Tag Archives: ipad

What is the iPad Mini For?

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Many saw the launch of the new iPad mini as the latest sign that Apple has lost its way. Trip Chowdhry at Global Equities’ reaction to the announcement exemplified this viewpoint: “Key take aways: Innovation at Apple is over.”

The thesis goes like this: the scaled-down iPad is not a new product but a line extension, with no raison d’être other than to plug a gap between iPhone and iPad as a competitive defense against lower-priced devices like Amazon’s Kindle Fire and Google’s Nexus 7. My friends shake their heads in puzzlement: Apple’s not supposed to imitate rivals and fill in spaces on a chart. They’re supposed to develop revolutionary, blue-ocean products. They’re supposed to redefine how people think of computers. Apple must have lost its mojo.

These people are wrong. Apple is following the same playbook it has for the last fifteen years – redesigning the computer to perfectly fit underserved jobs-to-be-done.

Steve Jobs deeply understood that the personal computer is the most powerful and flexible tool ever built, yet it was trapped for decades in a shape Apple itself created – a box with a monitor, a keyboard, and a mouse. Put computing power in any other form factor and no one recognizes it. We saw the iPhone as just a flashy smartphone, rather than a disruptive minicomputer. The iPad was just a big iPod Touch. And the iPad mini is just a shrunken iPad, right?

The problem is that at first, we see these devices in terms of their appearance and features. What we don’t see is how we’ll use them. When the iPad was first introduced, more attention was paid to “missing” features like USB ports than to the facts that it could be awakened instantly and had 10 hours of battery life. But these attributes radically change how a computer will be used. Few people casually grab a laptop off their bedside table to watch a movie while lying on their side.

Apple gets this. As Phil Schiller unveiled the iPad mini on stage, all he talked about were what the tech community calls “use cases”:

“So what else can we do to help customers find even more uses for iPad, to use it in places they never imagined, in manners they never have before? … What can you do with an iPad Mini that you can’t already do with the amazing 4th generation iPad?”  

As he began to answer that question, the first thing Schiller did was demonstrate that it was easier to hold with one hand. That may not seem like a radical departure from something already as portable as the iPad, until you look at the use cases it enables. In the Apple keynote, I noticed two in particular for which Schiller reserved his most superlative adjectives. The brilliant Apple observers John Gruber of Daring Fireball and MG Siegler of parislemon and TechCrunch immediately honed in on the same two in their respective iPad mini reviews:

1) Gaming:

  • Schiller: “If you love playing games, playing incredibly amazing games, like Real Racing 2, are incredible on the new iPad.”
  • Gruber: “I was not expecting iPad 3 performance in the Mini. But it’s there, and that makes the iPad Mini great for games. I think there are going to be a staggering number of iPad Minis in Santa’s sack this year.”
  • Siegler: “[Gaming is] clearly where this new iPad is going to shine … If Apple had only made the iPad mini as a gaming device, I think it would be one of the best-selling gadgets of all time … Playing games on the iPad mini is fantastic because the device is much easier to hold for extended periods of time in the landscape position.”

2) Reading

  • Schiller: “It’s fantastic for kicking back and reading a magazine or a book on.”
  • Gruber: “The Mini feels optimized for reading”
  • Siegler: “Books, magazines, and reading apps are likely to be another big use-case for the iPad mini.”

This isn’t rocket science. People also use the regular iPad (as well as the iPhone and traditional PCs) for gaming and reading – both massive markets. But neither is really well suited for those tasks. You don’t need a 9-inch screen or a life-size QWERTY keyboard for either, and arms tend to tire holding something that weighs a pound and a half for hours. Yet the iPhone is too small. The iPad mini is perfect.

If you think about products in terms of use cases rather than features, Apple customers now have legitimate reasons to own as many as five Apple devices. It’s not hard to imagine strapping an iPod nano to your arm for your morning run, using an iPhone as your all-in-one pocket communicator throughout the workday, reading or playing games on an iPad mini to pass your travel time, doing heavy emailing and other work on a MacBook, and leisurely watching evening shows and movies on an Apple TV. All of these devices could be classified as computers of some sort, and their feature overlap is high. But Apple has built each to do different jobs. Depending on what you like to do, you may only own one or two of these, but you don’t have to settle for a device that tries to be everything to everyone.

Pundits and analysts think about what products can do, but Apple thinks about what people will do. That’s why the iPad mini is misunderstood.

In short, Apple has once again introduced a new product using familiar technology, but built for different use cases from previous products. As usual, the initial response has been disappointment. And as usual, it will sell in the tens of millions. It seems to me that Apple hasn’t changed one bit.

Amazon vs. Apple: the Gathering Storm

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Two weeks ago the Wall Street Journal confirmed earlier reports that Amazon plans to launch a tablet this fall. It’s rumored that it will have a 9-inch screen and run an Android operating system.

On the surface this looks like a terrible idea. Since the launch of Apple’s iPad last year, tech titans including Samsung, HP, Motorola, and Research in Motion have all fast-followed with their own tablets, but the outcomes have been uniformly disappointing – John Gruber at Daring Fireball estimated that, even including Nook Color e-readers, the iPad’s share of the category is in the ~95% range. As Marco Arment put it, “[t]here really isn’t much of a tablet market. There’s an iPad market.” It’s widely agreed that Apple has the best tablet OS, form factor, and specs, plus the most apps and the strongest brand. It’s believed that Apple also has a cost advantage (due to early investments in suppliers’ production facilities), enabling entry level iPad pricing that none of the other major players have been able to beat.

So trying to enter this market as the 14th or so player doesn’t sound like a smart move for Amazon. Unlike the aforementioned hardware makers, it could easily sit this game out. Or could it?

Crazy Like a Fox

Amazon is a retailer that, despite its ever-growing “A to Z” product offering, still makes 40% of its revenue – and even more of its profit – by selling software and content, like books, movies, music, and games. This media, not physical goods, is still Amazon’s selling focus. Don’t believe me? Check out the department list at the left side of its home page – right now it reads:

  • Unlimited Instant Videos
  • MP3s & Cloud Player
  • Amazon Cloud Drive
  • Kindle
  • Appstore for Android
  • Digital Games & Software
  • Audible Audiobooks
  • Books
  • Movies, Music & Games
  • Electronics & Computers <- Finally, ten items down, the actual physical stuff!
  • Home, Garden & Tools
  • Grocery, Health & Beauty
  • Toys, Kids & Baby
  • Clothing, Shoes & Jewelry
  • Sports & Outdoors
  • Automotive & Industrial

It’s often been said that Apple makes money selling devices, and uses its software and content (e.g., iTunes) to drive those sales. Amazon does the reverse. Being the content-retailer of choice is so important to them that they designed and marketed an intuitive e-reader, the Kindle, just to ensure they’d own the e-book space. (A side note: crucial to Amazon’s success here was the realization that, in the digital media retailing world, “purchasing” and “consuming” activities would converge in a single device.) Even with a beautiful piece of hardware, Amazon was clearly tempted to view it as a mere complement for their true aim (selling digital media) in a razor-and-blade strategy. Which is exactly what Amazon’s been doing: rapidly dropping Kindle prices to get devices in the hands of as many users as possible (the ad-supported version is now only $114 and, in a sense, the Kindle app in every mobile store is essentially a free version of the device). This strategy shares elements with the idea of commoditizing your complements – in both cases, a cheaper complement (e-reader) helps you sell your money-maker (e-books).

In the meantime, of course, Apple has launched its own iBooks app and store on its iOS devices, a credible second-runner to Kindle. In theory, Apple doesn’t need to have its own content stores on its devices – if customers decide they like using the Kindle app for e-books (or, say, the Netflix app for movies), that would still help Apple sell iPads and iPhones. But Apple knows that providing its own proprietary, well designed content stores and formats will increase user stickiness and earn them a nice pile of cash on the side. So Amazon built a device to help them sell e-books and Apple built an e-bookstore to help them sell devices.

In an alternate universe, a fragile peace could have emerged between Apple and Amazon, with each holding a knife against the other (a strategic phenomenon known as spheres of influence). But unfortunately for Amazon, the Kindle was only a minor threat to Apple’s ability to use e-reading to sell devices, while Apple’s “knife” was and is much bigger. Apple recently announced it has sold 222 million iOS devices, all of which have iTunes (movies and songs), the App Store (software and games), and now the iBookstore. In other words, the sheer speed of Apple’s success in selling devices has made its threat a reality: it’s already become a dominant software and content retailer.

This position has emboldened Apple to muscle Amazon around a bit. This week, Apple began enforcing an earlier threat to take a 30% cut of every publisher sale made through an iOS app (like Kindle), as well as disallowing in-app buttons that took readers out of the App Store to make a duty-free purchase. Unable to cope with such a burden, Amazon – as well as Barnes & Noble, Borders, Google, and purveyors of other types of content like Rhapsody – removed the stores from their apps on Monday.

While users can still use Apple’s mobile browser Safari to access the Kindle store and download content, this is obviously a huge blow to Amazon’s ability to retail content. Controversy aside, Apple clearly knew that most digital retailers would choose to close up shop rather than pay such huge fees. A lot of pundits have missed this point – Apple isn’t trying to make money by taxing iOS users’ purchases in other companies’ stores. It’s trying to be the only good store in town (a la iTunes), and it’s doing it by crippling Amazon’s ability to have a store on the turf Apple owns. Amazon and the other companies aren’t revolting, they’re getting run out of town.

This is why Amazon can’t sit the tablet game out. To sum up, they’re basically looking at four facts that, combined, spell big trouble for them:

  1. Selling digital content and software is extremely important to Amazon.
  2. People want to buy (and consume) digital media on highly functional mobile devices (i.e., smartphones and tablets).
  3. Apple reigns supreme in those product categories.
  4. Apple’s aggressively preventing Amazon from selling digital media on Apple devices.

The only link in that chain that Amazon feels it can attack with any chance of success is #3.

And in This Corner…

The good news for Amazon is that, because it’s aiming to put devices in people’s hands primarily to enable selling them content and software, it doesn’t have to adopt the same “me-too” strategy that’s so dismally failed the other hardware manufacturers. One big key to success is a low price: a Retrovo study indicated that this was a huge selling point to potential tablet customers, and that a price in the $250-400 range could garner significant share relative to iPads at $500-830.

Is a price that low even possible? That depends on two things – first, Amazon would have to keep costs to a bare minimum. There’s plenty of signs that’s exactly what it’s doing – from outsourcing manufacturing to a large, experienced Asian producer (possibly Samsung), to using a simpler, smaller touchscreen, to forgoing cameras. It could also save money by using lower-cost processors and chips and having less flash memory storage. But another part of keeping the price down is relinquishing device profitability. Unlike the huge margins sought by Apple, Amazon can adopt the razor-and-blade strategy (possibly even accepting a loss on each tablet sale) and try to make it up on subsequent revenue from the digital media users buy on the device. Through a combination of these two tactics, I bet Amazon could price a tablet below $300.

The second big key to success, however, is the right user experience and capabilities. Some, such as MG Siegler, doubt whether customers would even want a stripped-down tablet from Amazon. But I believe it has an opportunity here to capitalize on its strengths and create the ideal content discovery and consumption device, rather than the ultra-flexible machine Apple’s designed. Imagine a tablet perfectly designed to find, buy, and consume books, newspapers and magazines (via the Kindle app), audiobooks (via Audible), music (via a rebranded Amazon MP3 and Cloud Player), movies and shows (via Amazon Instant), games, and other software (via the Appstore for Android). Running the Android Honeycomb OS, the tablet could tightly integrate these features in a simple interface with Amazon’s Cloud Drive for storage and syncing, Amazon’s excellent loyalty program Prime (with perhaps a free year’s membership), and an improved recommendation engine for discovery. General tablet functionality like web browsing, email, and social media would be key secondary features, while more advanced apps and capabilities – perhaps including 3G service – might be absent altogether. In many ways it might resemble a better-packaged Nook Color.

Could Amazon pull this off? Despite not yet having a tablet, Amazon’s brand is strong enough that a majority of potential tablet customers would consider buying it based on name alone. If Amazon nailed the pricing and user experience described above and added some brilliant marketing, I think it could be the first non-iPad tablet to sell in the multi-millions. That’s not the whole battle, though – Amazon would still have to convert enough digital media purchases to make it all worthwhile. Here’s where Amazon’s strengths in retail, pricing, and loyalty could really pay off. Amazon also just signed up 100 newspapers and magazines to deliver full-color issues to subscribers in the Kindle app, a sign that content creators still have faith in Amazon’s experience in selling and delivering digital media.

Ready for War

Any way you slice it, Amazon is making a huge bet by entering the tablet market. I don’t think anyone realizes how high the stakes are for them, and thus for Apple too. On the one hand, Amazon’s success with the Kindle, combined with CEO Jeff Bezos’ strategic direction (and the inevitable feeling of having one’s back against the wall) bodes well for an Amazon tablet. On the other hand, selling an Amazon tablet means convincing consumers not to buy the most successful consumer product ever. The last thing I would tell a company that spends half its energy battling Walmart would be that it should start spending the other half going toe-to-toe with Apple.

But Amazon is gritting its teeth and marching onto the field. The clouds have gathered. Get ready for a rumble.

It’s the Brand, Stupid

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There’s a lot of discussion going on about whether – and why – consumers will choose to buy tablets (mostly running Android) other than the iPad, and, to a lesser extent, smartphones (mostly running Android) other than the iPhone. As usual, pundits and analysts predict that Apple’s dominance must inevitably erode, while John Gruber (@daringfireball) and a few others argue that they’re wrong. Gruber calls the debate “perhaps, the most polarizing topic of punditry in tech today.”

The pundits’ argument is based on sensible Econ and Strategy 101: Apple is making a killing now, but that’s because it was first out of the gate with these products, and without some kind of protective moat, all good things must pass, right? Apple doesn’t seem to have an insurmountable barrier or killer app (like iTunes with the iPod). Therefore, the fast followers will catch up on Apple’s hardware capabilities and apps, and price-compete their way to share. The only question is how long it will take.

One big counterargument, of course, is that Apple has core competencies that not only got it out of the gates first, but enable it to run faster too – particularly in innovation and design. By the time Samsung caught up to the iPad, the iPad 2 was already around the next corner.

In the tablet market, Gruber, John Paczkowski and others make a second argument too – that catching up to Apple isn’t good enough. To really win, a competitor like Samsung, RIM, or Dell has to provide a good answer to the question “why should somebody buy this instead of an iPad?” But this only hints at the much bigger moat Apple’s built around itself: its brand.

Many techies see a brand as an elaborate marketing ploy companies use to appeal to the emotional part of consumers’ minds, and a lagging indicator of success. In other words, you can fool consumers for a while, but your brand will stay strong only if the products are; either way, a brand doesn’t itself create lasting success.

This misapprehends what a brand really is: a promise in the mind of consumers. Unlike, say, five years ago, today most of the extremely high value of Apple’s brand doesn’t come from its ads, its fanboys, or even its retail stores. It comes from average consumers’ experiences.

Imagine a non-techie thinking about buying a new smartphone or a portable computer. Even if she’s never been in an Apple store, there’s a decent chance she got an iPod Nano as a present at one point. More importantly, she almost certainly knows many people who have bought an iMac, iPod, iPhone, MacBook, or iPad over the past decade, in various versions and combinations.

What impression of Apple has this given her? Almost certainly, it’s been overwhelmingly positive, because Apple hasn’t launched a crummy new product in a long time – and that includes both new-category (iPad 1) and next-gen (iPhone 3GS) devices. And here’s the key – when it comes to sales, it’s OK to have a bunch of misses, so long as you have a few big hits. But with a brand, misses hurt. People hate wasting money, and they know they’re taking a risk when they buy a major new piece of technology, same as when they go to a pricey new restaurant. If people talk about how a product kind of sucks, that won’t just hurt sales of that product – it hurts sales of the next one too. The opposite is also true.

Four or five years ago, even if you heard great things about Apple products, it was still acceptable to brush them off – sure, the iPod was cool, but I’m not sure about this new phone. But now, in consumers’ minds, Apple has been batting pretty close to a thousand for a decade. And that’s its best asset – the fact that you can’t sneeze without hitting five people who’ll tell you they love their iPad, will never switch from their iPhone, or that their Macbook “just works” – and zero who say otherwise. In other words, it’s the brand. We’ve been surrounded by great Apple experiences for so long now, we’ve been trained what to expect – if Apple announced it was coming out with a washer/dryer, we’d laugh, but we’d also immediately form some positive expectations about how it would look and function.

That’s why it’s getting harder to defend buying anything but an Apple product: simply because you can be confident you’ll like it. Tech mavens might always be willing to adopt the “best” product, but most consumers are more wary. If Samsung, RIM, Dell, or anyone else today announced a tablet that had 13 good reasons why everyone should buy it instead of an iPad, tomorrow most people would still buy iPads, because the one reason that really matters to the average Joe is risk. Technology is complicated and often disappointing, but Apple’s brand credibly promises people that they’ll love the next thing they buy that has a little bitten apple on it. Other tech brands can’t do that without sounding like the Boy Who Cried Wolf. And one great product won’t close the credibility gap – they’ll need a decade of great products, with almost no misses. The kind of trust Apple’s built up creates incredible momentum. That’s why the “tablet market” is Apple’s to lose.