What iPad Killers Can Learn From Xbox
For a glimpse into where the tablet market might be headed, take a look at the console wars between Sony, Microsoft and Nintendo.

The tablet PC market has taken a strange turn in the back half of summer. There’s no disputing that Apple‘s (NASDAQ:AAPL) iPad still is the face of the industry, with 30 million sold since hitting stores in April 2010. But while Apple continues to dominate, competitors are finding roles to play.

Reasearch In Motion‘s (NASDAQ:RIMM) BlackBerry PlayBook hasn’t been a hit with consumers, but it became the first tablet to receive Federal Information Processing Standard certification in July, making the U.S. government a lucrative customer. Hewlett-Packard‘s (NYSE:HPQ) TouchPad tanked so hard that HP made a full retreat from the portables business, but since retailers began liquidating the device at a $99, it has sold out, leading some to think that HP’s bow was merely a feint. Even e-readers — the technology that the iPad was supposed to have wiped out by now — are doing well. Barnes & Noble‘s (NYSE:BKS) Nook business has grown 140% year-over-year.

When it comes to technology, there never has been a shortage of titans — one company or device that simply defines a market, leaving its competitors to catch up. Apple has danced this number before with its iPod media player. Sony (NYSE:SNE) did it before Apple, with the Walkman and Discman cassette and CD players literally defining the language people used to describe portable music players.

However, investors following the tablet market of late 2011 shouldn’t necessarily look at those examples as predictors of what’s to come. A closer model of how the market is diversifying is the video game console market of 2004 to around 2006.

Prior to that period, there was a clear dominant device in the market: Sony’s PlayStation 2. At the time, Sony and its core competitors Microsoft (NASDAQ:MSFT) and Nintendo (PINK:NTDOY) offered very similar products. The PlayStation 2, original Xbox and GameCube were indistinguishable from each other to the average consumer, much in the same way that tablets like Samsung‘s (PINK:SSNLF) Galaxy Tab and Motorola‘s (NYSE:MMI) Xoom are indistinguishable from the iPad. The PlayStation 2 dominated thanks to its superior services. In that case, it was DVD playback and a desirable library of games. In the iPad’s case, it’s the attractiveness of apps like Facetime as well as the quality of the App Store and iTunes.

The market that later emerged, however, was much more evenly split, and it was because Sony, Microsoft and Nintendo began offering very different things with their devices. The Xbox 360 released in 2005 and sold itself by having not only high-end graphics but also Xbox Live, an online network that combined for-pay online gaming for users, social networking services and digital distribution of goods. Nintendo, meanwhile, released the Wii in 2006, a technologically inferior device that won over audiences with novelty — in its case, a wand-like motion-based controller, as well as curious games like fitness trainer Wii Fit. At the same time, Sony released the PlayStation 3, which was intended as a technological behemoth with support of the then-new Blu-ray disc format.

During the next few years, Nintendo’s Wii outsold its competitors nearly 2-to-1 on a monthly basis, but since 2009 all three devices have remained competitive with one another, suiting disparate audiences with specific wants. The tablet market is beginning to head in this direction. RIM’s PlayBook is finding its role as a service device for government and business. Amazon (NASDAQ:AMZN) is said to be preparing its own tablet that will be significantly cheaper — and less technologically advanced — than the iPad, making it ideal for curious parties without $500 to spend on a flashy device. Given its history with the beefy Xoom, Google‘s (NASDAQ:GOOG) first tablet made with Motorola as a wholly owned subsidiary might even pursue the ultra-high-end market looking for something more advanced than Apple’s machine.

For right now, the iPad is the tablet market all on its own, but patterns from the past show there’s always room for more in the technology space.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


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