Apple iPad May Cannibalize iPod Touch, Notebooks

Apple's iPad may cannibalize sales of devices such as iPods, handheld video game systems and MacBooks, according to new survey data generated by Alphawise, Morgan Stanley's internal research team. That data runs contrary to an earlier survey by Gene Munster, which suggested the iPad had cannibalized only a small portion of potential purchasers of an iPhone or iPod Touch. Other devices threatened by the iPad include e-readers such as's Kindle.

Apple's iPad may cannibalize sales of related devices, including notebooks and the iPod Touch, according to a March survey by Alphawise, Morgan Stanley's specialized internal research team. Some 44 percent of iPad owners surveyed said they would forgo purchasing a notebook, while 24 percent said MacBooks and 20 percent said PCs.

"U.S. consumer PC, and especially notebook growth decelerated in January when Apple introduced the iPad and again in April when the iPad launched," Katy Huberty, an analyst with Morgan Stanley, wrote in a research note reprinted in Apple Insider on May 6. "Given the corresponding increase in [average selling prices] in the market, we believe much of the demand shortfall came from netbooks and low-cost notebooks."

An accompanying chart produced by Alphawise suggested that, for Apple owners, notebooks and the iPod Touch were most at-risk for cannibalization; for non-Apple owners, e-readers and notebooks were most at risk. The introduction of the iPad, which includes an e-reader application, has long been seen as a direct competitive threat to's Kindle and Barnes & Noble's Nook devices. Some 17 percent of non-Apple users also indicated that iPad ownership would discourage them from purchasing a handheld video game system.

That cannibalization data from Huberty and Alphawise runs somewhat contrary to an earlier research note from Piper Jaffray analyst Gene Munster, whose survey of 448 iPad buyers soon after the device's April 3 release found that only 1 percent of respondents considered an iPod Touch before choosing the iPad. Another 1 percent considered the iPhone.

However, in the intervening weeks a new trend could certainly have taken hold among buyers of the iPad, which has sold more than 1 million units.

Apple Chief Operating Officer Tim Cook confirmed during an April 20 earnings call that the iPad had been priced "aggressively" to help establish a dominant position in the nascent tablet PC market: "We want to capitalize on our first mover advantage as we've done in other products."

Cook also suggested during the call that Apple was adding capacity to deal with what he termed as unexpected demand. Overall, Apple's quarterly earnings numbers came too soon to the iPad's release to see what effect, if any, the tablet PC will have on the company's other product lines; while sales of iPods have been steadily and slowly declining over the past few quarters, Apple chalks that up to the iPod Touch cannibalizing the market for the traditional iPod.

Apple may soon find itself with bigger issues than whether its mobile devices cannibalize market share. On May 3, a New York Post story suggested that the company could find itself under scrutiny by either the Department of Justice or the Federal Trade Commission. According to the article's unnamed source, the focus of a potential inquiry would be Apple's mobile applications policy, which forbids the use of third-party development tools in the creation of apps for Apple's App Store; specifically, the government may look into whether excluding applications built with tools such as Adobe Flash CS5 violates the rest of the smartphone ecosystem's ability to stay competitive, given the popular nature of the iPhone OS.