iPad: price is no object

Steve Jobs returned to work briefly on Wednesday to introduce the iPad 2. Clearly launching new platforms and changing the industry is his passion.

The introduction was and was not what everyone expected. It’s still a 10" tablet, but adds two cameras, a new operating system and much faster processor into a smaller and lighter box.

What didn’t change (despite various predictions) was the price. For example in March 2010 ZDNet flatly predicted “You know Apple will drop prices with the second generation iPad.” The price cut predictions continued up until Steve Jobs walked on stage — but the only price cuts were the clearance prices on last year’s model.

Instead, Apple is counting on superior execution to hold continued loyalty of the press and the customers. It’s also available next week in the US and two weeks later in major overseas markets, closing the window rivals had hoped to exploit: Apple will ship its second tablet before HP (and especially RIM) can ship their first.

The analysts who underestimated the iPad in 2010 are outdoing themselves to be bullish in 2011. Forbes quoted one prediction of 26 million units in 2011 — nearly double the 14.8 million sold in 2010. Again this year, Apple will remain the leader of the tablet market, with the #1 product, the #1 company market share and the #1 platform market share. Keeping 2/3 of the market in 2011 might be an underestimate.

In contrast, this year’s round of iPhones are rumored to include a lower cost model. Of course, this is year 5 for the iPhone and year 2 for its iOS cousin. Apple has both more serious competition and a more saturated high-end market in phones than in tablets.

However, indications are also that by setting the bar so high, Apple is making it difficult for competitors to undercut it on price. Its $500 iPad 2 competes with a $800 Motorola Xoom, which despite Motorola’s decades of high-volume mobile device experience, has a bill of materials cost higher than the original iPad. Steve Jobs showed a slide Wednesday noting the higher prices of its Motorola rival.

Apple also spent $3.9b of its excess cash to invest in its display suppliers, both enabling capacity expansion and locking up scarce inputs that are now unavailable to rivals. For now, most of its rivals (vertically integrated Samsung excepted) will have difficulty matching its volumes and prices of screens.

As Matt Asay noted last month, Apple’s rivals have no hope in the near term of taking away customers from Apple at the high end, among discerning early adopters:

No one beats Apple at being Apple. The best bet for the iPad also-rans, then, is to run a different race, aiming for mass market appeal….with much lower price tags.

For now, the only opening for its rivals is in the 7" tablet, which for now Apple has lambasted as a losing form factor. I disagree, and if I were a company like HP/Palm, I’d put all my resources in 2011 into becoming the #1 vendor of 7" tablets, and hope Barnes & Noble doesn’t get their act together quickly enough to own that market.

Now above $350, Apple shares were trading at $150 a year ago and $85 two years ago. Boy I wish I’d bought some: my 401(k) might actually be something I could use for retiring.

Update 3:30pm: Goldman Sachs reiterated a “buy” rating and set an AAPL target price of $450 — reiterating the pre-announcement prediction.

2010: officially year of the iPad

The first earnings call since Steve Jobs went on medical leave showed spectacular results.

iPad sales totaled 7.33 million in the latest quarter, in addition to 7.46 million in the preceding two quarters. The total is 14.79 million of (according to IDC) 17 million tablets sold in 2010 — 87% of the worldwide market. IDC projects 2011 sales at 44.6 million (not 44.5 or 44.7!), and my SWAG is that (assuming realistic product proliferation) Apple will account for 30 million of those.

The iPad in 3 quarters outsold the 10.8 million 2010 sales estimated by IDC for all ereaders, and the 14.7 million projected for 2011. The iPad has a unit sales volume 3.3x that of the Amazon Kindle (perhaps 4.5m in 2010) and has an ASP of 3x as much.

If the tablet market does grow to 45 million in 2011, then ereaders will be consigned to a relatively small role in mobile device, as tablets are increasingly used for reading magazines and perhaps even for reading books. The black & white E Ink is a transition technology, to be replaced by the color E Ink, Qualcomm’s Mirasol, or other technologies.

So 2011 seems like a good time for techies to buy a cheap web-enabled tablet to understand the form factor, its use case and limitations. It will also mean that the countless Android vendors fighting for #2 need to consolidate their gains.

Samsung sees itself the favorite, and as their cellphone growth threatens #1 Nokia, they would be risky to bet against. I think B&N (with their nookColor) has the enviable position in the US, but they need to license or distribute the technology worldwide to gain scale economies.

Tablets succeed across the board

Everyone has remarked on the success of the iPad. Now we have (slightly credible) evidence of other product success, and with that optimistic predictions for 2011.

By all accounts, the iPad was a strong seller this Christmas season, but the official results won’t be available until Jan 18, when Apple releases earnings and sales for the quarter ended Dec. 26.

However, intrepid Fortune columnist Philip Elmer-DeWitt contacted 27 analysts for their estimated sales for this quarter, and got estimates ranging from 5.0 million to 7.5 million iPads sold. (The mean was 6.35 million). That’s on top of 7.5 million sold in the first two quarters (4.2 million of that in the quarter ending Sept. 25).

So Apple has sold at least 12.5 million of its $500-800 iPad, and maybe as many as 14 million. Meanwhile, Apple is preparing to announced the iPad 2 (although predictions vary wildly as to what that is.)

Apple is not the only game in town, but it’s still the market leader. According to Forbes, analyst Craig Ellis notes that with 69+ tablets for sale, Asian suppliers expect 40-60 million tablets sold 2011. He predicts 53.6 million (not 53.7?) sold, and 36.1 million (67.35%) of those to be iPads.

Update 3pm: Similar figures come from analyst Robert Cihra (via John Paczkowski): 54 million tablets in 2011, 36 million (67%) from Apple — up from 14 million in 2010.

Craig’s guessestimate on e-readers is 20 million in 2011, up from “around” 10 million this year. Forester puts the numbers at 11 million and 6.6 million respectively (but those might be US-only).

Such estimates are impossible to check since the category king, Amazon, is evasive and non-transparent when bragging about Kindle sales. Sure enough, this week, both Amazon and Barnes & Noble this week issued meaningless press releases that say their Kindle 3 and nookColor are its best-sellers ever.

A Bloomberg report claims internal leaks from Amazon place 2011 estimates at 8 million sold, vs. 2.4 million in 2010; most of the former are presumably the $139 Kindle 3 Wi-Fi. Analysts believe B&N sold about 2 million Nooks — most of those nookColor and most in the past 6 weeks.

One difficulty in comparing tablets to e-readers is that the Amazon and certainly the B&N sales are primarily in the US, while tablets are a worldwide phenomenon. Samsung’s hoping to sell 9 million tablets in 2011, and from its tepid US results, most of those are likely to be outside the US.

So by the numbers, it appears that 2011 will be the year of the tablet. Next week’s CES in Las Vegas will bring a flurry of Android tablets, as well as Microsoft’s latest effort to compete in the category.

Still, so far everyone expects the tablet category to remain dominated by Apple in 2011, even if its market share slips in the face of product proliferation by its rivals. Using Craig’s estimates, Apple still retains 2/3 of the combined tablet & ereader category, while Amazon would be limited to about 20% at a much lower price point. (The What-me-worry? folks at Amazon also noted that many iPad owners are also buying the Kindle.)

I predict Amazon will introduce black & white Kindle this summer at the magical $99 price point, but will it be enough? More importantly, will people continue to buy into its proprietary media format? Or will the entry of the Google eBook store — with files that can be read on everything but a Kindle — finally start to nudge the industry towards a more open format?

Personally, the most interesting question is leadership of the non-Apple tablet market. Perhaps the HP webOS tablet will catch on, but most likely the leader will be an Android tablet, such as the one I own — the nookColor.

The nookColor has already been hacked to run Android apps, including (as long predicted) even Amazon’s Kindle reader for Amazon. B&N promises to introduce its own Android download shop in Q1, presumably excluding Amazon products from the subset of apps provided. At its aggressive $250 price point, it seems to be the early leader among 7" Android tablets — at least in the US market.

Tablet Wars (2): half a tablet can be better than one

At the October earnings call, Steve Jobs both defended the long-term future of tablets and attacked the 7" form factor. While I agreed with him on the former, after five days with a 7" tablet, I’m convinced he’s wrong on the latter.

In fact, I believe that Apple will miss the boat if it dogmatically holds out against the in-between file format — the way it missed the 1990s PDA boomlet by sticking to the overweight, oversized and overpriced Newton.

In October, Jobs directed 4 criticisms at the avalanche of tablets expected this year. Two were at the 7" form factor. Here are excerpts from the Seeking Alpha transcript:

Second … a seven-inch screen is only 45% as large as iPad's 10-inch screen. … Well, one could increase the resolution of the display to make up for some of the difference. It is meaningless, unless your tablet also includes sandpaper, so that the user can sand down their fingers to around one quarter of the present size. … There are clear limits of how close you can physically place elements on a touch screen before users cannot reliably tap, flick or pinch them.
…
Third, every tablet user is also a smartphone user. No tablet can compete with the mobility of a smartphone, its ease of fitting into your pocket or purse, its unobtrusiveness when used in a crowd. Given that all tablet users will already have a smartphone in their pockets, giving up precious display area to fit a tablet in our pockets is clearly the wrong tradeoff. The seven-inch tablets are tweeners, too big to compete with a smartphone and too small to compete with an iPad.

Meanwhile, for the past three years Jeff Bezos has been selling millions of specialized 7" black & white tablets (which he calls “Kindle”), while Barnes & Noble, Samsung and various others will sell than more than a million 7" color Android tablets in Q4 2010. (Samsung already sold about 600,000 in its first month.) In the Black Friday newspaper ads, I counted nine different tweener tablets or e-readers — excluding the Kindle and nookColor — and the Galaxy was mentioned more often than the iPad.

The iPad has a screen that rivals the resolution of small laptop (or a netbook) with its 9.7" LCD, while the B&N nookColor and the Samsung Galaxy offer a screen in a 7" form factor. The smaller size brings a smaller weight and price: the nookColor is half the price of the WiFi-only iPad while the 3G Samsung is essentially the same price as the 3G iPad (but with a camera).

Steve Jobs posits a chasm between the smartphone and laptop/tablet form factors, and that his two extremes are the only ones that are viable:

Model	Screen	Resolution	WiFi Price	3G Price
Apple iPod Touch	3.5"	640x960	$229
Amazon Kindle	6.0"	600x800	$139	$189
B&N nookColor	7.0"	600x1024	$249
Samsung Galaxy Tab	7.0"	600x1024		$600
Apple iPad	9.7"	768x1024	$499	$629

However, a 7" tablet can be held with one hand, walking around and is roughly the dimensions of a paperback book. It works pretty well for reading most web pages and certainly for watching a 480x360 YouTube video.

After trying to read web pages on an iPhone and a Palm Pre, I can’t ever see using one again for anything other than an emergency. Dunno, maybe it’s being farsighted (+1.5 correction for reading) and this is not an issue for their core teen market.

Now Steve sells laptops with screen ranging from a 11.6" to 17" diagonal size and prices from $1000 to $2300. In marketingspeak, that’s segmentation — trying to avoid leaving any needs unmet.

I’m guessing that Steve’s would be that laptops are different: it’s possible to provide pointing and data entry for all these sizes for a laptop but not for a tablet. Since the 7" virtual keyboard is clearly superior to the 3.5" iTouch/iPhone keyboard, the barrier is the pointing experience.

There is a very real difficulty of hitting tiny hyperlinks in 8 point font with a fingertip. My tween (with much smaller fingers) complained about it tonight with my nookColor, and it’s been an ongoing frustration since I brought the mini-tablet home.

However, if Steve doesn’t sell a 7" tablet, many other people will — most of them undercutting the iTab’s price point. Maybe they won’t have 100,000 apps but there will be thousands of Android apps — including apps from the major media companies (Facebook, NYT, Time etc.) that will probably be just as good in the 7" size as in the 9.7" size. And a $200 color tablet will reach a lot more people as an impulse buy than a $400 one.

One of Steve’s other comments was about the usability of the products based on Android 2.1 or 2.1 and it appears he was right. More later.

Android leads inevitable march towards commoditization

Had meant to write Tuesday about the latest quarterly market share data for Android, but it got buried in between grading, meetings and of course watching the election.

Perhaps more significantly, what can you say? Android market share is monotonically non-decreasing, so every quarter the Google-controlled alliance gets more good news.

Still, the Canalys Q3 estimates were impressive:

Platform	US	World
Symbian	n.r.	33%†
Android	43.6%	25%
iPhone	26.2%	17%
BlackBerry	24.2%	15%
Windows	3.0%	3.0%
Other	3.0%
Total		80.9m

† “Nokia”, not “Symbian”
Apple’s smartphone share has clearly peaked. The iPhone is losing to Android despite its obvious advantage on two key metrics — ease of use and variety of applications. Instead, all that matters are product proliferation and distribution — there are dozens of Android phones at various price points from all the major carriers. You want a keyboard? Or no keyboard? Big screen or small screen? Android has offers these choices and iPhone doesn’t.

Adding Verizon someday isn’t going to change this. And as the dumbphone dies and every phone becomes a smartphone, Android will gain share in the segments Apple is ignoring. Android has made the smartphone a commodity — an adequate OS is no longer an entry barrier — consigning the iPhone to the top 10% niche of buyers willing to pay a premium for better quality.

Meanwhile, Nokia has knifed the Symbian baby by sacking most of the engineers it hired after losing the allies that once vowed to support it (before Android caught on.) Its current path seems to be using its proprietary QT APIs to migrate developers off Symbian to Meego, its proprietary Linux that competes with Google’s slightly less proprietary Linux.

In the near term, the story for Apple on tablets is much more promising, as latest estimates show it with a 95% worldwide market share. (The figures are misleading since it excludes e-book readers, and the Nook Color shows there is no clear boundary between the two categories.)

In Apple’s favor is that unlike cellphones, there is no need for the needless variants and pseudo-differentiation that we see because network operators control nearly all the cellphone distribution. As with the iPod, Apple could conceivably keep a 50+% market share in tablets, assuming it overcomes its irrational (and Newton-like) aversion to smaller tablets and aggressively engages in product proliferation as it does with the iPod.

New Nook needs a niche

Barnes & Noble is hosting an event next Tuesday to introduce the next generation Nook e-reader, just in time for the Christmas shopping season.

Some Fool has already written off any hope of Barnes & Noble catching up. In a column entitled “Why Is Barnes & Noble Even Trying?” the owner of an iPad and a Kindle predicts utter failure:

B&N backed itself into a corner, and that's a dangerous place to be for a resources-strapped company fighting a hairy proxy battle for its independent survival.

What can it possibly announce come Tuesday? It's hard for B&N to take prices lower, and it's not as if it's a feature or two away from relevancy. Kindle is going to walk away with the dedicated reader space, while Apple and the flurry of tablets will take over the high-end and graphical textbook market.

He’s wrong: B&N may be down, but it’s not out.

In the e-reader space, the devices themselves are commodities. Yes, there are differences, yes some are cheaper or lighter or brighter. But the key differentiators — screen readability and battery life — depend on outside suppliers available to all. Instead, B&N needs to attack Amazon on one of the other dimensions of competition — the broader value proposition for the slate format.

What’s clear is that the e-readers are a different segment than the iPad, and for now there’s room for simpler, lighter, cheaper devices priced less than the Apple tablet — at least until people can get a $200, half-pound device that runs applications and surfs the web in color.

Amazon has a lead here over Sony, Barnes & Noble and others. It’s hard to tell how much of a lead, since Amazon won’t be honest about its actual sales and by controlling the distribution of Kindles, there’s no way for a third party like NPD or Gartner to measure this objectively.

Perhaps Amazon is hiding how small the book reader niche is. In January, CEO Jeff Bezos said “millions” of Kindles sold and Business Week speculated that the actual number was between 2-3 million. That’s 3 million Kindles in 27 months, versus 6.5 million iPads in 6 months.

Now that Steve Jobs says he’s not making a 7" iPad soon (if ever), this suggests there is a window of opportunity for the 7" readers. However, to win this market, B&N needs to challenge Amazon head-on.

For my own personal use, I’ve been evaluating the iPad, Nook, Kindle and pre-announced Android tablets (like that from Samsung). There are two ways that B&N can grow the low-end segment before Amazon does.

The first is that the e-readers are more than just for buying books. B&N has already offered other features such as browsing books in stores, and free Wi-Fi access at B&N stores. The E Ink display of the Kindle and Nook has its limitations — no color web pages — but B&N can do more to leverage the Android platform and other applications that users want for their mini-tablets.

Secondly, B&N needs to be the honest broker of open content formats. Amazon begrudgingly will support other formats, but if you look at it closely, its strategy is “AZW everywhere.” The company is more keen about promoting its proprietary file format and killing any efforts to establish a rival format, such as ePub. I don’t see Amazon relaxing this approach — any more than Apple wanted to eliminate the lock-in from the FairPlay DRM — unless or until it’s forced too. So if Amazon is a prisoner of its business model, this creates an opportunity for B&N.

Open standards are always a strategy of a follower or new entrant, not the market leader. The playbook is well-known and B&N needs to execute on it. The industry is impatiently awaiting an open format not controlled by any firm — presumably a DRM-infest ePub — but no one approach is yet challenging AZW.

Beyond books, the world has a lot of PDFs out there. I have 6 gigabytes of academic articles on my hard disk, and the average college student (at least in business) has a few dozen PDFs to read every semester: articles, syllabi, etc. The PDF is a semi-open standard, so B&N could get Adobe’s support if the Nook2 is well-suited for taking PDFs on the road. (And for obvious reasons, Adobe fears a tablet world controlled by Apple.)

There is the razor-and-razor blade cross-subsidy issue. Amazon wants to make money on its content and so pushes the Kindle price down in a way that makes it almost useless unless you pay for content. (This is reminiscent of its Seattle neighbor protecting videogame sales by making it hard to convert the XBox to be a Linux box.) Like Apple, B&N needs to make enough on the Nook to be profitable without proprietary content downloads — but perhaps using features like the in-store browsing to drive repeat traffic by Nook owners to its retail locations.

A final serious problem is identified by Tim Carmody of Wired: execution. Even the best ideas don’t count if they’re not executed well. This is doubly true against an entrenched rival with a 2-year headstart, if the main battle ground is the narrow window of the 2-month Christmas selling season. As Carmody notes, B&N couldn’t ramp up quickly enough last year:

Last October, Barnes & Noble announced the dual-screen, Android-powered Nook, promising preorder delivery and in-store sales before Christmas. The company wasn’t able to ramp up production to meet demand and had to fix immediate firmware bugs, delaying some preorders and pushing back in-store availability to February.

I’m sure B&N knows this too. My understanding is that the Nook was rushed to market in less than a year, creating a new organization from scratch. Now it has a Nook software development group in Palo Alto, in Silicon Valley just down the road from Stanford.

So this year the execution will definitely be better. Will it be enough for Barnes & Noble to gain on Amazon? Only if they outflank their proprietary rival with openness and features that Amazon is (so far) unwilling to offer.

Tablets: When, not if

Today I listened live to the Apple Q4 earnings call, which featured a surprise guest appearance by his Steve Jobs. In his prepared remarks, his Steveness focused on the two-horse race with Android for smartphone leadership and its efforts to preserve its lead in tablets.

Apple shipped 4.19 million iPads (accounting for $2.79b in revenue) in the 13 weeks ending Sept 25, versus 3.27m (and $2.17b) in Q3, its first quarter on sale. (Apparently analysts had expected 5 million iPads to be sold.)

Deutsche Bank and Fortune got a flurry of publicity this morning when they added Apple’s iPad sales to its Mac sales, making it the US market leader with 25% share. (Tim Carmody of Wired adds more details, and discusses the limitations of this analysis).

Even without the iPad, Apple’s Mac products had the highest unit sales increase of any major PC maker, up 24% according to IDC. Meanwhile, the rapid rise of the iPad is clearly cannibalizing netbook sales and hurting traditional PC component suppliers like Intel and AMD, as AMD’s CEO admitted last week during his company’s earnings call:

Q: Any perspective you may have on tablets' impact on netbooks, or the growth or potential in that market next year?

Dirk Meyer: Clearly, in the last quarter or two, the tablet has represented a disruption in the notebook market. If you ask five people in the industry, you'll get five different answers as to what degree there's been cannibalization by tablets of either netbooks or notebooks.

I personally think the answer is both, and given the pretty high price points of the iPad, there's probably some cannibalization even of mainstream notebooks.

In his own call (according to my notes) Jobs said:

The iPad is clearly going to affect notebook computers. The iPad proves it's not a question of it but a question of when.

One of the analyst questions in the call was (paraphrasing): Apple is not number one with either the Mac or iPhone, but retains more than 50% global share for the iPod — so which one is more representative for the iPad?

Jobs clearly expects Apple to dominate the tablet market for another 12 months. He predicted failure for the current rush of tablets based on Android 2.2, given that Google has recommended waiting for the next version of the OS. (Apparently LG and Archos reached the same conclusion.)

But Jobs also predicted overall failure for the 7" tablet form factor — which he called a “tweener” because “it’s too big to compete with a smartphone, too small to compete with an iPad.” He also notes that while screens can get higher resolutions, touchscreens will not get higher resolvability unless people “sandpaper” their fingers.

I think it’s realistic to expect that Apple will retain its dominance in tablet computers for the next 6-12 months, and quite probably beyond that.

One factor is how long that Apple retains the ease of use advantage that (as Jobs argued passionately) it obtains from end-to-end control of the integration of the software, hardware and services. But the other major issue is whether Apple has the correct conception of what people want in a tablet.

Is Jobs right about the 10" size and the 1.5 lb weight, priced at $400? Or is the Kindle at a third of the price and weight more the wave of the future? If the latter wins, this would be somewhat reminiscent of the Palm Pilot defeating the Newton 15 years ago.

However, I think the form factor issue is part of a much more basic question. People aren’t going to carry around 3 screens: phone, tablet and laptop, so which one loses? I see the tablet as a browsing device that competes with a phone, while Jobs argues it’s a work device that competes with a laptop. Perhaps when the iPad bundles a virtual projection keyboard I’ll buy the laptop argument, but not yet.

What good is an iPad?

Friday marked the international debut of the iPad. The Apple tablet went on sale in Canada, Japan, Australia and six major European countries.

Apple drew lines in Japan, UK and France, although it was not clear whether this was due to pent-up product demand or a carefully orchestrated launch event. Still, many expect 2010 iPad sales to exceed 10 million, and one analyst claims that iPad sales will pass the Mac in Q3 of this year.

Coincidentally, during the hours leading up to the launch, two of my friends who are iPad owners reported their contrasting views of the iPad value proposition: one who increasingly can’t do without it, and one who’s dumping it.

As best I can tell, their differing reactions relate to their differing use cases, and thus illustrate both the challenge and opportunity of the iPad and tablets more broadly. They also confirm my own ambivalence about the product category.

One friend — who I’ll call “the Beav” — sent me an email asking if I had a Skype account so he could test out how Skype works with the iPad. The last time I saw him, he showed up with his new iPad, talking about how he bought an iPad only to support a client but found it to be a handy, fun device.

Another friend — who I’ll call “Anthony” — posted to his Facebook page that his nearly-new iPad is for sale because he isn’t using it. One of his friends would have done the same thing but one of his kids has claimed it as an oversized iPad Touch toy.

Although I haven’t seen him in several years, it sounds like Anthony’s use case is a lot like mine. On weekdays, he spends most of his day in one of two places — work or home — and he already has a solution for both places (a laptop at home, a desktop at work). When he’s out and about, he either doesn’t want to reach the Internet or uses his iPhone.

On the other hand, the Beav spends much of his day traveling around between client sites, and (I imagine) has a lot of brief opportunities — 2 minutes here, 10 minutes there — to check email, look something up on the Internet, read news, watch a video etc. etc.

My own story is that I have one computer that I take everywhere for everything, as I have for the past decade. Right now it’s a two year old, slow, increasingly fragile MacBook Air. It’s a nice form factor, but otherwise a mediocre computer, but due to my employer’s budget problems I am not allowed a replacement for another two years — and so have to buy my own replacement (since no lightweight laptop can survive daily use for four years).

Even with the Air, I must say I am envious of Kindle and iPad owners who can flip out their devices at the drop of a hat — as with the guy next too me in steerage on my quick trip to Europe earlier this month. When that airline seat reclines in front of you, even the smallest laptop (and probably most netbooks) aren’t going to work unless your employer paid for those cushy business class seats.

However, I’m not going to type an email of more than two paragraphs on the iPad/iPhone virtual keyboard, nor am I going to use it to edit a memo, let alone a 10,000 research paper. The iPad has a wired keyboard dock option, presumably for a desk at home or work. You can also get it to work with a Bluetooth keyboard and even (unofficially) a mouse, but carrying those around eliminates most of its size advantages.

More seriously, is the world waiting for a 3rd screen to carry around — beyond the 13-15" laptop (or 10" netbook) and the 2-3" smartphone? That was Anthony’s problem, and would also be my problem unless I spend as much time on the road as The Beav does — or have a lot of electronic reading time standing on a train, sitting in an airplane seat or by the pool.

For some, the lack of Flash (or TV video) on the iPad is a deal breaker, particularly if Time Warner and NBC (Universal) continue to hold out on doing a conversion (unlike frenemy Google). For me, it’s having a big enough screen to write something but not the keyboard or application software. (I could see using Keynote on the iPad but not Apple’s defeatured word process or spreadsheet.)

Which means I end up on the iPad — and tablets more generally — where I started. Tablets will not create a new category, but will supplant (or merge with) one or more of the current substitutes: smartphones or netbooks.

Apple and Google and now HP are betting on the smartphone platforms taking over tablets. Since Microsoft has the 5th most popular smartphone platform, it presumably hopes that Windows Vista can be successfully ported to tablets.

Here I am less optimistic about the iPhone and webOS than I am about Android. (Full disclosure: I grossly underestimated how quickly the iPhone would gain market share and transform the market, missing out on a 150% stock three year price gain that spanned the most intense recession in 50 years.)

If tablets are going to catch on, it seems as though there is another shoe waiting to drop: the oft-requested OpenOffice on Android. (Yes, Androffice allows Google docs on Android, but rarely is my Internet connectivity fast enough to make the SAAS model even remotely satisfactory.)

On the one hand, OpenOffice (like Android) is the open source darling of its category. On the other hand, there is bad blood between Sun and Google after the latter bypassed Java (and Java licenses and royalties) to provide its own alternative Java VM.

Still, I don’t see tablets as a plausible mass market replacement for a netbook before there is a good office productivity suite to go with email, a web browser and various e-book readers. I’ll be curious to see whether Barnes & Noble extends its Nook into this segment, or leaves the category to Dell and other Adobe tablet licensees. Conversely, perhaps the best hope of tablets is to be über-ereaders, seeking to supplant dead tree media rather than computing or communication devices.

Update Saturday 11am: Yet another iPad-owning friend, Youngjin Yoo, has responded to this post with his own blog post, in which he endorses the book replacement niche for the iPad.

Very optimistic news premium

This morning’s Wall Street Journal had two ads promoting the availability of the WSJ on electronic readers.

• A 1/6 page ad promoting the (apparently struggling) Reader Daily Edition for the Sony Reader — paid for by Sony.
• A full page ad promoting the Wall Street Journal for iPad — a $4/week ($216/year) — paid for by the WSJ.

Normally we think of complementers as desiring to sell their software (or content) on whatever platform people have. But clearly the WSJ thinks the volumes (and probably the margins) are much higher on the iPad product.

What’s going on here? Derek Thompson of The Atlantic thinks the WSJ is cream-skimming with the affluent early adopters of the WSJ:

This is what we in the biz know as cojones. I looked up WSJ subscriptions for Web and print today. It turns out that getting the WSJ on the iPad is more expensive than a subscription to WSJ.com; or WSJ the paper; or WSJ.com and WSJ the paper combined.

To me, it seems like a futile attempt to avoid commoditization by yet another news organization (a possibility Thompson also suggests).

I don’t see how the price is tenable in the long haul — it seems like wishful thinking by Rupert Murdoch (who’s been much exorbitant in his pricing than the previous owners.)

The WSJ is creating a great opening for the FT, Thompson Reuters, Bloomberg’s Business Week or Yahoo to create an advertising-supported alternative to the WSJ product. The WSJ has great depth, but by partnering with other sources, it seems straightforward that someone could create something that serves the business news interests of the masses.

Finally, this suggests that the ambiguity about the iPad will be as much about the content business models as the form factor and applications. Fortunes are made in situations of high ambiguity, although right now the iPad content (and application) business seems a bit overcrowded for anyone entrant to make a lot of money.

iPad: Credo ergo sum

The wondrous Apple hype cycle has been working overtime in winning coverage for today’s iPad rollout. In the 144 hours leading up to the actual availability, the iPad won the covers of Newsweek and Time, nightly stories on the evening news, even a full hour on Charlie Rose.

The iPad is not just a new revenue source for Apple, but the salvation of the publishing and other content industries desperately searching for a business model — at least according to CBS, the San Jose Mercury and Paid Content. If to prove this point, Time, ABC, CBS and New York Times have created apps to monetize the iPad/iPhone success — despite dire predictions of failure due to the lack of Flash.

True believers lined up today to be first on their block to own an iPad. One Apple founder lined up to join them, while the skinnier one came to watch them. The pre-launch consensus forecasts seem to be about 300,000 units this weekend, but one estimate now places the sales at 700,000 on the first day. Another analyst raised the 2010 forecast from 3 million to 7 million.

Such publicity must be the norm for his Steve-ness, who among other successes made it on Newsweek with the iPod and at least seven times on the cover of Time.

Three years ago, as we were writing our iPhone article, Michael Mace and talked about writing an article about Apple’s consistent success at creating buzz and getting free publicity. Given the failure of Apple’s many imitators, it’s not clear how transferrable these competencies are, but I imagine there would be a market for what we have to say.

Update Monday noon: Actual day one sales were 300,000, not 700,000. The analyst who made the mistake lowers his 2010 predicted sales to 4.3 million.

E-reader smackdown!

The iPad is coming Saturday as a combined e-reader, Internet tablet, oversized iTunes Store client and jumbo iPod Touch game platform. Its most direct competitors seem to be the Amazon Kindle and the Android-based Barnes & Noble Nook.

Who will win this e-reader smackdown? In handicapping efforts Amazon, Barnes & Noble and Apple efforts to win US users, I can think of a number of possible factors:

• Hardware device form factor, weight, screen, speed, battery life. Advantage: unknown.
• Software features, easy of use. Advantage: Apple
• Content variety and depth. Advantage: for now, Amazon
• Merchandising promotion of content. Advantage: unknown (all three are strong
• Price of the hardware, the content. Advantage: unknown (price wars have yet to begin)
• Ecosystem of non-book add-ons. Advantage: Apple, with B&N (via Android) possibly catching up
• Physical distribution for cross-promotions. Advantage: Both Apple and B&N have a strong retail presence, but only the B&N stores are about merchandising content.
• File format, potentially reducing switching costs. Advantage: unknown, and unknown if anyone will care.

Obviously much of this is a systems play, with both end-to-end competencies and also the ongoing maintenance and development of a platform and platform-based products. Amazon has online services skills second only to Google, so the back-end is the company’s clear strength.

On the other hand, only Apple has managed platform strategies before — and it‘s done several very, very well. (Let’s ignore the Newton and Apple /// for now.)

Many startup companies are trying to make stand-alone e-readers, but none of these will be able to make the end-to-end systems. The stand-alone play was tried a decade ago with the Rocket eBook — it didn’t work then, even before consumers had three viable systems to choose from.

However, at least two other (self-imagined) systems integrators and erstwhile Apple rivals are conspicuously un-aligned. Microsoft’s efforts to create a music store (think Zune) have failed thus far, but its hardware partners like HP and Dell certainly want to sell tablets — and probably with more to offer than just Flash-based websites that Apple doesn’t have.

The other conspicuous omission is Nokia (and perhaps Samsung and some of the Chinese handset makers). They’re not going to sit idly by as Amazon and Apple swoop up customers and create switching costs, but I don’t see how they can realistically create an alternative on their own. Will Nokia try to add books to Ovi? Will its competitors get the Wholesale Applications Community to create a bookstore too? None of these seem viable.

There will be entry, exit and consolidation. Some of the startups will die. There’s no reason to think that Amazon & BN will make hardware forever, so perhaps some startup’s VCs will merge its portfolio company with the Kindle or Nook spinout.

Perhaps Palm’s investors will merge what‘s left of the company with one of these companies, and then offer it as an open-architecture e-reader company for the libraries of other publishers or retailers. The Nook is being developed in Palo Alto, so presumably it is populated with veterans of all local platform companies (Apple, Palm, Sun).

The one clear opportunity is Barnes & Noble going abroad. Although their sales skew towards the US, both Apple and Amazon think of themselves as global companies and are likely to continue their go-it-alone strategy abroad. Barnes & Noble will have its pick of partners in Europe and Japan if it wants to offer its hardware, back-end systems and ecosystem to retailers that cannot realistically establish their own systems abroad.

iPad for sports addicts?

The CEO of Walt Disney seems to be aligned to his largest shareholder’s latest toy, the “magical and revolutionary product at an unbelievable price.”

The most interesting comment in the AP interview of Bob Iger is the potential of the iPad for couch potatoes — not the geeks but the jocks:

"We find that the iPad has a lot of potential. We think it's a really compelling device. We think it could be a game changer in terms of enabling us to create essentially new forms of content."
…
"ESPN ScoreCenter, which is a great app on the iPhone, and provides relatively rudimentary information, scores, basically, suddenly we have an opportunity with a platform where you can really make the scores come to life."

This to me is a major opportunity for the iPad — a portable device with hypertext-linked videos.

Of course, that assumes the content provider is willing to deliver the content without Flash. ABC (and ESPN) are willing to do so — and perhaps Hulu will too.

Flash-free iPad: leading or trailing edge?

For three years, Apple has been intentionally strong-arming Adobe’s efforts to bring Flash to the iPhone. Of course, a Flash-free iPhone also means no Flash on the iPod Touch and now the iPad too.

With Flash 10.1 due Real Soon Now on every major smartphone platform except Apple’s phone/PDA/tablet OS, does that make the iPhone OS a laggard? Or is it the leading edge of a larger trend?

The controversy flared up in the past week in an (indirect) exchange between Apple’s CEO and Adobe’s CTO.

An internal (and presumably confidential) speech at Apple last week by Steve Jobs was reported Saturday by Wired — which quotes an (obviously) unnamed employee (or contractor) providing this paraphrase:

About Adobe: They are lazy, Jobs says. They have all this potential to do interesting things but they just refuse to do it. They don’t do anything with the approaches that Apple is taking, like Carbon. Apple does not support Flash because it is so buggy, he says. Whenever a Mac crashes more often than not it’s because of Flash. No one will be using Flash, he says. The world is moving to HTML5.

In response, Adobe CTO Kevin Lynch wrote a detailed justification for why the world needs Flash, how most of the world has it, and the iPhone (and iPad) could have it too if only Apple would be nice:

We are ready to enable Flash in the browser on these devices if and when Apple chooses to allow that for its users, but to date we have not had the required cooperation from Apple to make this happen.

Why is Steve being so mean? It’s silly to say “there’s no technical reason” Flash is not on the iPhone. Of course there are technical reasons: Flash is a resource pig and is buggy — it’s the only thing that crashes the browser on my laptop. As Microsoft did with Windows 4,5 and 6, Adobe’s priority has been adding features rather than solving the complexity/reliability problems.

On the other hand, is bugginess enough reason to rule out Flash permanently? Of course not.

At one point, it might have been possible to conclude that Apple was trying to extract leverage — as when Steve Jobs claimed two years ago that Apple wanted a new version of Flash between Flash and Flash Lite, that played Flash websites with less demands than the desktop Flash.

Now, of course, it’s pretty clear that all that is window dressing, and basically what we have is a repeat of the Windows vs. Java platform war, with Apple trying to prevent Flash from layering itself on top of its existing platform.

Last time, much of the world was cheering on Sun’s efforts to promulgate Java as a cross-platform standard. Today, Google, Microsoft, the Free Software Foundation (and most of the Chinese software industry) share Apple’s goal to create a world where an enhanced open standard HTML (HTML5? HTML9?) obviates the need for Adobe’s proprietary, royalty-bearing de facto standard. This is a noble goal if the majority of the world’s Internet users will be using mobile phones — but it isn’t going to be a reality any time soon.

Still — unlike the PDF standard that Adobe (mostly) controls — there will be increasing alternatives to Flash in the future (and not just Silverlight). For three years Apple has been gambling that Flash needs the iPhone more than the iPhone needs Flash: so far it has been right.

What’s different this year is the rising market share of Android — and Flash coming to both it and North America’s most popular smartphone platform, the BlackBerry. That’s market pressure that the Jesus phone hasn’t faced before — but if I had to guess, I’d (make a small) wager that the iPhone (and iPad) will end 2010 the same way they began: Flash-free.

Will Joel help sell tablets?

Since the past month (if not three years) for Apple watchers has been uninformed speculation about the iSlate/iTablet/jumbo iPhone, I figure on the eve of the (speculated) announcement I should add my own 2¢.

A little over a year ago, sociologist Joel Podolny quit as dean of Yale’s business school to become “Vice President and Dean of Apple University,” as he self-reports on his LinkedIn and Facebook profiles.

At the time, I offered my own speculation on the sketchy information about Joel and his new role, but effectively he’s been in stealth mode ever since. I have a hunch that his role may become more clear after the iTablet is announced.

Apple’s plans seem to be leaking out because of all the content relationships that it is negotiating. Speculation is that it’s a device with a 10" screen that (for reasons that were obvious a year ago) will run the iPhone OS.

Since this is only the first device of many, the more interesting thing is the content/ecosystem strategy. Apple is building a supply of content to compete with Amazon’s Kindle, the Barnes & Noble Nook, and everything else out there.

That’s where I think Joel Podolny comes in. An obvious use for an e-reader is for college textbooks: a $200-400 toy (uh, e-book platform) is not implausible for a college student, and e-books would help textbook publishers kill the scourge of used textbooks (while reducing distribution and inventory costs). Amazon has conducted demonstration projects with e-textbooks to disappointing results.

In fact, CNET reports that McGraw-Hill’s CEO Terry McGraw decided he wants to be on Steve Jobs’ dirt list by pre-announcing the tablets Tuesday on CNBC:

Yes, they'll make their announcement tomorrow on this one. We have worked with Apple for quite a while, and the tablet is going to be based on the iPhone operating system, and so it will be transferable.

So what you are going to be able to do now is, we have a consortium of e-books. And we have 95 percent of all our materials that are in e-book format on that one. So now, with the tablet, you're going to open up the higher-education market, the professional market.

I assume Apple has solved the format problem: Windoze notwithstanding, universities are not going to mandate the use of a proprietary format (like the Kindle AZW) which implies that the textbooks will be distributed in something like ePub or PDF. (As with the iTunes Store and music files, Apple may end up using a proprietary DRM system if not good alternative exists.) This is something that has been holding back e-book sales for a year.

Which brings me back to Joel. Apple has the iTunes Store for entertainment, and iTunes U for video (or audio) course lectures donated by universities. Once it has textbooks, what’s missing?

One possibility is to negotiating the content relationships with textbook suppliers — but that doesn’t sound like a “dean” to me.

The other possibility is a new modality of delivering instruction: not just hypertext books and linear lectures, but a more interactive and engaging experience. (Jobs’ nemesis John Sculley was demonstrating this with the Knowledge Navigator vaporware video more than 20 years ago).

This would mean that the tablet would be more than an e-book reader, just as the iPod was more than a music player and the iPhone was more than a phone. Apple is a systems company that new platforms to enable creation of new markets.

This self-image is illustrated by the tagline at the bottom of every Apple press release:

Apple ignited the personal computer revolution in the 1970s with the Apple II and reinvented the personal computer in the 1980s with the Macintosh. Today, Apple continues to lead the industry in innovation with its award-winning computers, OS X operating system and iLife and professional applications. Apple is also spearheading the digital media revolution with its iPod portable music and video players and iTunes online store, and has entered the mobile phone market with its revolutionary iPhone.

I'm betting that tagline will be different next week, and not just because Apple has a 10" iPod Touch.