Wednesday, March 2, 2011

Thoughts on iPad 2 announcement and Why I Think Apple will continue to win

ipad 2
Taking a break from cloud computing I want to give you my quick take from the Apple iPad 2 announcement and why I think they will continue to dominate (and destroy some) in the tablet market.

There was nothing earth shattering in the announcement (until I saw the first video demo on Engadget).  It's a very nice bump to the hardware and blazing fast, giving them more capability.  After the break I'll drill down on why I think they will continue to dominate.

Apple meets or beats every one of their competitors at the hardware tech level:
  • No one is as thin
  • No one is as light (except smaller PlayBook)
But coming close to Apple specs isn't enough to win or even do well in the market.  You have to kick their ass at something, anything, to get some air time because they suck the air out of the room.  My favorite quote to date is regarding potential iPad killer is "stop talking iPad potential killer and just buy an iPad".

Below are the thoughts I have as to why Apple will continue to dominate in the tablet market.
Note, if I reference "droid" I mean "Android" operating system and the tablets that use it (I like the shortened name better).  Also "iOS" is the name of Apple's operating system used in iPhones and iPads, and iPod touch devices.
  • iPad is a known entity now.  
  • Apple sets the bar for usability and kick-butt UI.  Android OS is slowly eroding this advantage but they are still a year or more away and need to get better and more rock solid faster than Apple can innovate.
  • Looking at this video, Apple sets the bar very high for graphics speed and fluid feel
  • App store.  The Apple app store has 900 gazillion apps compared to 100 for droid.
  • Speaking of apps, how bad a hit will Android take over the 50 malware (virus infected) apps recently removed from their app store?  That news story has the potential to really hurt them no matter the actual impact.  If people see Apple as preventing the virus nightmare we have on PCs today vs. droid being yet another potential security software nightmare in cost and CPU slowdowns the reputation of Android will really take a hit.
  • Apple designs the hardware and therefore can really control the experience and generate the love.  Most everyone else (but HP and Rim) have to play system integrator and hope the love happens.  When the new OS arrives on the market, integrators hope it works with the existing hardware.
  • Every one of Apple's products enhances the brand, no cheep junk or duds on the market right now.  They are on a roll.
  • Apple has been doing tablets for over a year so you have to catch up and pass them and then stay ahead of them.   It's not going to happen in 2011 or possibly 2012.  Apples iPad 2 is being release to consumers on March 11th, making it the second version to hit the market before many of Apple's big potential competitors have shipped their first tablet.
  • Can you beat Apple at price?  This is the one area that I thought the new entrants would try to take a shot at Apple, but I have not see any of the top three even challenge them.  HP hasn't announced but I have to think that anyone would be hard pressed to undercut them on a workable Android OS (Honeycomb) device.  Apple must have some nice supply chain deals by now given their size.  They just locked in manufacturing capacity of LCD screens for their stuff. That must hurt the other guys trying to get a piece of the action, and I dare say the price of playing just went up.  In addition, Apple benefits from a 30% take on app store purchases.  The revenue stream may allow them to price even lower knowing the total revenue stream far exceeds margin on the device itself.
    iPad starts at $500, same as last year and unexpected as well)
    According to this, HP could be priced at $699.
    Motorola Xoom is starting at $800
  • I'm not sure people think about accessories but one of the things Apple benefits from is the gazillion accessories that are out.  Because Apples doesn't change the device interface or device size/shape all that much from iteration to iteration, all the new hardware works with the loads of accessories that are out there.  Will you get that with Xoom or Palm or a droid phone?  Maybe for a single unit but when the new stuff comes out they normally change the shape, size, interface etc. Again, I'm not sure people think about this.  Droid device owners love my boombox, and lament that they have to jerry rig something together for their droid phone (and oh, yeah, all the droids in their household are different).  The side effect here is that when you walk into a store like Brookstone or look at the in-flight catalog that is packed with accessories for the iPhone and iPad, it's just one big advertisement for Apple products.
  • Apple announce that they have shipped100 million iPhones.  This gives Apple huge brand awareness in addition to it's iPod line, and it's growing.  Apple wins from brand loyalty, and if nothing else, the fact that users know the experience will match or be better than what they have, and that they are familiar with the UI lowers the learning curve.
  • iPhone and iPad app compatibility.  Most iPhone apps run on the iPad with a lot of iPad only apps being made to take advantage of the larger screen.  I'm not sure if users think about this but if you own an iPhone it's pretty much a slam dunk.  There is currently an issue with Android apps not running on the Android tablets.
  • App market fracture.  With iPhone you have one application store (if you didn't "jailbrake" it).  Droid may see a lot of app markets spring up.  Amazon is talking about launching an app market.  Since this fragmentation hasn't really happened yet it will be interesting to see if this impacts people's perceptions.
  • If you buy an iPad, you most likely will receive and be able to take advantage of all the updates to the OS.  Research shows that most people stay pretty much on the latest release of iOS for the iPhone (I've seen numbers of 80+%) but I haven't heard about iPad.  At issue here is the fact that there is a lot of incompatibility between droid hardware devices that may creep in as manufactures release new hardware.  Because Apple controls their hardware (and there aren’t 100 versions of it), they avoid the upgrade issues.  Also, as new updates come out from the droid development team, you have to hope that the manufacture of your hardware will port the new OS to your tablet so that you can take advantage of the new features and fixes.  Also, the telco operator needs to agree to release it as well.  As fragmentation expands, the ability to test against all the various hardware devices becomes a nightmare. A recent example of this issue arose for Windows mobile phone users.  When Microsoft started pushing out an update to their OS, they bricked (turned the phone into a paper weight) phones from Samsung. Will users care?  Only time will tell.
  • Apple stores give users the "warm fuzzes" of ownership.  You can always stroll into a Apple store to get help or support.  The other thing Apple stores do is provide another avenue for Apple marketing.  It's diabolical in its design :)
  • The one interesting threat to Apple dominance is the latest stink about the app store over pricing and the control issues.  If it becomes an issue, it's easy for Apple to tack & change direction on that.  Why give up on price if it won't hurt you.  It's like having extra ammo.  You set the price, if it's an issue, you just drop it and destroy the advantage the other guy thinks he has (assuming you have margin to do that).
  • Finally...  Competitors will continue to enhance droid OS and close some of the gaps but who can touch the cool apps from Apple, like garage band and iMovie?  These are really cool apps for $5.  As competitors are working away, Apple will come out with the next iOS, apps, etc, and developers will continue to do some kick booty apps for the iOS franchise.  Because of these applications, people don't see the iPad as a tablet computer but a instrument for playing music, or reading a book, or navigating.  This is a key concept in the post-PC era.  It's no longer about hardware, its about the doing of stuff.
Market wise, there is a lot of money on the table and if Apple only had one competitor out there the competitor would have a nice take home.  The problem is, HP, Motorola, Sanyo, kim-hop-sing, and the rest of them are all fighting for the leftovers on the table and split that part of the pot up among them.
I agree with Bill Houle regarding the halo effect.  This is where things like Garage Band and other apps translate directly on the Mac and the brand and usability drives users to buy other products from Apple like the Mac. Buy Apple stock!

It must suck to want to compete against Apple right now.  If you work for HP Palm division or Rim, you must have a fire under your tail all the way to midnight right now (hardware, supply chain, marketing, software, dev relations, and more).  Apple really does marketing well and every dollar spent goes directly to their franchise whereas Motorola marketing dollars only support a particular product.  In addition, they benefit from a lot of free marketing since you can't open a gadget catelog without seeing all kinds of devices just for iOS products.  Unless companies like HP and Motorola can start creating a mobile brand or franchise, this gives Apple yet another advantage.

I say bring on the competition.  It will continue to drive innovation.  According to Businessweek article discussing the fact that Microsoft won't really enter the tablet market until late 2012 they say
    "Competition among tablet makers is growing, with more than 100 new designs entering the market this year, according to In- Stat. The market for tablets will grow to 118 million units by 2015, the Scottsdale, Arizona-based consulting firm said in a report today."
Apple users are looking at what HP is doing with their integration of their phone and touch pad as well as the  less invasive notification UI, and saying "I want some of that" (I know I am).

Updated Related Info

  • Here is a counterpoint from the "speeds and feeds" perspective.
  • Samsung Chief Exec trashing their own product, helping me make my point.  It's not just the technology, it is the mashup of art and tech (or I've been assimilated by the Apple marketing machine and just don't know it).
  • Daring Fireball does a better job of describing the real gap between Apple and it's competitors, the "feel" of the thing.  The fact that it's becomes not a computer but the thing you are interacting with (drums, editor, etc).

 -Chris Claborne

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