In an article last year, I advised Apple (NASDAQ:AAPL) to create a touchscreen laptop. Touchscreen laptops are popular with Windows users. Some can detach from the keyboard to be used as a tablet. Personally, I have witnessed the usability enhancements with my Asus (OTC:ASUUY) touchscreen laptop. New laptop iterations have been trending in this direction with the Microsoft (NASDAQ:MSFT) Surface Pro and Surface Book leading the charge. As much as Microsoft has been lampooned for its smartphone strategy, it has gotten this market correct after it originally failed with the Surface RT. Consumers want productivity if they are going to spend close to $1,000 on a PC/tablet.
Apple has decided to ignore my method of thinking with the release of its iPad Pro, which is just a bigger iPad Air. Most reviewers have been confused about what the point of the device is and who the target demographic is. There are a few explanations for why this has happened. The first is there is a shortage of pencils and keyboards. Having to wait 4-5 weeks for accessories meant to make the iPad Pro different from the iPad Air is problematic. The company should have delayed the release of the product until the accessories were in full supply. Most consumers will decide whether to buy the iPad Pro by watching YouTube videos and reading articles about the product. Having tech reviewers mention an easily avoidable negative about the device could depress a potential customer's excitement about purchasing one.
Another reason for the confusion was Tim Cook's statement that the iPad Pro could replace your PC. This is not true for a lot of users. The device runs iOS, so it can't run some desktop-level programs such as Adobe Photoshop. It doesn't even support a mouse as the keyboard doesn't have a trackpad. The reviews echo this sentiment as Mobile Tech Review questioned the point of comparing it to the Surface Pro 4 because it doesn't run desktop-level software. Because of the lack of productivity capabilities, the device leaves users wondering who it is trying to sell to besides artists who will take advantage of the pencil. At this point, MacBooks or the Surface provides much more value at a similar price point.
Obviously, it isn't great that Apple won't be able to stem the tide of declining iPad sales with the iPad Pro, but this blunder sets a bad precedent for Apple, which thrives off a stellar brand image. When Tim Cook says, "I think if you're looking at a PC, why would you buy a PC anymore? No really, why would you buy one?", it really calls into question his opinion on future product decisions because using the iPad Pro as a PC replacement isn't viable unless you just browse the Web and do word processing on your device (in this case, an iPad Air would work as your main PC as well).
This leads me to imagine Apple releasing a TV service next year where Tim Cook says he doesn't see why a user would ever subscribe to Netflix (NASDAQ:NFLX) again even though the service lacks key programming. Apple investors own the stock for the firm's future innovations, which haven't been released yet. If it can't create a proper touchscreen laptop, then how will it create a great bundle of TV programs at a reasonable price when it has no experience doing so?
Tim Cook recently described the Microsoft Surface Book by saying, "It's a product that tries too hard to do too much. It's trying to be a tablet and a notebook and it really succeeds at being neither. It's sort of diluted." This differs from what the reviewers have stated, as CNET gives it a 4 out of 5 and TechRadar Pro gives it a 4.5 out of 5 saying, "While the Surface Book brings many technological innovations to the laptop space, its greatest strength is that it's just an all-around terrific device."
This means Tim Cook will not be changing his decision making on the positioning of the iPad Pro anytime soon. The problem is Apple needs to merge its iOS software with OS X to solve this and properly compete with the Surface. This would be a huge undertaking, which explains why Tim Cook hasn't decided to do it. Expecting consumers to buy an iPad and a MacBook is not reasonable if 2-in-1 Windows laptops exist. Tim Cook can bash the Surface Book all he wants, but currently the iPad Pro is an overpowered tablet that doesn't provide any additional features for the added price and doesn't take advantage of the additional screen real estate.
Apple knows that creative destruction is the best way to increase sales, as it was able to destroy BlackBerry (NASDAQ:BBRY) with its touchscreen iPhones. It should recognize this problem and amend its product line. The only other option is to create an in-between software option like the Surface RT. As you know, this strategy didn't work out for Microsoft, which leads me to be against this option. Consumers need to intuitively understand what they are purchasing. I remember being in an app development class run by Microsoft. I asked the Microsoft employee running the class what the RT software was and she couldn't explain it. Likewise, Apple probably wouldn't be able to explain OS X RT.
The other option would be to continue down its current path and make no changes. In this case, AAPL would never have touchscreen laptops. This strategy sounds like how BlackBerry went against touchscreen phones. Apple really needs to work on the iPad Pro to improve its software to compete with the desktop-level quality of the Surface Book and Surface Pro. While I understand new products like the Apple Watch not having a plethora of third-party applications at the launch, the iPad Pro isn't in a new category of devices. It is not a tablet. It is a laptop "wannabe." Apple has more experience making laptops than Microsoft does, but it still hasn't created a product that competes well with either the Surface Pro or the Surface Book.
Apple's failed iPad Pro launch signifies a need to merge iOS and Mac OS X to create a product that runs the necessary applications to be a laptop replacement. Tim Cook's tone sounds like he is going to need to see a huge decline in sales to change his perspective. At this point, Windows PCs will have already taken a lead ahead of the MacBook and the iPad Pro. This signifies a loss of touch when it comes to product launches, which might be a harbinger of a poor TV bundle next year.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.