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Apple 'Lost' the Tablet Battle but Remains King of Profit

NEW YORK (TheStreet) -- Apple (AAPL - Get Report) iPads it was reported, lost the tablet throne to Google's (GOOG) Android-based hardware in 2013, with Microsoft (MSFT) a distant third. One must exercise caution when interpreting the data because these observations are like comparing apples and oranges if you're not careful.

Google provides its Android operating system to various hardware manufacturers for essentially nothing in order to support its ecosystem. Google's operating system subsidy enables high-volume, low-cost tablets to create and proliferate into markets in which iPad doesn't compete.

Caught between the success of Apple in the premium category and Google in the value category for tablets, Microsoft recently reduced the price manufacturers pay for some Windows 8.1 licenses. Manufacturers producing Windows-based devices retailing for $250 or less will pay $15 per license in lieu of the usual $50.

Between the three types of operating systems, it's crystal clear Apple's iOS creates the most revenue and profit.

Apple may no longer claim to sell the most tablets based on the operating system, but it's not from consumers losing interest in the iPad; indeed, sales are growing. In 2012, Apple held a 53% market share of a 115 million tablet market, or about 61 million units sold. In 2013, Apple's commanded 36% of a 195 million market for about 70 million units, a 15% year-over-year gain.

If any device was designed to shoot an arrow into Apple's heart it's Amazon's (AMZN) Kindle. Kindle utilizes the free Android operating system as its base, but is then altered specifically for Amazon's customers. Kindle is further subsidized by Amazon's willingness to sell the tablet at or near cost. Expectations were high for a tablet consumers can effectively buy at a subsidized wholesale price.

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