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.

Nokia netbook nonsense

After proclaiming for a decade that smartphones will inevitably rule the world, on Monday Nokia announced the Nokia Booklet 3G, a high-end netbook that runs Windows.

To avoid allowing Windows Mobile get established in cellphones, Nokia created and nurtured Symbian for more than a decade. Now it’s becoming one of the last firms to adopt Windows, at a time when PC makers (like Dell) are adopting Linux-based Android smartphones, while other PC makers are considering ARM-based (rather than Intel-based) devices.

While I’ve noted that the netbook niche is growing rapidly, I don’t see how Nokia hopes to achieve any meaningful market share. Perhaps there will be a good 3G radio in its netbook, but HP, Dell, Lenova, Toshiba, Sony and others can buy such radios on the open market. (We call this open innovation).

I don’t see how Nokia will have an advantage on scale, innovation, features, branding or distribution over existing netbook makers like Asus, and Acer or the PC followers such as HP, Dell, Sony etc. etc.

It’s not that I doubt Nokia’s capabilities — although using software off the shelf will help it provide greater functionality than its current mobile devices.

However, I can’t see how being late to market in a commodity market is going to turn out well. The choices are low cost or differentiation. The former seems less likely, since it hasn’t been a low cost producer and it seems unlikely to happen any time soon.

Update 8am: However, based on the comments of reader Naru (below), it’s quite possible that Nokia is selling the product as a defensive measure to keep existing netbook producers from gaining a toehold among the network operators and their distribution channel.

Has Nokia has produced innovative phone hardware? Sure, but so have the Korean companies — and they also make PCs.

Meanwhile, the Taiwanese leaders seem to be keeping their lead producing low cost implementations of commodity netbooks. So far, there hasn’t been a lot of volume in the differentiated offerings, and perhaps there won’t be until the new Apple tablet comes along.

The Apple netbook

DigiTimes, The Inquirer, ZDNet and other outlets are reporting the latest rumors about the Apple netbook, based on leaks from its suppliers. The WSJ even claims Steve Jobs is actively shepherding the project.

Given Apple’s recent track record, I’m sure it will be cool and will probably send lots of units. But what is it? A large iPhone or small MacBook?

My inclination is that it will be a large iPhone. I had already suspected that because Apple hates to cannibalize itself — so selling an expensive iPhone will not steal business from the $1000-2000 MacBook line.

There is also the fact that with the iPhone App Store, after 30 years Steve Jobs finally controls the ISV distribution channel. Plus this puts Apple at the front of the migration of smartphones to be true laptop replacements, rather than late to the cheap sub-notebook party.

The clincher for me is the rumor reported by The Inquirer

Whispers suggest Apple will attempt to market the device as a portable gadget for reading e-books, connecting to the Interwarble and watching films.

The iPhone reads Kindle e-books and the MacBook doesn’t. Q.E.D.

Perhaps the big question is: unlike the iPhone, will it run Flash? If there were a new GHz-caliber processor — such as the latest Marvel XScale update — it would give Apple an excuse to back down from its previous stand.

The same arguments could apply to whether it will run Java. Steve Jobs historically was a good friend of Larry Ellison, so perhaps if Oracle finally does buy Sun (no deal is certain until it’s concluded) Steve will embrace Larry’s cup o’ Joe.

Apple and Nokia ARM'd for netbook fight

The netbook world — or at least netbook speculation — continues to be a growth industry. One of the key questions is whether future netbooks will be more like laptops or like smartphones in their platform choices.

Towards that end, last month an industry expert predicted a shift from laptop (Intel Atom) to smartphone (ARM-licensees) processors:

ARM-based processors will take market share from Intel Corp.'s Atom in the netbook segment and hold 55 percent of the netbook market by 2012, according to Robert Castellano, president of The Information Network.
…
The movement is toward the original intention of a netbook—an inexpensive device for accessing the Internet, Castellano said.

A shift to ARM-based processors would benefit existing suppliers of smartphone CPUs like Qualcomm, Freescale and TI.

The key question about making a viable ARM netbook platform remains the software. Fortunately, there are a plethora of software choices used by smartphone makers, and a lot of investment and activity here.

Forbes Wednesday reported a rumor that HP is considering an Android-based netbook. (Android of course is a smartphone OS with a Linux kernel and its own GUI APIs). I wouldn’t be surprised if Dell copied this approach, certainly more plausible than the reports that Dell (the ultimate commodity IT company) will buy Palm (with its custom OS).

Nokia has been eying the netbook space with envy — the N97 is a little more phone and a little less laptop replacement have speculated that Nokia is considering offering a netbook, to the point that even Nokia admits the interest. ArsTechnica thinks it will be Linux powerered. However, given the lack of Linux applications, I find more plausible the speculation by The Register that the first netbook will be based on Symbian (like the N97).

And then there is Apple. Both its laptops and smartphones run OS X and its Safari web browser, so the question would appear to be which GUI and applications it thinks best for netbooks.

I strongly suspect that the Apple netbook (expected this summer) will be using the iPhone OS, because otherwise Apple risks cannibalizing its core laptop business.

However, it’s clear that there is an even better reason to predict this: the iPhone App Store. Apple controls the distribution of 3rd party software for the iPhone in a way it never has in its previous 30 year history, and also takes 30% of the action. Steve Jobs always got mad sharing profits with the middleman and now that sharing is over.

So in one swell foop Apple can put itself at the head of the migration from laptops to mobile devices, finish transitioning its developers from the desktop to the phone, change the software industry business model from bloatware upgrades to consumer fads, and switch from a business where it has 5% in North America to one where it has more like 30-50% (depending on your denominator).

Of course, there still are some important product details to be resolved, liked screen size, weight, battery life and keyboard. Something less than 2 lbs with a real keyboard would be huge for the US market, but I suspect that’s not what Steve has in mind.

But if this the wave of the future, what it does say for the rivals?

• Nokia has Ovi which has a solid infrastructure but not a lot of excitement. Still, more than any other firm they control their own destiny.
• HP (and others) would depend on the Google-run Android Marketplace which is gradually maturing but will never provide them a revenue stream
• RIM (creator of the BlackBerry thumb disease) has its new App World but is a long way from making laptop replacements.
• Other cellphone makers (Samsung, LG, Motorola) have neither app stores nor PC competencies. The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones. Neither camp has their app store or is good at software.
• The existing Taiwanese netbook makers don’t have a lot of expertise in PDAs and cellphones and even less in their own software and app stores.
• Many diversified Japanese CE companies (like Fujitsu, Panasonic, Sharp, Sony, Toshiba) are players in both spaces, and thus are well equipped to make portable devices but leave the app stores to the OS player or (especially in Japan) the operators.

Near term, it looks like Apple and Nokia are best situated to push ARM-enabled jumbo smartphones. Between notebooks, netbooks and PDAs, HP is a well situated challenger, but nearly all their portable devices use Windows, so going to Android (or some other choice) could be stretch.

Apple netbook rumors

Dow Jones and others report rumors that Taiwanese makers are preparing to ship a 10" Apple netbook in the second half of 2009. Speculation is that these will be touch-screen equipped machines.

On the Wintel side, low priced netbooks are the only growth area left. But the design and price points chosen by Wintel netbook makers (particularly the off-brand Taiwanese new entrants) doesn’t tell us what Apple will do.

Of course the new Apple machine will run OS X (their only OS), have Wi-Fi and work with iTunes. However, there are some not so obvious design choices:

• Is it a large iPhone or a small MacBook?
• Is it designed for standing up or sitting down?
• Does it have a keyboard?
• Does it work with the iPhone App Store?
• Does it connect to a phone network?
• Is it priced like a netbook ($400-$800) or like a MacBook ($1000+)?

The only thing I feel confident about is that it won’t be exclusive to AT&T: they learned that lesson.

The fundamental puzzle for me is that if it’s a small, light, slow and cheap laptop, how does it avoid cannibalizing the MacBook Air — a thin, light, slow and expensive laptop? Apple (especially under Steve Jobs) is loath to cannibalize profitable products, and with the penetration rate of MacBook Air among our (not so rich) students, I suspect the MBA has been very profitable indeed.

Netbooks in the news

In his monologue last night, late night comedian Jay Leno decided to mention the new Sony P-series notebooks introduced last week at CES. (They are the same size as a netbook but at twice the price.)

Leno’s analysis:

Sony announced they’re coming out with a new computer that weighs just 1.4 pounds — weighs less than a pound and a half.

They say this will be the lightest computer ever on which Windows Vista will not work.

(It’s at 7:30 into the video if you want to see it.)

Netbooks: the future of PCs

In my in-laws’ Sunday paper this morning, Fry’s advertised a Windows notebook computer for $300, their “everyday low price” albeit with “no rainchecks.” (Perhaps they now have better prices after suing a former exec for defaulting on $10m in loans to cover gambling losses). The same computer is $327 at Amazon.

While this particular model of the Acer Aspire One has only an 8gb flash memory drive, it otherwise has the recommended features: 8.9" screen, 1gb of RAM and Windows XP. It certainly makes me feel like a dolt for spending $150 to (as long planned) put Windows XP on my MacBook Air instead of buying a new $300 netbook.

There is no denying that the netbook boomlet — started in Fall 2007 by the Asus Eee PC — was one of the biggest computer stories of 2008. The 1 million units sold in 2007 have reached 13 million this year as both Taiwanese ODMs (like Acer) and major branded PC makers (Dell, HP, Lenovo) have jumped into the fray.

As it turns out, the netbook was also the subject of one of the better student projects earlier this month from my MBA technology strategy class. The four students started out asking whether netbooks are betwixt and between smartphones on the low end, and laptops on the high end. Their conclusion was that the netbook looks a lot like a Clayton Christensen “disruptive innovation” for the existing laptop market. I am inclined to agree (which is why they got a good grade).

I draw four conclusions from the rapid success of the netbooks.

First, Intel’s low-cost, power-saving Atom microprocessor has been both a success and a failure. It’s a success in that it’s becoming the popular choice for the various netbooks. However, with the exception of a (numerically) few Linux servers, Intel is still basically a one trick pony: selling microprocessors to run Windows. Their efforts to use the Atom to create an entire new category of device, the “mobile Internet device,” is instead commoditizing its main source of product growth, laptops.

Second, the fact that netbooks are Windows machines raises doubts about whether any new computing platform can be established, at least in the next decade. Sure, a wide ranges of vendors offer netbooks with Linux but 90% of buyers prefer XP. In retrospect, Palm never stood a chance in its hopes to establish the Linux-based Foleo on its own and so was right to pull the plug.

Third, within 18 months — if not Fall 2009 then Fall 2010 — netbooks will take over the US college market, becoming the standard computer for most entering freshmen. (In the rest of the world, it will be netbooks vs smartphones and I can’t predict the winner yet). For students, netbooks have no disadvantages and many advantages. Students don't buy CDs or software; except for PC gamers, they don’t need high performance machines. They walk all day across campuses, long distances, and thus need to lighten their backpacks as much as possible. They are cash poor, and some carry laptops in urban campuses where robbery is a risk. And unlike us geezers, they have good eyes, and thus can read smaller but higher resolution LCD screens.

Given all this, Apple needs to respond to the netbook threat. Yes, my MacBook Air is small, light, with a low-power processor, small hard disk and no DVD drive — but it’s $1600, not $300-400. There have been rumors of an Apple netbook in October and November, but they are so vague to make it clear that no announcement is coming at next month’s Macworld Expo.

While I think Apple will respond (and probably in 2009), I think the response will be different than expected; I believe today’s predictions will prove as inaccurate as the predictions of the “Mac tablet” (which proved to be the iPod Touch). For 20 years, Apple has been loathe to cannibalize its main franchise, and I don’t think it will cannibalize its 13" MacBook (or MacBook Air) sales to respond to netbooks.

Instead of a stripped MacBook, I think it more likely that Apple will offer a scaled up iPod Touch or iPhone: adding a keyboard and increasing from the 3.5" 480x320 screen to either netbook resolution (9", 1024x600) or perhaps even an HDTV-compatible 720p (1280x720). Unlike the Foleo, such an iPod Touchbook would start life with more than 10,000 applications.

The only question in my mind is whether the device will be a GSM phone or merely a Wi-Fi-connected mobile Internet device. I think requiring an AT&T contract would put Apple at a huge disadvantage, so my money would be on the Wi-Fi device (or both).

HTC, Acer hope for branded success

Merc reporter John Boudreau had a field trip last week to Taiwan. He brought back two interesting stories about Taiwanese ODMs (Original Design Manufacturers) hoping to become branded players in the global electronics industry.

The most interesting of the two was the Q&A with Peter Chou, CEO of HTC, maker of the T-Mobile/Google G1. Chou commented on how HTC spent three years and $10 million developing the new phone, leveraging its Android ties that (perhaps) predated Google’s 2005 acquisition of Android Inc.

Chou: Andy Rubin (Google's director of mobile platforms) and I are friends. We know each other very well. And we know each other's capabilities. We know we can deliver on what we commit to doing. We are quite experienced in the telecom industry and know the quality requirements of mobile operators. That helped a lot. And we have credibility in terms of wireless technology, innovative design and execution.

Q: What has the relationship been like? This is the first time Google's name is being stamped on a product. And you are partnering with an Internet company.

Chou: Google treated HTC well. They saw HTC's value. We have made a tremendous contribution to this. It started from vision — we both are very committed to converged mobile experiences. That made our discussions so easy.

Q: Were HTC employees camped out in Silicon Valley?

Chou: We sent a team of 30 to 50 people to Google for almost one year. They were like Google employees: They had the Google badges and ate the free food. The restaurant there is probably the best employee restaurant in the world, I must say.

Chou expects the smartphone segment to grow to at least 40% of the overall cellphone market in the next five years. Despite being one of (if not the) leading suppliers of Windows Mobile smartphones, Chou is relatively humble about his supplier power and the value of the HTC brand:

Q: Why isn't the Google phone called the HTC G1 from T-Mobile? Don't you lose some marketing punch by calling the device the T-Mobile G1?

Chou: The T-Mobile brand in the U.S. is very high. And T-Mobile is committed to promoting its brand. So it's OK.

The aspirations of leading Taiwanese PC maker Acer are far less modest: become the #1 laptop vendor in the world by 2011. Still, between their acquisition of Gateway and Packard Bell, they’ve already vaulted Lenovo (and its former IBM business) to be #3 in the world.

In addition to Acer, this second Boudreau story looks at other Taiwanese firms. The most visible is Asus, creator of the Eee PC and the whole economy netbook segment. But he also mentions D-Link (a modest success in consumer Wi-Fi equipment) and BenQ (with its disastrous 2005 purchase of Siemens’ failing handset business).