Will the tablet market really grow bigger than the PC market?

Apple CEO Tim Cook made an interesting prediction yesterday on the company’s earnings call: That the tablet market will eventually be larger than the PC market.

Here’s what Tim said, via Seeking Alpha’s transcript:

We thought… from the beginning of this that it would be a huge market, and it has been even greater than we thought. And we’ve now sold 40 million on cumulative basis. And it’s pretty clear to me that if you forecast out in time that the tablet market — I still believe it will be larger than the PC market. That’s not a guidance number. That’s just something that I very much believe. There will be many, many more people that can access it, and the ease of use is so phenomenal and off the charts that I think it’s a huge opportunity for Apple across time.

Is that possible? Well, for Apple, the iPad is already bigger than the Mac in units and revenue. So, mission accomplished. But what about for the whole world?

The easy way out would be to trust Tim Cook, who isn’t the type to exaggerate or say anything he doesn’t think will actually happen. Especially on a conference call with Apple’s stock analysts.

But that’s no fun. So let’s look at a few numbers.

• The PC industry could reach about 400 million units next year, Gartner predicts.
• The mobile phone industry is about 1.5 billion units per year, Tim Cook said at Apple’s recent iPhone 4S launch event. Smartphone sales alone should pass 600 million next year, Gartner predicts.
• There are more than 5 billion mobile phone subscribers, according to the International Telecommunication Union. (About 1/4 of those are in the “developed” world and about 3/4 of those are in the “developing” world.)
• Apple will sell about 40-45 million iPads this year. The overall tablet market might be somewhere around 50-60 million, but probably well below 100 million.

Without getting too deep into the weeds about who’s buying what and where, these numbers suggest that one PC is getting sold per year for every ~12 mobile subscribers in the world and that one mobile phone is getting sold per year for every ~3 mobile subscribers.

Based on how a tablet is designed — portable, hand-held, use-anywhere — it makes sense that they would be inherently more personal devices than PCs. Especially if software like Apple’s Siri — currently only on phones, but eventually, probably coming to the iPad — helps make each tablet more personalized to its owner.

So it’s reasonable to assume that tablets will be sold on a more one-to-one basis than PCs. (Also, probably on a shorter replacement cycle than a typical PC.) Probably not to the extent that mobile phones are, but probably more than PCs. Or, you might at least want to have a few of them around the house, so that multiple people could use them simultaneously.

Then it’s a matter of getting pricing down enough to the point where they can be purchased more readily, especially outside the upper class. (One part of this may be figuring out alternate business models where subsidies can come into play, the way mobile phone carriers have deeply subsidized smartphones, driving growth in that category. This could include mobile broadband subscriptions, advertising, content subscriptions, or many other models. But that’s another post.) I assume Tim Cook’s team is all over this project. The iPad is already cheaper to buy than any Mac.

Lastly, as tablets get “smarter” and become more useful (and cost-effective) for tasks and people than PCs are, they will likely end up cannibalizing the PC market, forcing it to shrink. Apple says it has already seen the beginnings of this on its Mac business. (But as long as Apple’s share of the tablet market is bigger than its share of the PC market, this is a favorable trend for Apple.) And if this means that the PC market will become smaller while the tablet market grows, this may even move the timeline closer for Tim Cook’s prediction.

In general, yes, it seems like the tablet market could pass the PC market in annual shipments. It could take 5 to 10 years, or maybe even longer, but it’s certainly plausible.

Also: 500 days with the iPad