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.

Bad pork and worse pork

A particularly trenchant analysis of the faulty logic of “stimulus” came this morning in a Wall Street Journal op-ed entitled “Confessions of a State Stimulus Czar.” (The original title was Confessions of a Stimulator.)

Industry veteran Tom Evslin tried to spend Vermont’s stimulus funds wisely but found it was mostly a futile exercise. One highlight:

The acceleration of government projects that had already run the approvals gauntlet—primarily the paving of roads—worked. But the building of new infrastructure failed. Due to the time required to apply for grants and receive permits, none of it was done during the recession, and only a little will be done in the next few years.

Nothing is "shovel ready" in the U.S. We've created a wall of regulatory obstacles—environmental, historical sites, etc.—that blocks doing any major project on a predictable or reasonable schedule. Not even all the king's men with all the people's money can build tunnels, railroads, wind turbines, nuclear plants or anything else significant without years or even decades of delay. If permitting were speedy, we wouldn't need government money to have a construction boom.

In other words, we needed pork barrel spending to fix the problems caused by government regulation, but in the end regulation won out over pork.

Even the good short-term effects were cancelled by the worse long-term effects. As predicted, Evlsin noted that the spending made things worse, because “the federal money came with strings attached” to prevent state governments from becoming more efficient by cutting costs — and thus the funding worked to “prolong the overspending.”

Despite being CIO of the most socialist state in the union, Evslin was blistering in his criticism of subsidies for renewable energy:

An industrial policy based on government grants and tax credits is an oxymoron at best and a disaster at worst. As an example, tax credits for solar photovoltaic systems have stimulated the solar industry in China. The Chinese don't install them there, they just sell them to us. More generally, these grants, tax credits and the like just mean higher-cost electricity.

Finally, he disputes any net job benefit from the stimulus spending:

The stimulus failed to keep the national unemployment rate below 8%, as had been promised. Overall, the stimulus had a negligible effect on overall unemployment, although it saved government jobs (temporarily) at the expense of private employment. Counts of "jobs created or saved" are meaningless. Jobs lost due to higher taxes, national debt or government crowding-out were not counted.

Driving home tonight, I heard one talk show host quote this “bureaucrat” with glee. Clearly this was a pundit too lazy to spend 2 minutes throwing Tom’s name into Google and reading what was readily available, including the biography at TomEvslin.com.

I knew Tom (and his wife Mary) when the were running Solutions, Inc., a fax modem company. After that he ran server products for Microsoft BackOffice, launched AT&T WorldNet and cofounded a wholesale VoIP company that IPO’d in 1999. Not my definition of a bureaucrat.

It’s too bad that we don’t have more people like Tom in ”public service”: these are people who’ve had to manage the bottom line, including cutting spending if revenues are inadequate to cover expenses.

California briefly had someone like this in statewide office — Democrat Steve Westly, who gave up his job as state controller in a futile run for governor against career politician Phil Angelides. Westly’s failure to win election — along with that of Al Checchi, Meg Whitman and others — will certainly discourage other qualified business leaders from trying to enter politics directly from private industry.

Qualcomm: beyond the cellphone

Qualcomm has pulled the plug on FLO TV, its attempt at terrestrial broadcasting to cellphone (later dedicated device owners). It sold the spectrum to AT&T (so that LTE iPhones will have better Internet access than the 3G phones have today) and is refunding the purchase price paid by buyers.

I’m not sure what it means for Qualcomm’s future, but I offer some thoughts on my San Diego Telecom blog. Certainly it hurts its batting average under its second CEO, Paul Jacobs, son of the original CEO Irwin Jacobs.

On the other hand, Intel has been through multiple CEOs since its founding, and basically makes all its money from the 1980 decision to source IBM’s PC cpu and then later to pull out of DRAMs. So while Intel is un-sexy and no longer is seen as a growth company, it’s not in trouble, desperate or in danger of going away any time soon.

In some ways, it suggests second acts are very hard to pull off. Intel Microsoft and Motorola moved beyond their original products to another cash cow, but Oracle and SAP have not. (eBay may eventually make more money off of PayPal than auctions, so it’s too soon to call that one.) RCA and the original AT&T were once technological powerhouses that eventually died. Once-great pharma companies are also in great trouble nowadays.

Of tech companies, Apple and IBM have pulled off multiple re-inventions, but is there anyone else in that league? Google might get there someday, but they’re not there yet.

Even tech industries grow up someday

When I started the professor gig back in 1998, I had a smug sense of superiority: I’m a tech strategy guy, and I didn’t worry about the dinosaurs and dying industries and boring stable mature industries.

Since that time, we’ve had the dot-com crash, the NASDAQ crash, a decade of sideways tech stocks (some still below all-time peaks) and in general a mature, commoditized IT industry, including once-great companies like HP and onetime high growth companies like Oracle.

This is not just IT, but also the onetime epitome of high R&D/sales ratio and science-based differentiation, i.e. big pharma. Reflecting declining returns to R&D, big pharma has underperformed the S&P 500 for 15 years — even before the dot-com crash — and has responded by budget cuts, layoffs and offshoring.

In other words, all industries grow up someday. Light bulbs and transistors and telegraph wire were once cutting-edge too. Masked (slightly) by mergers and acquisitions, companies like Oracle and SAP lost the ability for organic growth almost a decade ago. Today the tech products — like PCs or phones or tablets (or proprietary pharmaceuticals or PV panels) have to worry about cost-based competition and the perennial threat of substitutes.

Given that, I’m now convinced that every would-be high-tech MBA needs at least a half-semester (or one-quarter) course on strategic marketing in mature consumer industries. We have a lot to learn from selling autos and soap and sugar water — despite what Steve Jobs said about selling sugar water almost 30 years ago.

Yes, we’d like to think (thanks to Moore’s Law) we’re not peddling tail fins but instead an ongoing stream of incremental improvements. Still, well-run companies in mature industries have a lot to teach us about product proliferation, cost engineering, consolidation, and buying/selling companies, not to mention maintaining and leverage brand equity in the face of commoditization.

In fact, I just got through reading final exams about soft drinks in the late 20th century. From 1975-1995, the two major cola companies squeezed out the smaller companies as they grew their share from 45% to 73%. (Does anyone remember drinking 7-Up? Of being able to buy it in a restaurant or on a plane? I do.) This growth occurred as they also grew the pie, with per capita soft drink consumption almost doubling during this same period.

Sure, New Coke is right up there with the PC Jr. (what?) or Lisa, Apple /// and Newton (huh?) as great marketing flops. Still, while all the growth this century will come from developing markets, both KO and PEP stretched their run out for another decade through a variety of product, marketing, supply chain and corporate-level strategies. The US auto makers haven’t done so well — Ford better than most — but the Europeans and Japanese have coped well with a maturing market.

Of course, high-tech marketing people need to learn how to do real consumer marketing. Intel and Qualcomm have grown their own, while Apple’s top marketing execs came from Macromedia (a software company) and Target. (The difference between Jobs I and Jobs II was the intervening experience building a consumer brand at Pixar.)

Ideally, the course on strategic marketing would be combined with a course on consumer marketing. However, the reality is that at most business schools, these are two separate skill sets not found in the same person.

Once upon a time business strategists studied Sun Tzu or Civil War battles. In the 21st century, they should study the cola wars, diversification efforts by the Japanese auto makers, franchising by Ray Kroc, the re-invention of water and coffee, and the branding of generic acetaminophen and ibuprofen.

Bad signs at the mall

AP says that shopping is better than this year than last. (Certainly it’s better than the England, where unfamiliar snowstorms are preventing stores from restocking.)

We ran out to the major Santa Clara mall this afternoon to buy a couple of items, and what I saw was signs that retailers were desperately discounting because traffic was lower than expected. Bath and Body Works had a number of 50% discounts and pretty much everything seemed to be 25-33% off. Abercrombie sold my tween a sweatshirt for 10% less than what we were charged on the morning of Black Friday — usually the day of deepest discounts.

Perhaps this was just the stores we went to — one for silly luxuries, one for stylish teen clothing. Other stores selling more basic goods could be doing great. Or it could be the Bay Area, or California more generally. After all, our statewide unemployment rate is 12.4%, or one-fourth higher than the 9.8% national figure.

In any event, this data is dissonant with the all-smiles-and-cheer view being presented by retailers.

A final possibility is that retailers underestimated how quickly demand would shift to online stores — which, as the WSJ notes, can now be consulted by smartphone-wielding shoppers as they stroll down the aisles. Given Silicon Valley has always had the highest penetration of e-commerce awareness and now has a relatively high smartphone penetration, this could explain the local desperation. After all, distribution is just another service that’s been commoditized by the Internet.

If I’m right, luxuries/frills/non-necessities will be heavily discounted on Dec. 26 — a great bonanza for those who have birthdays in January (or are willing to exchange gifts on Twelfth Night.)