen with the iPhone, particularly the marketing position taken by previous iterations of the device. With the iPhone, Apple simply slots its prior-generation hardware into a lower price point while with the iPad Apple is offering a US$100 discount on all models until stocks are exhausted (providing an unsubsidised US$399 entry-level price for the next month or so). Apple may however yet adopt similar relative price points for different models if a third iPad, or iPad HD, is launched in September with an upgraded screen density (as current rumours suggest).

Lastly, Apple has now paid over US$2 billion to developers since the inception of the App Store (a total of US$2.9 billion in sales including Apple's cut). The acceleration here is impressive. Apple reached the US$1 billion milestone after the first two years of operation and the second billion in a further nine months. Broadly equating this with January’s 10 billion app download announcement, it also shows that the average price per app, US$0.29, has remained consistent in the past six months. Two factors explain this trend: the higher average cost of iPad apps is helping boost the overall ASP and that the "race to the bottom" for free apps is decelerating.

In many ways, it is the momentum and reach of the iOS ecosystem that cements Apple's success and, at this point, should be the primary concern of its peers. In particular, Jobs highlighted the 200 million registered accounts on iTunes across all three stores: "Amazon doesn’t publish their numbers, but it’s very likely this is the most accounts with credit cards anywhere on the Internet," he proclaimed.