Want to Beat iPad? Hire a Psychologist
When unveiled in 2010, Apple didn’t know why iPad would be a major hit.* After spending most of the keynote explaining some of iPad’s basic features, such as email, reading books, and surfing the web, Apple left the fundamental question of why iPad would become popular to the marketplace to answer.
One year, and 19.5 million iPads, later, the marketplace has spoken. While users have a variety of reasons for liking iPad, I attribute its success primarily to its ability to transfer innovation to the user. Apple’s curated iOS ecosystem allows iPad to bring app innovation, and functionality, into users’ lives, all the while sustaining a satisfaction level that is unmatched in Silicon Valley. When selling technology to consumers, initial satisfaction is good, but being able to deliver continued satisfaction and enjoyment is even better.
When putting iPad in this context, it’s easier to see the uphill battle facing competitors. The competition is having a hard time beating iPad because they don’t understand why people are actually buying iPad. To beat iPad, you can’t look at it as some piece of hardware that runs apps; you can’t look at it as “an iPad”, but instead as “iPad”. You have to understand the emotional connection between iPad and its user, which a psychologist could analyze at a steep price. A cheaper option to see the connection between iPad and its user is to walk into an Apple store and hover around the iPad table. After a minute or two, you will see the connection when looking at people’s faces.
Competitors need to aim for users’ hearts and minds and not assume that consumers are buying iPads just because they have $499 lying around the house. I have little confidence that competitors can successfully appeal to consumers in the same way that Apple does. Instead, competitors have two options for fighting iPad: low price commoditization with little emotional appeal, or reliance on innovation to beat Apple at its own game.
1) From a financial perspective, removing the emotion out of a product does not bode well as competition will lead to hardware commoditization and the ensuing margin collapse. Profits and brand power will quickly evaporate. Nevertheless, competitors need to convince users that some level of satisfaction can be received from a tablet form factor at a much lower cost than iPad. Apple understands this alternative strategy (some say due to its PC war history) and is relying on its massive $66 billion cash position to secure device components at prices that help lower iPad’s cost to a price point that is very difficult for the competition to slide under, while at the same time maintaining attractive margins. If you are curious what the tablet market would look like if iPad competitors choose the route of hardware commoditization and low cost, instead of appealing to consumer’s emotion, look no further than the MP3 player market, where Apple’s iPod and iTunes ecosystem maintains 70% market and emotion share.
2) You can only rely on apps and services to such a extent before poor financials, low product margins, and a lack of cash become too much to bear and competitors exit the market. If low-priced commoditization sounds unappealing, a better strategy for competing against iPad is to innovate and come up with something completely different. Once this new product is developed, control the emotional connection to your consumer and strive for increasing functionality and user satisfaction. Let iPad have its user base, while your product entice others with unique features and attributes. Try to beat Apple at its own game.
One year, and 19.5 million iPads, later, the marketplace has spoken, but competitors have spent more time talking instead of listening and watching.
*I didn’t write “if iPad would be a major hit”, but instead, “why iPad would be a major hit”. Apple has a history of releasing major products only after it knows it is worthy of becoming a hit.
iOS App Innovation and iPad 2 Design Lead to Magic
After my attempt to pick up iPad 2 on opening day failed miserably, I had to settle for ordering one online and waiting four weeks. On Wednesday, my wait ended. My initial iPad 2 thoughts focus on two themes; app innovation and iPad design.
After connecting iPad to iTunes (using the iOS umbilical chord) and running through the obligatory setup process, I was ready to take my iPad 2 for a spin. My first stop; the app store. Instead of searching for a specific app, I found myself scrolling through the Featured and Top Charts lists. After one hour, I had installed 15 apps, 14 of which were free*.
Apps. Apps. Apps. Without apps, iPad 2 would feel empty. I’m intrigued by the ongoing debate as to how to judge an application ecosystem’s health and popularity. Does it mean anything if Android reports more apps than iOS? Should I look at the number of app developers, or the growth rate of application submissions? Can I go by how quick a developers conference sells out as some indication of ecosystem success?
The most critical aspect of an app ecosystem (iOS, Android, HP webOS, Windows Phone 7) is app innovation. Every time I check the Featured app list, I want to see new apps. When I check the Top Charts list, I want to see new apps. I want to see strong app circulation. This type of app innovation stands at odds against those who argue as long as an app platform has the 10-15 apps that I use most often, then the platform is healthy and I should be happy. I strongly believe this type of settling for the bare minimal will lead to stagnant app buyers that become disenfranchised with routinely searching and paying for apps.
With 15 apps downloaded and my iPad 2 in hand, I sat on my couch and it wasn’t long before I lost track of time.
After a few minutes of using iPad 2, I found myself forgetting that I was using iPad 2. My entire thought process was given to the app that I was using. While iPad looks and feels amazing, the iPad dissolves away when in use, exactly how Apple planned it. Remove the intermediary and let users interact directly with innovation. I don’t care what’s inside or isn’t inside iPad 2, as long as iPad 2 has the ability to run the highest quality apps possible. iPad 2 meets this goal. When I see iPad competitors spend precious commercial space discussing product specifications, similar to the laptop wars of the early 2000s, I can only laugh.
Random bytes: Although iPad 2’s Safari is adequate for web surfing, I’m having a much better experience using apps to access website content. I always think back to a Wired article published a few months back, titled “The Web is Dead. Long Live the Internet”. While the author was somewhat off with the concept of “The Web” , I agree with some of his general ideas; primarily that Apps are changing the way we use the Web. I find myself turning to apps instead of surfing the Web through a search engine.
Drawbacks: Overall, I did find it somewhat hard to type on iPad 2. The onscreen keyboard is not wide enough for normal typing, even with iPad 2 turned horizontally on its side. I also found having the onscreen keyboard displayed horizontally was subpar because of the amount of screen real estate that it took up. I’ve been finding myself using one finger to type (similar to the iPhone) and this can make certain tasks difficult.
I also have a number of questions on transporting iPad 2 safely. Should I put iPad 2 in a backpack, briefcase, or carry it in hand? I don’t have a smart cover (yet), but what about the back of the iPad and possible scratches or scuffs? I am leaning towards buying some type of pouch to put it in (which then can go in another bag), but it’s the first time that I actually felt the need to buy some type of protection for an iOS device, which I’m not thrilled about. I would hate to cover something up that was meant to be seen.
Overall, my iPad 2 has exceeded my lofty expectations. Interestingly, I am finding specific and distinct uses for my three primary Apple products (Macbook - typing, iPhone 3GS - continuous communication, iPad 2 - apps and entertainment). I believe the iOS ecosystem has reached an inflection point where app innovation now has enough momentum to self-sustain itself (given continuous product innovation from Cupertino). In the coming weeks, I will lay out my argument for why I think the iOS ecosystem is in a solid position compared to other mobile platforms and how app innovation will ultimately decide the winners and losers in this ongoing technology revolution. Stay tuned.
*I am still hesitant to pay for applications without knowing how often I will utilize the app. As I have said for months, a better app store with the ability to preview and test drive paid apps would be beneficial.
Amazon Cloud
1) While I applaud Amazon’s willingness to adapt its business model to the changing technology environment, I am left wondering if cloud music storage is the answer to Amazon’s quest for mobile content relevancy. While digital music was a hot topic a few years ago, services such as Pandora, last.fm, and Rhapsody have been gaining in popularity and serve as a viable alternative to digital music downloads. I also question Amazon’s seemingly eagerness to compete directly with Apple and its accompanying competitive advantages on more than one front.
2) I worry that Amazon’s relationship with Android and the relative ho-hum introductions of these new features (appstore and now Cloud storage) could backfire and turn into Amazon’s achilles heel. One of Google’s perceived weaknesses (but actually looked at as a strength within Google) is unveiling countless features and services with the goal of seeing what sticks, if anything. Is Amazon playing the leader or the follower with Amazon Cloud Drive? Will Amazon need to kick up its advertising campaign to put these new initiatives in front of potential users? As it stands now, mainstream media, and most of America, are unaware of Amazon Cloud Drive and probably will never use it due to this unawareness. Amazon has a had a healthy success rate in new features, but if new services are deemed unready or incomplete for prime time, Amazon’s reputation could take a hit.
3) How is Amazon’s new music storage initiative intertwined with the music labels? According to several news sources, Apple has been stuck in music label negotiations as to how to adapt iTunes to the changing times. Amazon apparently didn’t seek any licenses or music label agreements and went ahead with its plans for storing purchased music in the Cloud. Does the music label’s support actually mean anything anymore?
4) Similar to Amazon’s recently unveiled appstore, the financial impact from Amazon Cloud Drive is murky and I suspect the long-term goal is once again to reiterate the “Amazon is Web Commerce” mental connection.
5) My gut tells me Apple is looking at these digital music initiatives, but from an industry changing perspective. As the music labels remain extra conservative in negotiations for fear of losing even more power at the hand of Apple, I am a believer that music labels will eventually cave and iTunes will adapt to changing consumer habits. It remains to be seen if Amazon will be at a position capable of competing with the new and improved iTunes. As it stands now, I still see Amazon’s digital music initiatives at a huge disadvantage against the iTunes/iOS ecosystem.
Amazon Appstore
1) Amazon is a Retailer. Retail DNA. Retail Brains. Retail Ambitions.
2) Amazon’s brand is the most powerful thing it owns. Similar to how people now associate “Google” with Search, “Amazon” holds the power to be associated with Retail - at the expense of the current retail brick and mortar giants.
3) Amazon’s strategy for sustaining its brand is buying out (or killing) competing online retailers that have shown success in gaining name recognition and appeal (Zappos is a prime example). Buy or kill the competition before it becomes too big to buy or kill.
4) Amazon cannot buy or kill iTunes/App Store and Amazon sees the writing on the wall. An ecosystem such as Apple’s iTunes/App Store is in a prime position to expand its reach into online commerce - at Amazon’s expense. iTunes/App Store represents danger to Amazon’s long-term sustainability and strategy of becoming the unanimous destination for online retail and commerce.
5) Amazon now has its own mobile application marketplace, using Android apps to fill the shelves. Revenues and profits will largely be a non-factor, similar to the black box surrounding the Kindle/eBooks ecosystem. Amazon’s prime goal in creating a curated appstore is to compete against Apple, remain relevant, and stay on track to becoming the Walmart of the Web - the first and only destination for online retail.
You Want iPad 2?
1) You head to your local Apple store.
2) Although you see a queue line outside, you walk in and ask an Apple store employee if they have any iPad 2s? Answer is no.
3) After walking around aimlessly for 10 minutes, you head outside and get in-line. You are #14.
4) After talking with #4, #8, and #12, you realize that this store hasn’t received any iPad 2 shipments for two days.
5) You start to think that you can be in line for days. You have no chair, little food, and already skipped this morning’s shower. Your Apple dedication begins to wane.
6) Apple store employee walks out and says there will be no iPad 2s sold today, but an iPad shipment might arrive tomorrow morning. Queue line doesn’t seem too upset. Inside, you are torn. You think, it’s just a stupid big iPod touch.
7) Apple store is now closed. It’s dark and somewhat cold outside. Queue line is now 30 long. You wonder if anyone in line has anything else to do. Your question will go unanswered.
8) You fall asleep while laying on some gum and leaves.
9) You wake up with the sun. Two hours later, an Apple store employee comes out and says they received a limited number of iPad 2s. Numbers will be passed out shortly.
10) Line is downright giddy.
11) Apple store employee reaches you and asks which iPad 2 model you want. You say 16GB Black Wi-fi. The response: “Sorry, we didn’t receive any of those.” In a moment of desperation you then say 32GB Black Wi-fi. The response: “Sorry, we didn’t receive any of those either. We do have 64GB White Wi-fi.” You know you don’t want white and you know you don’t need 64GB, but you have waited in line for half a day. You say okay. You now own one 64GB White Wi-fi iPad 2.
12) You head home and log-on to eBay. You realize you can make $40-$50 selling your new white iPad 2.
13) Eight hours later, and after a long nap, you head back to your local Apple store (this time with a sleeping bag).
14) Although you see a line outside the Apple store, you walk in and ask an Apple store employee if they have any available extension cords. Your Macbook Air only gets 10 hours of battery life and the nearest outside power outlet is near queue line #4. You are now queue line #18.
iPad's Actual Market Share
Ever since Steve Jobs unveiled the iPad 2, people have busy trying to compare his statements to the truth, especially this one:
"Many have said (iPad) is the most successful consumer product ever launched. Over 90% market share and our competitors were flummoxed."
Where was Steve getting this 90% market share data point? Strategy Analytics showed iPad’s market share at 75% in 4Q10 and falling fast.
The thing about Steve Jobs is that he rarely outright lies, instead opting to look at data in a way that he thinks makes most sense and which contains some shred of validity. I don’t think Steve was far off from the truth saying iPad had 90% market share. Using conservative figures and assumptions, I calculate iPad’s tablet market share at 90% in 4Q10, and nearly 95% for 2010.
However, in coming quarters, iPad’s market share will fall, but not for the reasons you might think.
The main problem with market share data is that there is no easy way of measuring how many tablets are purchased by consumers. Instead, market research firms rely on company figures (i.e. Apple earnings reports, Samsung press releases) and other estimates to reach unit numbers that are better described as “shipped” rather than “sold”. There is nothing wrong with this procedure as long as it is clearly labeled and, more importantly, the accompanying attention-grabbing headlines indicate this terminology. Instead, bloggers and reporters jump to conclusions that are often misguided and misleading.
So why is it okay that companies report units shipped as units sold? It all comes down to accounting.
Companies need to determine inventory and cost of good sold figures in order to calculate earnings. Sounds simple enough. Diving deeper into purchasing contracts would show the more intricate interactions between a buyer and seller. Without jumping into the accounting bunny hole, let’s look at Apple’s most recent 10-K:
"(Apple) recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of (Apple)’s product sales, these criteria are met at the time the product is shipped. For online sales to individuals, for some sales to education customers in the U.S., and for certain other sales, (Apple) defers revenue until the customer receives the product because (Apple) legally retains a portion of the risk of loss on these sales during transit.”
An iPad on a freight plane headed to a Walmart warehouse is no longer counted as an iPad in Apple’s inventory, instead it is counted as an iPad in Walmart’s inventory. Apple is able to recognize that iPad as sold and recognize the accompanying revenue (and profit).
So how should one account for market share data with this shipped/sold methodology in mind? I support the idea that proper market share data should make an attempt of calculating how many units have been sold to consumers. There is no exact science to this, and to a certain degree, even Apple and Samsung may not know day to day how much of its product is actually sold (although this process is becoming more efficient thanks to advancements such as Walmart’s lean inventory practices which notifies Apple soon after you buy iPad). Given the tablet market’s young age and small sales figures, we can reach market share according to units sold to consumers with a large degree of confidence.
Let’s start with the most recent market share data by Strategy Analytics published on January 31, 2011:
Global Tablet 4Q10 OS Shipments:
iPad: 7.3 million
Android: 2.1 million
Others: 0.3 million
According to these figures, iPad’s market share fell to 75% in 4Q10. Let us dive deeper into these numbers.
1) Since Strategy Analytics is using shipped units, I want to turn these numbers into units sold. To do this, I need to estimate the number of tablets that are currently in a company’s distribution channel, (the location between Apple’s factories and your living room). Apple’s iPad distribution channel is easy to calculate, since Apple’s CFO Peter Oppenheimer gave it to us on Apple’s most recent earnings call. iPad channel inventory was up 525,000 iPads during the quarter with a total of 4-6 weeks of sales in inventory (roughly 2.5-3 million iPads). Apple had already filled its distribution channel two quarters ago and the 525,000 additional iPads were put in the channel to fill additional points of sale. iPad was available in 46 countries with an additional 15 countries selling iPad in the beginning of 2011. To recap, Apple shipped 7.3 million iPads in the quarter, which includes stuffing 525,000 iPads into the already filled channel, leaving 6.7 million iPads actually sold to consumers (iPads shipped - iPads put in channel inventory = iPads sold). To be ultra conservative, I will assume they had to fill their channel more than they said, leaving approximately 6.4 million iPads bought by consumers during the most recent quarter.
2) Let us do the same calculation for Android sales: 2.1 million android tablets were shipped during 4Q10. How big is that distribution channel? Taking a look around the marketplace, there really wasn’t much in the way of Android tablets besides Samsung’s Galaxy Tab and we know from reports that the Galaxy Tab was available in 94 countries and 200 different wireless carriers. We also know that the Galaxy Tab was introduced close to the end of 3Q10, and market share data shows only 0.1 million android tablets were shipped during 3Q10. Ladies and gentlemen, this is called a channel stuff. Android’s 2.1 million shipped figure for 4Q10 was primarily Samsung filling its extensive channel (which I estimate to be at least 1.5 million Galaxy Tabs). Available in twice as many countries as Apple, I assume that the channel is nearly 50% the size of iPad’s channel (for the sake of being conservative). Samsung’s Galaxy Tab channel has been relatively small in the U.S., but in Asia and Europe, the Galaxy Tab’s retail reach has been much more extensive. Backing out the channel inventory, leaves me with around 0.6 million Android tablets sold during 4Q10.
3) Tablets marked as “Other” I will largely ignore since that is a non-factor considering a typical freight plane will hold a few thousand tablets at a time. I consider the 0.3 million tablets as largely channel fill and random promotions, so I will include 0.1 million “other” tablets sold during 4Q10.
Revised market share for tablets that were actually sold during 4Q10:
iPad: 6.4 million
Android: 0.6 million
Others: 0.1 million
Revised iPad market share in 4Q10: 90%. For 2010, using the same procedure, I calculate that Apple sold approximately 12 million iPads, with Android selling 0.7 million tablets and 0.1 million “other” tablets sold to consumers, giving iPad approximately 95% market share for 2010. Steve Jobs wasn’t far off with his 90% iPad market share statement.
With all of this shipped vs. sold terminology in mind, it is important to think about how this will impact iPad’s market share going forward. With tablets from RIMM and HP shipping sometime in the near future, and additional Android tablets like the Motorola Xoom, it is obvious that there will be more tablets shipped in 2011 than in 2010. Running back of the envelope numbers: if Apple can ship 20 million iPads (conservative) in 2011, RIMM ships 3 million, HP ships 2 million, and Motorola ships 2 million, iPad’s market share is now down to 74% and falling fast.
However, if we take a look at units sold, I am confident that iPad will be doing much better.
It will be interesting to keep an eye on how actual sell-through turns out for non-iPads. The tricky part in this whole market share discussion is what happens to tablets that don’t sell? Will price reductions beef up sales? What if non-iPads are literally given away? Does every non-iPad that gets manufactured eventually finds its way into the hands of a consumer? Why does all of this matter? One word. Developers.
A tablet stuck in a distribution channel or sitting on the shelve at Walmart will not lead to many sales of a developer’s application. A stack of tablets given out for free because no one wanted to pay for it doesn’t exactly sound like prime ground to stake app development dollars, and we all know that software (and the accompanying third-party app ecosystem) will ultimately decide long-term tablet market share.
Use caution when reading the dozens of upcoming tablet market share reports in 2011 or you will misunderstand what is actually happening in the marketplace.
Do You Really Understand Apple?
Person who doesn’t get Apple:
"Apple is crazy. How can they tell music streaming apps like Rhapsody that 30% of their revenue belongs to Apple? It is insane. Apple is making the biggest mistake in 10 years. All of these apps will leave the iOS ecosystem. If I am on an airplane and I see someone with an Android tablet and they are enjoying Rhapsody and I don’t have it on my iPad, I am going to buy that Android tablet. Apple is doomed if they move forward with these draconian app store rules."
Person who gets Apple:
"Apple is planning on coming out with their own music streaming service so they don’t care one lick about music streaming apps."
(the interaction underlining this post was real and involved two somewhat notorious Apple pundits…I of course paraphrased a few minutes of blabber into these two paragraphs).
HP Needs to Apologize for the webOS Event
The HP webOS event was a complete disaster leaving me questioning HP’s integrity. Am I shocked that product release dates and pricing wasn’t announced? No. However, I thought HP would at least make it look like they were interested in making webOS into something great.
1) The actual unveiling presentation was very difficult to watch demonstrating no clear understanding of who this presentation was intended for. Consumers, the press, developers? There was so much information packed into 2 hours, I don’t even know if there were good things announced. Imagine if Apple introduced the iPod Touch, iPhone, and iPad, along with iOS, in 2 hours. It just doesn’t work. There were definitely neat aspects of webOS, but they simply were overmatched by the negative aspects of the presentation. It’s a shame.
2) The products were not great. Hardware was sighted as a major downfall of the Palm Pre. To my surprise, HP webOS hardware was nothing to write home about. I really thought HP would use some Palm resources to come up with great hardware. (ok, I might have been fooling myself to ever think that). As demonstrated by iPhone and iPad, hardware is important. Why include a slide out keyboard on the Palm Pre 3? Why even make the Veer? There is no good reason the Veer should have been on that stage. It is irresponsible. If HP doesn’t know who should use the Veer, how would consumers figure it out? The TouchPad was essential an iPad clone. I am not sure if that was HP’s intention to maybe confuse consumers, but it was just bad.
3) I am left questioning HP’s overall direction. The webOS event seemed like HP gave this division a few million bucks and told them to go do something. HP’s CEO wasn’t even on stage. I didn’t expect him to demo the units, but at least show the world that top brass was fully behind webOS. In reality, HP is half-assing webOS due to fears that other strategic partners (like Microsoft) would begin to worry about HP’s commitment. HP mentioned they wanted to expand webOS into other things, but for now, it is just a lot of thinking in the clouds.
HP wants to be like Apple. Control hardware and software. HP’s webOS event made it look like they just don’t want to put the same amount of effort and attention to detail that Apple routinely gives their products.
Will HP webOS Get Knocked Out Before Entering the Fight?
HP will unveil its revamped webOS platform on February 9th and in the process reveal what has come from its Palm acquisition. There is also an evening event planned for that same day for developers interested in the webOS platform.
HP faces many challenges as it jumps with both feet, and webOS, into the mobile space. I give the company credit for trying. There is something about attempting the integrated approach of creating the hardware and software that I admire. I think HP is noteworthy as being the second company to give this integrated approach a try in the tablet space (still waiting for RIMM to ship its PlayBook). While iOS and Android are busy eating up mobile phone market share, the tablet market is less than a year old with only a handful of scrawny iPad competitors out there. Yes, I am calling the Samsung Tab scrawny. HP is still somewhat on time for the fight.
HP faces four major challenges that must be addressed before any new webOS products are shipped.
1) Lack of third-party developer interest. HP and its revamped webOS will enter the phone and tablet space with little third-party interest, as measured by developers devoting tangible resources to the platform. It’s clear management is aware of this problem, scheduling an event just for developers on the same day of the webOS announcement. Third-party support is crucial. There is also growing anticipation for webOS designed for a tablet, so one would assume developers would at least be interested in the platform.
But webOS is funny. Judging from tech pundits on the web, webOS is great, fantastic, and amazing. However, developers did not want to create apps for webOS, partially due to the lack of users. The Chicken vs. Egg paradox. When the Palm Pre went on sale in 2009, users were promised that a wide spectrum of great apps were coming and to just hold on. Two years later and Palm Pre users are still holding on. As I never forget to point out, the Palm Pre was labeled as the first iPhone killer partially due to its “potential” and “possibilities”. Those possibilities never came true.
For webOS to gain widespread third-party support, developers need to divert resources from iOS (and Android) and focus on a platform that has little to no installed base, no vibrant app economy, and no solid history of consistent developer support. Good luck with that.
2) Lack of corporate support and direction. HP is a mess right now. With a new CEO and drastic Board of Directors shakeup, I think it is appropriate to question how the change in leadership will impact HP’s mobile plans. How did the HP/Palm integration turn out? Decisive leadership is needed to make sure HP positions itself in the shrinking sweet spot required to get a solid footing and advance the HP webOS platform. The drastic management changes, in addition to the mass exodus of Palm talent, worries me.
3) Weak Branding. The HP brand has taken a beaten in recent years. HP laptops are nothing to write home about. There are no HP products to get excited about. Excitement is needed when selling consumer technology products. Palm may give HP some temporary brand power (and a loyal but small fanboy community), but Palm is not some spotless brand itself. Don’t forget Palm basically was sold in a fire sale due to running out of cash, and two Palm “smartphones” had hardware that was compared to kitchen utensils. I do find it interesting that recent HP webOS tablet renderings have the world Palm right under HP on the tablet’s back. Maybe HP does consider the Palm brand still valuable and is planning on keeping it around, although Palm was removed from the Palm webOS name a few months ago.
4) Difficult Price Points. At the end of the day, price is maybe one of the biggest factors in determining whether HP webOS products will sell. Phone pricing has a ceiling of $200 (after carrier subsidy). No phone will sell for more than $200, regardless of its feature set. Unfortunately, even $200 for a smartphone is becoming a rarity these days. Windows Phone 7 units and Android phones are often sold for under $100 and iPhone 3GS is selling for $49.
Tablet pricing is even scarier for HP. iPad’s $499 base price serves as a ceiling for the tablet market. Most companies are showing they have no means of competing with iPad on price. I can only imagine the number of tablets turned into vapor once iPad’s $499 price was revealed. Apple’s strategic supplier agreements (and technology) appears to result in attractive component pricing that gives Apple a strong competitive advantage that is difficult to match. In addition, carrier subsidies are not that popular for tablets as consumers don’t want to sign another multi-year contract in addition to their phone.
What HP needs to do on February 9th to even have a chance with HP webOS:
1) Have HP webOS phones and tablet available for demo. HP needs to show they have products that are close to being shipped. RIMM and Android are failing in this respect, announcing tablets that are no where near ready to be shipped. More importantly, demo units let users feel how heavy the devices are and test out important aspects of the UI.
2) A HP webOS tablet needs to be priced at $399 or lower. Ouch, I know. A HP webOS tablet can not have a $499 tablet because iPad sells for $499. Even if the HP webOS tablet is better than iPad, it still needs to be priced lower because of Apple’s strong brand and customer awareness. If Apple lowers the price of iPad to $399 once iPad 2 is unveiled, HP webOS tablet will need to be priced $350 or lower (these are unsubsidized prices).
3) HP needs to announce extensive and enhanced webOS third-party support with demonstrations from a number of leading gaming companies and other popular app makers demonstrating their iOS apps now ported to webOS devices. A new app store with some easy form of monetization would help.
4) Don’t give these new products silly, long-winded names. I think HP should stick with one version of a phone and one version of a tablet. HP will have more luck creating the required enthusiasm and emotional connection to webOS if all the attention is put on one product and one name. Why spread out your resources on a bunch of mediocre devices when you can release one good device?
Wild Card: HP can unveil some surprises such as completely new form factors or new technologies that Palm was working on before running out of cash. Things that make one go hmmm.
What I am afraid HP will do on February 9th (I really hope I am wrong, but we will see):
1) Have no demo units (part of me is afraid they might not even show finished units on stage).
2) Pricing will not be released or discussed.
3) The lack of third-party interest will continue to be questioned, in which HP will simply say developers are really interested in the platform and they cant wait until apps start arriving.
4) HP will announce an extensive line-up of phones and tablets with silly names and useless features. People will forget their names and which product is which a few hours later.
5) HP wont announce any of this stuff and will simply talk about webOS 3.0.
HP webOS has potential, but in a mobile phone space where powerhouses like Microsoft are struggling and in a tablet market where Motorola and Samsung are having a hard time matching the right price points, HP will need to have luck in its corner for webOS to have a chance in this hard fight.
"iPhone Impact on Verizon" For Dummies
Verizon with iPhone
Verizon with no iPhone
There will be a pop quiz next Wednesday. So take notes!
Big M&A Not in Apple's DNA
What will Apple do with its $50 billon cash hoard, which is growing nearly $20 billion annually? On January 6, a Bloomberg article-stating that Apple was shopping around for a new CFO-led some to think that Apple is interested in picking up its M&A pace. In recent months, rumored Apple targets have included Disney ($75 billion), Sony ($40 billion), Netflix ($10 billion), and Twitter ($5 billion).
Steve Jobs, Apple’s CEO, stated on Apple’s most recent earnings call:
[Apple] strongly believe[s] that one or more very strategic opportunities may come along that we’re in a unique position to take advantage of because of our strong cash position. And I think we’ve demonstrated a really strong track record of being very disciplined with the use of our cash. We don’t let it burn a hole in our pocket, we don’t allow it to motivate us to do stupid acquisitions. And so I think that we’d like to continue to keep our powder dry because we do feel that there are one or more strategic opportunities in the future. That’s the biggest reason. And there are other reasons as well that we could go into. But that’s the biggest one.
While Steve sure sounded like Apple is looking at a huge M&A deal, I don’t expect Apple to acquire any large companies (which I label as anything with a $3 billion and higher price tag).
Company Culture. It is an understatement to say that Apple’s corporate culture is unique. Apple managers have roles that are not typical in other companies, with more time spent on actual product development and brainstorming. Apple managers rarely just manage. Former IBM executive Mark Papermaster reportedly left Apple only a few months on the job as SVP Devices Hardware Engineering due to cultural incompatibility. On top of that, Apple had spent months trying to fill the SVP Hardware position before settling on Papermaster. It is tough for Apple to fill its top ranks due to its unique culture. If Apple were to acquire a company with a large workforce, it would be tricky to assimilate these new Apple workers to the culture that has led to so much success. Conflicting company culture is one of the biggest reasons for failed M&A and that rings even truer in Silicon Valley.
Company Structure. As I discussed in a previous AAPL Orchard post, Apple’s structure allows decision makers to come in contact with everything that is shipped to the consumer (Macs, iPhones, iPads, etc) and more importantly everyone who is in charge of the product (designers, engineers, marketers, etc.). Ideas are not bounced off of committees. Finished products are not required to get a certain number of approvals. I know of few, if any, large companies with a similar structure. For Apple to acquire and assimilate a company with a management structure reminiscent of a Egyptian pyramid, more than luck and hard work would be needed.
No Prior History for Large M&A[1]. Apple has never acquired a large company. Apple’s largest acquisition was NeXT in 1997 for $404 million ($540 million inflation adjusted). Recent acquisitions P.A. Semi and Quattro Wireless were $278 million and $275 million, respectively.
What is the right kind of M&A for Apple?
Peter Oppenheimer, Apple CFO, on Apple’s F1Q10 earnings conference call was pretty clear:
[Apple] occasionally acquire[s] small companies from time to time for their technology and talent. That is why we do it.
Tim Cook, Apple COO, shed more light on Apple’s M&A strategy at an investor conference in 2010.
[Apple has] always been about making the best product, not having the highest market share or the highest revenue, and so acquiring a company so our revenue gets larger isn’t something that drives us.
I think Tim Cook’s quote is important. Apple is focused on making the best products, not growing it’s earnings. Steve Jobs knows great products drives great earnings and Apple will never follow any other rule, or its continued success will be in jeopardy.
As an example, would Apple acquire Twitter? Would Twitter help make Apple’s current product lineup better? I don’t think so. (I am not even considering Twitter’s financials and possible sale price)
So what will Apple do with it’s cash?
1) Acquire talent to plug any holes in Apple’s current team and resources. I suspect some software team acquisitions may be in the offering as distinguishing software will become even more important for Apple to set itself apart from the competition. Buying smaller teams of outside talent makes company assimilation, from both a culture and company structure viewpoint, easier to accomplish. A small group of acquired software engineers can be quickly lumped within the iTunes or iOS team without much disruption.
2) Long-term agreements (aka “strategic opportunities”) for product components. In 2009, Apple paid an up-front cost of $500 million to enter into a long-term agreement with Toshiba for NAND flash chips. Recent rumors include Apple partnering with Sharp and Toshiba to build LCD factories with a price tag over $1 billion. Apple faces supply constraints whenever a new product is released and I expect Apple to pour billions into its infrastructure, forming new partnerships to guarantee that components are available, and at a good price, when needed. Finally, Apple needs additional investments, such as the $1 billion data center in North Carolina, to support and grow its current product lineup.
3) I don’t expect Apple to buyback its stock or issue stock dividends in the near term.
All of these investments and cash outlays won’t end up costing anywhere near $50 billion, but since when was having a lot of cash that bad of a thing?
[1] Some will say it is for this reason that Apple is interested in a more experienced CFO. I would respond that Apple’s storied history is a result of no large M&A. For Apple to change course now, especially considering how its team is performing, would be shocking to me and serve as a worrying indicator that something is awry in Cupertino. I am not ruling out large partnerships or agreements with certain companies that are not in a position to be acquired (Facebook, AT&T, Comcast etc.), but these are a whole other ball game compared to an acquisition.
I love these vintage photos (if you can call a photo from the 1990s and the original iPhone introduction as vintage). You should be able to name at least two people from these photos - most likely three. If you can name all four: congrats, you are a true Apple believer. Sometimes we forget what Apple is really about. #TrueApple
Clue: First photo: H A T J Second Photo: J H A
Various Holiday Crowds
Apple
Microsoft
Verizon
Sprint
I couldn’t make it to a Best Buy, but I’m sure that’s where everyone was buying Windows and Android products for the holidays.
My Ping
Apple - this is what I want you to do with Ping:
1) Don’t make Ping into another traditional social network. I already use Facebook. I don’t need another one.
2) Make Ping all about content discovery. I am still having an awful time finding new music. Yes, I know you have genius playlists, but a lot of times it is just so impersonal and cold. I just want to “follow” my favorite music artists and see what projects they are working on, or cool songs that they are recommending. (I don’t care what kind of music my friends are listening to - I use Facebook for this)
3) Have more music artists debut new songs exclusively on Ping for a day or two. I really enjoyed listening to the new Michael Jackson songs. It’s an excellent way to let fans listen and buy new music.
4) Bring Ping to the iOS app store. I want to “follow” my favorite iOS apps and app developers. Ping could be a great way for app developers to brand themselves. Imagine an app developer having a follower list of 25,000 iOS users on Ping. Talk about easy marketing. I can already see myself following Angry Birds or Rovio Mobile and seeing what apps they recommend, if they got inspiration from other apps, or if they will be introducing Angry Birds updates. I can’t get this type of stuff from Twitter or Facebook.
5) Please do all of this in 2011. If you wait any longer, music artists and other content creators are only going to be strengthening their Twitter and Facebook presences. If I was a content creator, I would give iTunes and Ping (and all of those credit cards attached to Ping profiles) some attention.
Thanks
(P.S. Apple - I already know you are doing all of this, but just make believe I am the first one telling you)
iPhone Can Still Beat Android in Smartphone Market Share
On smartphone battlefields where iPhone hasn’t yet arrived, Android is winning the battle.
It is premature to declare Android the eventual winner in the smartphone market share race, even with Google now activating 300,000 Android units/day. Steve Jobs noted on Apple’s recent quarterly earnings call that there is "no solid data" on Android phone shipments. For this argument, let me assume Google is actually selling 300,000 Android units/day (27 million/quarter). Apple sold 14.1 million iPhones in the most recent quarter and is on track to sell 15-16 million iPhones/quarter.
How can iPhone outsell Android if these sales numbers are correct? Here are the reasons why I think iOS can still beat Android in terms of smartphone unit market share:
1) iPhone (4 and 3GS) is outselling Android (dozens of models) in markets where both iPhone and Android are competing face-to-face on the same carrier.
iPhone dominates European mobile ad market
Mobile OS usage; iOS #1 in North America, Europe, and Australia
When a customer has the choice between iPhone and Android, side by side, they are choosing iPhone.
(I recognize that these links rely on data that carries a number of disclaimers and is often based on some sort of survey, to which I say, show me clearer evidence. With Google, mobile carriers, and phone manufactures not releasing actual Android unit sales figures, what other type of evidence can be obtained on a regional basis? The only surveys and evidence that even try to depict OS mobile market share continuously point to iOS leading Android in regions where both are sold on the same carriers)
2) Verizon. Android has received a ton of attention and mind share due to its strong hold on Verizon’s 90 million customers. While a few million Verizon subscribers have jumped ship over the past three years to buy iPhone on AT&T, the majority haven’t due to high carrier switching costs, including termination fees, sticky family plans, and differing coverage areas.
Why are Verizon customers buying Android phones?
A) Coming from a feature phone, any Android phone will appear amazing. The ability to use the internet or check email on a touchscreen is truly amazing for someone coming from a basic phone.
B) Android phones are in front of Verizon customers. Most Verizon subscribers pick a phone from the selection that they see in a Verizon store or kiosk. If the only thing a customer sees is Android, chances are good that they will buy an Android phone.
C) Verizon customers have few options: stay with a feature phone, buy Android, or leave Verizon and buy iPhone on a network that doesn’t support phone calls due to their awful coverage and service. Which option would you choose?
In addition, with Sprint and T-Mobile not selling the iPhone, Android has the perfect incubator to flourish - a market of about 180 million subscribers with no access to iPhone (AT&T has 90 million subscribers).
3) Interesting Android developments in recent weeks have actually supported my thinking that iOS isn’t in as bad shape as some may say. For example, the Samsung Galaxy Tab has sold 1 million units in its first 28 days - nearly as fast as the iPad - pretty remarkable.
Although the Galaxy Tab is a tablet computer and not a smartphone, I think there is an interesting development to be seen from this data. The Galaxy Tab has done well thanks in part to its sales in South Korea, a country where android has 80% market share, a country where Samsung is a source of national pride. Reports indicate that approximately 50,000 - 70,000 Galaxy Tabs were sold in South Korea in the first 28 days (the Galaxy Tab went on sale in a total of 30 countries). What about iPad? In South Korea, the the iPad just went on sale three weeks ago and initial sales are already on par with Galaxy Tab and I imagine iPad sales will soon exceed the Galaxy Tab. The Galaxy Tab entered a market that was void of iPads, with people eagerly wanting to get their hands on iOS.
Google VP of Engineering Andy Rubin recently said, “After the US, (Android) saw Asia go crazy” with sales in South Korea going “berserk” in the past four months. Once again, it’s funny how Android is doing so well in South Korea. How about iPhone? Well, South Korea recently decided to allow iPhone sales in South Korea. So Android was doing great in South Korea, a country where iPhone was banned. A true battle is one where both sides are present.
China is another interesting story. China Unicom, China’s second largest mobile carrier with approximately 175 million customers, is the exclusive provider of iPhone in China. Last year, the iPhone unveiling was a disaster in China due to restrictions imposed on the device by the Chinese Government. In 2010, iPhone 4 is a complete success with over 200,000 pre-orders being taken for the device and curbs having to be put in place to control the buying frenzy in Apple stores. Overall though, Apple still has a small presence in China with only four retail stores and the largest mobile carrier, China Mobile and its 570 million customers, still not carrying the iPhone. A true battle is one where both sides are present.
My thesis will be validated, or disproven, by Verizon iPhone data in 2011 (and possibly by China Mobile carrying iPhone in 2011). If Verizon sells the same number of iPhones as AT&T (somewhere in the neighborhood of 10-15 million in the first year), my thesis will most likely hold true and iOS will be the top selling smartphone platform in the U.S.
Music Wars: Facebook vs. Twitter vs. Myspace vs. Ping
Curious as to how Ping adoption rates were doing, I compared several popular music artists on Facebook, Twitter, Myspace, and Ping as of 10:45 am December 11, 2010. I also looked at the number of original updates posted on Friday (December 10) by each music artist.
Justin Bieber
Facebook: 16,672,233 fans (original updates: 7)
Twitter: 6,295,146 (updates: 17) (38% of FB fans)
Myspace: 1,118,446 (blog updates: 1) (7% of FB)
Ping: 0 (updates: 0) (0% of FB) - No Ping page
Lady Gaga
Facebook: 24,578,788 (updates: 1)
Twitter: 7,325,965 (updates: 1) (30% of FB)
Myspace: 1,420,540 (blog updates: 0) (6% of FB)
Ping: 635,799 (updates: 0) (3% of FB)
Michael Jackson
Facebook: 25,158,445 (updates: 2)
Twitter: 264,761 (updates: 4) (1% of FB)
Myspace: 1,008,716 (blog updates: 0) (4% of FB)
Ping: 76,826 (updates: 0) (<1% of FB)
Coldplay
Facebook: 8,401,093 (updates: 1)
Twitter: 3,287,929 (updates: 2) (39% of FB)
Myspace: 665,719 (blog updates 0) (8% of FB)
Ping: 427,010 (updates: 0) (5% of FB)
Atomic Tom (band playing song using iPhones on NYC subway)
Facebook: 37,799 (updates: 2)
Twitter: 2,674 (updates: 2) (7% of FB)
Myspace: 12,318 (blog updates: 0) (33% of FB)
Ping: 2,447 (updates: 0) (7% of FB)
Quick Observations:
1) Facebook pages are killing the compeititon. Pages are easy to navigate and include gift shops and song previews. Comment threads are packed.
2) Lady Gaga had the option to buy songs on Facebook through iLike (which has deep partnerships with Myspace and Facebook).
2) Twitter had around 30% the number of Facebook followers. Smaller bands have much smaller twitter follower lists. Combined, Myspace and Ping had, on average, less than 10% the number of Facebook followers. Atomic Tom had a much bigger representation on Myspace and Ping compared to Facebook and Twitter. Will lesser-known artists/independent musicians turn to Ping?
3) Music artists have more fans following their Myspace page compared to their Ping page, but Myspace pages seem very cluttered and slow.
4) Maintaining four different fan/music pages seems like a difficult task and very redundant. Original updates were minimal across the board with even twitter updates kept to the occasional promotional tweet (not fun to read).
5) From the music artist’s point of view, which page is most important? Whichever offers the best spot for music fans to interact and buy music.
Facebook is currently the best spot for fans to interact. Besides Lady Gaga having the option to buy music using iLike, every other artist mentioned in this post relied on Facebook fans going elsewhere to buy their digital music, with iTunes remaining the easiest option.
Facebook + iTunes integration - watch out. (Could this be the reason why Apple and Facebook can’t seem to agree on Ping?)
Two articles on the disagreement between Facebook and Apple on Ping:
This post was compiled while streaming Michael Jackson’s new album “Michael” through Facebook.
Making Big Bets and Controlling Risk - How Apple Succeeds
I get to hang out with some of the most talented, committed people around, and together we get to play in this sandbox and build these cool products. Apple is an incredibly collaborative company. You know how many committees we have at Apple? Zero. We’re structured like a start-up. We’re the biggest start-up on the planet. And we all meet once a week to discuss our business. - Steve Jobs D8 Conference June 1, 2010
Success in Silicon Valley results from placing the right bet at the right time. When analyzing the competitive landscape, knowing who is capable of making big bets is crucial.
Apple is among a select group of firms capable of placing bets big enough to change the world. How? Apple’s corporate structure helps to control risk.
Apple’s start-up mentality begins with a small number of shallow groups - all leading back to one central visionary. There is no confusion what Apple’s groups are: Mac, iPod, iPhone, iPad, iTunes. Everything else comes second and can be folded into one of those categories (don’t forget about R&D and Steve’s “special projects” either).
Apple relies on resource prioritization. Upper management may spend most of their time working on iPhone in the weeks leading up to the annual iPhone announcement, only to shift to Mac in the weeks leading to the annual Fall Mac announcement. Meanwhile, support staff designated to each individual product are busy year-round preparing for future product revisions, all the while guided by strict deadlines. It is for this reason that Apple is quick to kill product lines based on old technology and other unsuccessful ventures. All resources are geared to the future.
This structure lets the decision makers (upper management) come in contact with everything that is shipped to the consumer (Macs, iPhones, iPads, etc) and more importantly everyone who is in charge of the product (designers, engineers, marketers, etc). Ideas are not bounced off of committees. Finished products are not required to get a certain number of approvals. Decisions are made at the top quickly and decisively.
How does this corporate structure relate to placing big bets?
Apple is able to translate a big idea (big bet) into reality with very little friction and inefficiency. The biggest risk enters the equation on the demand side - whether consumers want the product. All other variables (risk factors) are controlled by Apple’s corporate structure - the supply chain is ready to go, designers have run their ideas by upper management, engineers have been given their tasks and deadlines, and marketers know the message to send. The machine remains well-oiled and ready to go.
Most importantly, this machine can be turned on by the main operator (Steve Jobs) one day and be turned off the next, with little impact on any other product.
Steve Jobs makes bets. Big ones. The iPod was a huge bet. Back in 2001, people had big money invested in CDs and iTunes was still a few years away. Apple took another huge risk with iPad. Would consumers and third-party developers be interested in a tablet form factor? How would iPad cannibalize MacBooks?
Apple needs to take risks to control where technology is heading. As long as most of the risk variables are monitored and marginalized to a certain extent by upper management (and Steve Jobs) -the consumer is left as the biggest risk. Apple can then rely on its brand power to turn the odds in their favor.
Apple iPod Event - 2001
Always fun to look back at prior technology unveilings - especially those put on by Apple.
How many people thought this was a big deal back in 2001? And to think…the iPod Touch is a direct descendent of the iPod unveiled by Steve in this video.