I find this point of view very interesting and unique. There have been a fair share of "Tablets are wonderful luxury devices, but they're not the production tools I hoped they'd be" but none trumpeting the other way. I would be lying if I told you I didn't think the iPad was a luxury device, because it most certainly is not a necessity. Then again, basing anything on being a necessity and you're going to open up a whole can of worms.
Do we need iPods when there are still portable CD players? It's the convenience that wins the day for the iPod. The same can be said of the iPad.
I can't agree that there isn't enough entertainment value in an iPad to warrant a purchase to someone who isn't going to be using it as a tool for some other specific purpose (I cannot say the same for non-iPad tablets). I also think you may have a hard time convincing other people, especially considering how iPad sales took off since it launched.
musicalmac
Maybe I'm just more tech savvy than the average iPad user. :P
For portable computing, I have a smartphone (Nexus S) and an AMD Brazos netbook (11.6" HP dm1). For short-term use (ie commuting to work, checking email/RSS feeds/social networking) the Nexus S is plenty: the screen is good enough for both videos and reading, there's a decent selection of games, and it has all your usual app suspects plus some really neat Google stuff. Plus it's pocket sized, so it's always with me.
For longer use, the dm1 has a decent sized, realatively high-res (1366x768 ) screen; one of the better keyboards in the business for its form-factor; a 640GB HDD for storing my entire movie and music collections; gets 7+ hours real-world battery; and is powerful enough to run older games and even newer indie stuff. Plus it runs $50 cheaper than the bargain-basement iPad.
So there really isn't a hell of a lot of room for an iPad to carve out a niche for itself: either my phone is good/good enough, or I'm going to have a proper computer with all its advantages over a tablet (and it's not like the iPad even has a significant portability advantage, as it would just be thrown in the same messenger bag I use for my laptop). The only exception is on-the-go productivity: if I had work to do while commuting or wanted to take digital notes in a meeting, my phone would be too small and my laptop too cumbersome to be worth taking.
So -- and this is the point I've been trying to make -- it's simply a question of value: so long as you have a decent smartphone (and everyone and their dog should have a decent smartphone before they consider a tablet), how are you going to get your $500+ worth out of an iPad, and would that money be better spent elsewhere? As great a product as the iPad can be, unless you're in your productivity sweet-spot I'd argue you're better off investing in a netbook and moving to a tablet once the form-factor has had time to mature.
Beats and Bose headphones are also extremely popular, despite being significantly comically compared to the competition. The fact people don't know they can get better value elsewhere isn't a ringing endorsement. :P
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