tablets – Page 6 – Tech.pinions

Why the New iPad is Revolutionary.

Not long after the new iPad was announced, story after story was written that this new iPad was evolutionary, not revolutionary. But I am not convinced that is a correct viewpoint. In fact, I believe that this new iPad will actually have a revolutionary impact on the market in some very interesting ways.

Some Historical Perspective

Back in 1981, I wrote the first report on what was to become desktop laser printers. At the time, laser printers were as large as mainframes and took up much of a 9’ X 12’ room. But I had seen Canon’s laser printer engine and wrote in this report that by using this type of technology in potentially desktop sized printers, I could imagine a day when we could publish documents on our desktops. Now, this was three years before postscript laser printers hit the market and before Aldus’s Pagemaker was introduced.

Not long after this desktop sized laser printer engine was shown to Steve Jobs, he made a fortuitous decision to build an Apple laser printer of his own. And after being convinced by John Warnock (co-founder of Adobe) to include Postcript as its software engine, Jobs put in place a key component of technology that would put Apple on the map. Not long after that, Paul Brainerd created a Mac product called Pagemaker and together, these two products launched the desktop publishing revolution. Although Jobs embraced both products, I am pretty sure he and even the team at Apple never really understood the magnitude of these products impact on the world of publishing at first. For Jobs, the decision to back a desktop laser printer was totally out of order given Apple’s PC centric business model and those around him argued loudly with him about doing this product.

But we now know that Steve Jobs’ stubbornness about introducing a laser printer had its roots in his desire to have a digital version of his calligraphic type fonts replicated through this printer. And from that point on, while at Apple until mid 1985 and at NeXT, the issue of high quality graphics took center stage on every product Steve Jobs touched. And when he came back to Apple, this was still top of mind. By the way, I worked on multiple desktop publishing marketing programs for Apple, MacWorld and various hardware and software vendors who were doing DTP like products then and saw up close how Apple single handedly rewrote the rules of electronic publishing, something we now take for granted and use every day when we create our own newsletters, Web pages, etc.

The New iPad

In the column I wrote not long after the new iPad was launched, I pointed out that from the inception of the iPad, Jobs wanted it to have the highest resolution screen possible but that at the time of the release of the first two generations of the iPad, the technology was not there to deliver the real iPad he wanted to give his customers.

But it was always on the roadmap and they had to do some serious engineering between their team and their partners to get us this new iPad to this incredibly high resolution. And with it, I believe Apple is ready to have another revolutionary impact on the market via one of their products.

One good example of this will be in medical applications. Although doctors and hospitals have actually been adopting and using iPads in pretty big numbers, this new iPad will become a must have tool soon. The reason is that with the older iPads, the information they were processing on it was mostly data driven. But as you know, doctors rely on a lot of things like xray’s and digital imaging to help them make key diagnostic decisions. For final analysis they will always defer to industrial strength 10K graphics workstations, but the new iPad with its high resolution screen will now be able to give them on-the-go images that can deliver much more imaging details then they had on their original iPads. This will become an important part of their ability to do immediate analysis and will now become the minimum level of tablet graphics quality they will accept in their medical practices.

Another example will be its impact on catalogs. Apple recently released the new catalog category in the iTunes store but I have talked to some catalog vendors who consider today’s tablets inferior for delivering the graphics quality they demand in their print catalogs. A good example might be Restoration Hardware. They pride themselves in delivering one of the greatest graphics quality catalogs on the market and would have never even considered doing a digital version for the older iPads. But for them and any other vendors for whom high quality images are critical to their catalog sales processes, the new iPad will be revolutionary for them. According to Joaquin Ruiz, CEO of Catalog Spree “With ultra-sharp pictures, text and video, the new iPad is perfect for all forms of publications. March 7, 2012 will be remembered as a landmark for publishers from news, to retail, to education, and to books.

The folks involved in engineering, oil and gas exploration and nuclear energy research will also see a higher resolution iPad as a welcome mobile tool that will become a key part of their on-the-go digital tool-belt. And don’t count out this high resolution iPad’s role in education. This new iPad will deliver a much closer representation of textbooks, especially ones that have a lot of images, graphics and diagrams, and to students it will become the minimum resolution they will accept in a tablet that will soon carry all of their textbooks.

When Steve Jobs introduced the iPhone, he said he would be happy if Apple could get even 1 percent of the cell phone market. An understatement if there ever was one. And even with the iPad, while Jobs used a lot of flowery language to describe it, he was cautious in declaring what type of impact it would have on the market.

At the launch of the new high-resolution iPad, Tim Cook and team–I believe–clearly understated what this new iPad’s market impact will be. All they said was that it was a newer and better version of the iPad and that they were pleased they could deliver a new tablet with a much better screen. But don’t let that fool you.

I believe we will look back relatively soon and realize that with this iPad, Apple started another revolution that has it roots in their desktop publishing heritage and instead of desktop publishing this time around, the revolution will take place in mobile publishing. The result will be to extend Jobs and teams original mantra that was, “What-You-See-is-What-You-get,” but this time it manifest itself on the new iPad. Think of the new iPad as the new representation of Steve Jobs’ laser printer’s paper. And its influence will touch every market. It will drive what I believe will be the minimum standard in tablets as tablets become the vehicles for every form of mobile publishing content, whether it be images, video, games, newspapers, magazines or books as well as the future of the web.

The iPad and The Simplicity of the Name

What Apple did by eliminating the numeric moniker was the right thing to do, in fact it may even be brilliant. The fact of the matter is numeric values that specify product generations simply can not last forever. Companies who use them generally change product names, create new names, or add some other moniker like HD, Extreme, Maxx etc. After a while they all get old. Does anyone think this would have continued to iPad 12? or iPhone 18?

This is actually a move I have been waiting for. Ever since the iPhone 4 I have been conversing with many industry insiders that the numeric moniker needs to go away. Many commenters and some smart folks out there in the press have been rightly observing that Apple themselves have been doing this for a while with other products. The Mac is not the Mac 25 or the iPod 8 or the MacBook Air 4, etc.

More importantly another industry, where legacy brands is hugely important does not do this and that is Automobiles. I do not drive the Honda Civic 17. I drive the Honda Civic and the model is 2009. The year is largely irrelevant when someone asks me what car I drive. I simply say the Honda Civic. Car companies often delineate the brand with a value for engine size or class but the brand is what matters the most. When consumers say they are getting the new iPhone it is common knowledge that that statement refers to the most recent or newest. Therefore the name is all that is needed not a numeric distinguisher.

Numeric branding simply gets old, tired, and generally more difficult to market after a while. The brand is the legacy not the number. I hope Apple does this with the iPhone. I hope it is not the iPhone 5 and just the iPhone. It may take people a little getting used to but believe me they will get used to it, past it, over it, etc and move on and it will be better for everyone.

You know who else does this? Intel. Intel has standardized for the time being on Core i3, i5 and i7. Each year this number does not change. What you know is that you want the latest Core i3, i5, or i7. Intel, like many other companies, knows how key branding is and numeric monikers to distinguish new generations are hard to keep up. They are also entirely un-necessary.

Why may this be brilliant? Well without a distinguishing moniker I wonder how the press will be able to speculate, rumor, etc without calling out which model exactly they are speculating or rumoring etc? A title like What Apple Should Bring to the Next iPad without a numeric moniker will become redundant. Would you follow that title next year with What Apple Should Bring to the Next Next iPad / iPhone? That would seem ridiculous. Now I am sure we are not lucky enough to get away from all the ridiculous Apple speculating that goes on the media. I am sure they will adapt and figure out ways to write crazy stuff but I do think this simple naming scheme will make it a bit more difficult–or at least I hope.

We Are Entering the True Era of Personal Computing

Remember that old HP campaign “The computer is personal again?” I remember seeing that campaign and thinking to myself, when did the computer become un-personal? I’ve been cogitating on this term “personal computer” and in light of the recent debate of whether the iPad is a PC, I have come to some personal conclusions on this topic.

I would also like to preface this by saying that I agree with how Tim Cook illustrated what Post PC meant. He explained how Post PC means the PC is no longer the center. That is true. However, we are using this term “post pc” only because a desktop or notebook form factor is what has been associated with “PC.” We should not forget that the term PC literally means personal computer. So my overarching point is that we are actually in what is truly the PC (personal computing) era. My logic is as follows.

First lets look at some computing history. To do that I am going to look at the evolution of personal computing by calling out specific “eras” of computing. The first era was the birth of computing. During this era computing was in its infancy. Things like the transistor, then the microprocessor were invented which paved the way for computing. During the first stage of computing, computers were quite large and normally filled a room mostly and in the form of mainframes then eventually minis. Many visionaries dreamed of making these devices smaller so people could bring them into their homes and own their own computer. This vision paved the way for desktop computing.

Desktop Computing

This is the second era of computing. What most during this time would consider the personal computer I will call a desktop computer. The term personal came from the idea that each “person” would have one. When computers were largely mainframes or minis they were too big for each person to own. Bill Gates famously said “some day there will be computer on every desk.” This was the result of the next evolution of computing as computers become smaller and were able to now fit on desks as well as become more affordable. Of course these devices could become personal in the sense that a person owned them and could personalize them to a degree. But more personal computers were still ahead.

Portable Computing

The next era was the era of portable computing. This was the era of notebooks. Some call this mobile computing but my argument is that notebooks were really more portable computers than they were mobile. Meaning you could move them more easily than a desktop but you still sat down and were stationary using the device at arms length (generally) to type. My point is you weren’t actually doing computing while being mobile–you were still stationary.

Notebooks certainly took us one step closer to personal computing because they added an element of portability. They tended to travel with a select person who largely customized the notebook thus making it more personal to that individual. I would argue that the notebook is actually the first truly personal computer and birthed personal computing.

Now enter smart phones and tablets. The Merriam-Webster definition of a computer is:

“a programmable usually electronic device that can store, retrieve, and process data.”

Another definition I found in the dictionary says:

“An electronic device for storing and processing data, typically in binary form, according to instructions given to it in a variable program.”

So my first question is how is a tablet and smart phone not considered a computer? I also highly customize my smart phone and tablet for my own tastes and likings via software, personal data storage, access to media, and take them with me everywhere I go. So how exactly how are they not also personal? Thus one would have to logically conclude that smart phones and tablets are in fact personal computers on which computing tasks take place.

What we need to realize in this evolution of personal computing is that devices like smart phones and tablets represent a form factor evolution of computing similarly to the way the desktop form factor evolved to the notebook form factor. This evolution led to portable personal computing and it made computing possible in places that were before impossible with a desktop–like at Starbucks. The evolution of the personal computer form factor from notebook to tablet and smart phone represents the evolution to truly mobile personal computing. Again bringing computing to places not before possible or were before inconvenient–like the couch, bed, walking down the street, etc.

The Era of Mobile Personal Computers

My point earlier was that notebooks were more portable than they were mobile due to the form factor of a notebook still requiring its user to be stationary, with the device resting on a surface being used at arms length. Devices like tablets and smart phones change this computing paradigm. We can hold these devices in our hands and use them, we can move around while using them, we can use them in a range of places and situations where a desktop or notebook could never be used. Places like point of sale retail, by waiters, or car salesman, while running through the woods, while hunting, while boating, at the park, at the beach, etc.

The tablet and smart phone form factor represent what I believe are the best form factors for truly mobile personal computing. Thus they are simply form factor evolutions in personal computing not something other than a personal computer.

Can they replace other form factors?

The answer is no; tablets in particular are not replacing PCs, at least not in the foreseeable future. Rather what is happening is tasks or jobs are being replaced. Things that once were done primarily on the notebook or desktop form factor are now being done largely on devices like tablets and other form factors. In essence the best way to think about this is that time is shifting from notebooks or desktops to tablets and smart phones.

Prior to tablets, for example, the notebook owned the bulk of a consumers time when it came to computing tasks like searching the web, consuming media, checking email, etc. Now with tablets, time has been shifted to the tablet or smart phone where the form factor is more convenient for tasks like browsing the web, checking email, etc, in many situations.

Each form factor has a role to play. Based on the list of computing tasks consumers perform, the form factors play a role in making those jobs easier to accomplish. In this environment what happens is that consumers spread their time across a number of form factors to accomplish computing holistically.

Before one “personal computer” monopolized consumers time. Now time is shared between computing devices in the ecosystem in order to accomplish a wider range of computing tasks. Things that were not possible, or were harder to accomplish with previous form factors become possible with new computing form factor evolutions that stick in the market.

Rather than look at tablets and smart phones as separate from PCs it would be more helpful to look at them within the larger personal computing ecosystem. If we did this then we would not be arguing about whether the “death of the PC” is imminent or the degree at which PC sales are slowing. Instead we would be talking about the growth of the PC industry as well as the expansion of personal computing into new form factors, use cases, tasks, etc.

What we need to let go of is not the idea that these devices are not personal computers. What we need to let go of is an archaic and out of date definition, assumption, and stereotype of the term PC.

We are not really in the post PC era. We are in the post notebook form factor era. We are in the post traditional definition of a PC era. We are actually just entering the era of truly personal computing. If Bill Gates vision of long ago was that every desk would have a computer then I offer up this: in this new era, every pocket will have a personal computer.

The New iPad: Setting the Stage for Innovation

This morning Apple introduced a new iPad and with it has raised the bar for anyone creating a competitive tablet. The iPad, with its new Retina display that delivers 2048 X 1536 resolution, is clearly the highest definition tablet on the market. More importantly, as Apple pointed out, the work to create this type of HD quality experience on a tablet took many years of effort and tight integration with their new chip, which will make it very hard for competitors to match anytime soon.

Apple has punched up the power of the new iPad with a custom version of their ARM processor called the A5x, which is a quadcore chip designed specifically to boost any image or video displayed on their new Retina screen. One only has to view the new iPad against an older iPad 1 or 2 to see the major differences between the products. And it is even more pronounced when you view it next to an Amazon Kindle Fire or any of the other tablets on the market with standard definition displays.

With the new iPad display, there is no pixilation whatsoever on pictures and video and text in books is sharper then ones in any real book outside of those designed with high res text and images. And saturation of images and video are 44% greater then on the older model iPads.

Apple also adds a new 5-megapixel camera that takes video in HD, has a much larger sensor then in past iPads and has a 5-element lens with backside illumination and an IR filter that gives amazing color and white balance. And a new dictation feature is now added to the keyboard making it easy to dictate words into a document quite accurately and easily.

As expected, the new iPad also has an LTE option. It includes radios that cover EVDO (Verizon) HSPA GSM, HSPA+, DC-HSPA and LTE, which make’s it a world capable communications tool out of the box. And it will have the same battery life as iPads in the past. 10 hours for continuous use without LTE radio and 9 hours with.

Prices are the same as on the older models, although Apple will now offer a 16-gig version of the iPad 2 for $399, a new price point for iPads and one that will make it available to a broader audience. And the design is about the same so it will work with most cases and peripherals without any changes.

They are also introducing new apps from iPhoto to an updated iLife and an updated version of iMovie that allows for much finer creation tools to new ways to edit and distribute your movies via iCloud. And while all apps work with the new Retina display well, software developers can enhance their apps for even greater resolution to make them optimized for this new display. Software is clearly the key differentiator. The iPhoto demonstration alone will wow consumers and highlights the power of touch computing.

All of this new technology integrated into the new iPad will have a major impact on the market for tablets. From now on, this iPad will be the standard all other tablets will be compared to. And with it should come an even greater opportunity for Apple to pad their lead in tablets.

Of course, we expect that other tablet vendors will try and match Apple with higher resolution displays later this year. But if what Apple says is correct, their integration of both this custom display optimized for this new processor could make it hard for the competition to directly catch up anytime soon.

I view Apple’s new iPad as a major advancement in tablet design and one that will have a major impact on the market for tablets. In business, the need for higher resolution tablets has always been strong, especially in vertical markets like medical, engineering, and even ones where handling a lot of data for viewing is important. At the very least, the new iPad should have even greater interest in the enterprise where Apple is already making major inroads. And consumers who watch movies and view their pictures on tablets will really be drawn to this HD experience, as the quality of their content will be the best on a new iPad.

Although there will always be a market for lower cost tablets, with the new iPad Apple has introduced a new measurement to the decision process for users at any level. And this will cause some challenges for buyers this holiday season as I doubt that any competitor can even come close to having something competitive by then.

That should give Apple a significant edge going into this holiday, as the iPad will clearly be the best tablet available bar none.

One more thing:

Apple also introduced a new version of Apple TV. While many had hoped that Apple would introduce an actual TV, that was not in the cards. What Apple did release is a new version of Apple TV with a new UI and more importantly, support for 1080P HD content. This is a big advance and one that current Apple TV users have been asking for. The price stays the same at $99 and the new software includes the Genius function and a completely new UI making it much easier to find content and display it. This should also be a hot product going into the holidays as more and more people are opting for products like Apple TV and the Roku box to handle their on demand TV experiences and movie viewing and the new Apple TV should be a big hit for Apple.

You Can Never Have Enough Tablets

One of the things my firm focuses on is spotting trends within the technology industry. As a part of our constant search for trends we employ a concept we call “live the future now.” What this means, is that we as trend analysts, ourselves being early adopters, attempt to look for and implement things into our own work, play, family, life, etc, that we believe consumers may use technology for in the future. We also hunt out and study other people or groups of people, mostly early adopters, who are also using technology today the way we believe the masses will in the future.

So this column is going to be more about the future than the present.
Because I live and breathe this industry I also acquire quite a lot of technological gadgets as a part of this process. For the past six month’s I have been utilizing in different capacities no less than five and upwards of eight tablets at any given time all throughout my house. Not all my tablets are running the same core OS as some are iPads, some run Android and one runs Web OS. This helps me evaluate the strengths and weaknesses of a range of tablet operating systems and device features. Regardless of the OS I basically keep a tablet in every room of my house, except the bathroom, at all times. In basically every room where we spend significant time you will find a tablet of some shape or form. Living with a tablet in every room of my house is a fascinating experience. It is also a very convenient experience.

In the future I believe having access to these “smart connected screens” in every room will be a staple of most consumers’ homes in the developed world. What this enables is a situation where consumers don’t need to carry their tablets with them from room to room. They simply move to each room and as necessary, at their convenience, pick up the closest tablet and begin using it.

In my own experience doing this, I found that quite often I simply wanted to look something up on the Internet. What I looked for was the most convenient screen to access the Internet with. My notebook is rarely near me on the couch or bed and my smart phone suffices but the screen is a little to small for the job most times. This is where tablets come in. They are more mobile than notebooks and sport bigger screens than smart phones. And when you have one in every room you don’t have to think about bringing your tablet with you or where you left it last. Having a tablet in every room ready to be picked up and utilized was not only extremely convenient it was also extremely useful.

Now in this reality we must recognize that we may potentially shift from tablets being mainly personal computing devices to perhaps more communal computing devices–at least in the home environment.

Shift from Personal to Communal Screens
With the role of the personal cloud, I can see a situation where you just pick up the most convenient tablet/screen to your proximity, in whatever room you happen to be, log in to your personal cloud, and instantly the tablet becomes “your tablet.” It would contain all your personal settings, preferences, access to media, etc.

In this environment what is personal is your cloud not the device itself. This is a different take on the concept of personal computing. This of course does not mean that we consumers will not own personal computing devices, like smart phones for example, but that there will also be screens we use in our daily lives that are not personal but more communal. The personal cloud we subscribe to is what turns any screen into our personal computing platform for the amount of time we choose to use that screen as such.

Google’s Chrome OS is very similar in concept to what I am outlaying. Any person who has a Google account and has invested in the Chrome OS, via a ChromeBook, could log into my or any ChromeBook and begin using the device as if it was their own. When this concept makes its way to tablets I believe it will enforce this idea of a screen agnostic tablet, in every room, future that I am outlining.

Now of course for this to happen the cost of tablets will have to come down. That is why I pointed out at the start of this column that I am talking more about the future than the present. However, what if someday we can sell a $99 or less tablet that runs a very light OS, with access to cloud services, and wi-fi? Another way this reality could happen is with a hardware-as-a-service model where as a part of a subscription, perhaps to your cable provider, the devices are provided for free.

The bottom line is that over the next five years the BOM cost of tablets will come down. If these devices rely more on the cloud than native software, some of the costs will move from the device to the service. Making the hardware more affordable as it relies more on a service to become “personal.”

It is with these types of “smart connected screens” that I believe we will see the explosion of devices into consumers homes. Prior to tablets we may have assumed that the dominant computing screen in consumers lives was going to be a notebook PC. In essence we would have said that there would be a notebook in every room, owned by every consumer. I think we are rapidly learning that, that future is going to be given to tablets.

Why Tablets are Important to eCommerce

I recently noticed something about my tablet usage that really intrigued me. Since using the iPad, it has become a constant companion to me and along with my iPhone and Droid, I carry it with me all of the time. Although my smartphones are quite important to me, I have always had a bit of a difficult time reading their small screens and as I get older, I have to admit that the size of the screens I use in my life are becoming an important part of my user profile. And while I would often buy apps on the smart phones for use on them, I very seldom used them for any real eCommerce purchases. For that I mostly deferred to my laptop.

But over the last six months, I began noticing that my preferred screen for buying things started shifting over to the iPad. This particular fact came into even sharper focus for me recently when I read a piece in Wired that pointed out that Amazon’s tablet might actually serve as a powerful vehicle for their overall large store.

In this same article, they recounted a Wired interview with Steve Jobs in 1997 where they asked him what opportunities he saw with the Web. Here is what he said:

Wired: What other opportunities are out there?
Steve Jobs: Who do you think will be the main beneficiary of the web? Who wins the most?
Wired: People who have something –
Jobs: To sell!
Wired: To share.
Jobs: To sell!
Wired: You mean publishing?
Jobs: It’s more than publishing. It’s commerce. People are going to stop going to a lot of stores. And they’re going to buy stuff over the Web!

As you can see, even back then, Jobs saw that there would be a major shift in user buying habits and that the Web would become a serious vehicle for eCommerce. And over the last 13 years that has happened in a big way. eBay, Craigslist, Amazon, iTunes, etc have all driven eCommerce into the mainstream and they are now just a normal part of the way most of us buy things, especially things that we cannot find at our local mall. Of course, the irony of this quote from Jobs is that while iTunes has driven his eCommerce vision, he also created stores that have become one of the most successful retail chains in the world.

Now, if you look closely at peoples shopping habits these days, much of how they search for a product through search engines and review sites like PC Mag’s product reviews, and then buy them over the Web, should give you an understand that the Web has literally become the most powerful medium for commerce next to the grocery store. Sure, people will always go to the mall, but the mall and local stores will always have a limited supply of goods. But through the Web, you can buy just about anything. Although people will still use desktops and laptops for eCommerce, if my experience with the iPad is any guide, then the tablet, with its bigger screen then a smart phone and its full access to all Web eCommerce in this highly mobile for factor, could actually drive even more eCommerce purchases in the future. Another way to look at this is that the tablet is Amazon’s Brick and Mortar and a tablet is to Amazon what a physical store is to Wal-Mart.

If you think about Amazon’s business, it started with selling books online and then quickly became a place where consumers can buy just about anything and shop competitively from one single location. It just so happens however that this location is not physical; it resides fully within your browser. Amazon’s location is virtual.

To contrast, a company like Wal-Mart is evolving into the digital age with a strategy that includes their brick and mortar stores. To some degree Barnes and Noble is doing something similar but only in the realm of books. Amazon however has no intentions of creating a physical location where you walk in to experience their service. I believe however that Amazon is very interested in giving you a virtual physical storefront and it started with the Kindle.

Any retailer will tell you how important the overall retail experience is to their success. Some companies do retail poorly and others do retail extremely well. The Kindle for Amazon started completely around discovering, purchasing and reading books. The Kindle is the retail storefront to Amazon’s digital book library.

I believe that the evolution of the Kindle will follow Amazon’s business evolution. It started with books then included everything else. Which is why this next device that will most likely be a fully featured tablet will also come with Amazon’s complete shopping experience built in. This includes not just digital storefronts like books, music and movies but physical items as well. Since Amazon is one of, if not the largest digital storefront, it benefits them to get devices on the market where they control the entire shopping experience.

This is one of the reasons Amazon re-jiggered their iOS app strategy to stay away from Apple’s transaction model and fees. I don’t believe this move was just about avoiding management fees but that Amazon wanted to control the user experience with their storefront instead of Apple.

Reflecting on that point briefly, it becomes clear that Apple’s app store commerce model works for those for whom billing and storefronts are a problem but it does not work for those companies who have spent millions of dollars perfecting their own e-commerce experience. This leads me to believe that if the entire eCommerce experience is baked into the tablet experience then Apple’s new big purchase might be an eCommerce “etailer” that offers a broad range of products that Apple can integrate into the complete user experience of the iPad.

Amazon also has an interesting strategy with their Prime service that could be strategically integrated as well within their tablet offering. Perhaps Amazon gives better deals or promotions to those who own the tablet and are Prime customers thus incentivizing more purchasing from their store directly on the tablet.

This is why I believe a tablet is actually strategic for Amazon. Of course they can and will make sure their services are available on every device imaginable. However if they bring a device to market that is a full blown tablet and also includes the most elegant and seamless experience to research, discover and purchase from, then that device becomes the retail storefront to everything Amazon sells – and more.

The Tablet is the Ultimate Mobile Personal Computer

Our firm has been doing an extensive amount of tablet analysis over the past year. The more I study the role of the tablet in the industry and in the lives of consumers the more fascinated I become with this form factor. To clarify, we believe and classify the tablet as a PC. We simply view it as a form factor within the PC landscape.

One theme of late that has some of my mind share is around tablets going where traditional PCs can not. I am not just speaking of overall market share, although that factors into my thinking, but rather I am thinking about location. Now to be clear, I am not saying PCs (clamshell notebook PCs specifically) literally can not go to the locations I will talk about. Rather, what I want to point out is that the traditional PC/Notebook PC is the wrong form factor for a growing number of use cases and market pain points.

Prior to tablets, I believe the technology industry at large looked at nearly every consumer use case, as well as every vertical market, as an opportunity for the sale of a traditional PC/Notebook PC. What this led to was the adoption of the traditional PC into scenarios, where although sufficient, was the wrong form factor for the job. If you follow much of what I write you will notice that I am fond of Clayton Christensen’s philosophy in The Innovators Dilemma that consumers “hire” products to get jobs done. Prior to tablets the market “hired” the PC to do jobs that we are now finding tablets are better suited to do.

Last week I looked at the adoption of the iPad by a growing number of enterprises for specific mobile workforces like field force and sales force automation. In many business related scenarios we are seeing the iPad step in and take the place of notebook PCs primarily because it is better suited for the specific task at hand. Enterprises are finding that for their most mobile workers the iPad is a better tool for the job than a clamshell notebook.

Late last year I wrote in my TabTimes column about how small businesses are using iPads for things like point of sale retail and even mounting an iPad for interactive product/ media placement. I even talked about some examples where restaurant owners were going digital and integrating iPads for the uses of taking orders, showing pictures of menu items to customers, and adding other relevant information for customers to make dining decisions. In both those later use cases the job could have never been solved by a traditional clamshell PC because who wants to hang that device to the wall at retail or walk around a restaurant holding a clamshell notebook? This is at its core what I mean when I say that tablets will go where PCs can not. This is what I mean when I say that the tablet is the ultimate mobile PC.

Further to this point, I highlighted yesterday in an article how the iPad makes the perfect learning companion. I have been very vocal about how touch computing removes barriers to computing presented by mouse and keyboards and therefore are better tools for learning for all ages but kids specifically. We have been using PCs in the classroom because they were the only tools available. Now there is a better tool, the iPad, and it will find itself fitting into educational environments better than the PC ever could.

The list goes on from legal firms, to financial management firms, to hospitals and doctors, pilots and airlines, public safety, and more, who are all finding that the iPad is better suited than a clamshell PC for their specific computing needs. Consumers are waking up to this reality as well.

Although, the notebook PC is portable you don’t typically see consumers move around, walk around, or stand up and use their notebook. This is because the form factor lends itself to a desk or a lap where the screen sits at arm’s length away. Tablets are very different. Consumers are comfortable using them while standing, walking, sitting on the couch, laying in bed, in the bathroom, by the pool, at the beach, in the kitchen, etc. The tablet is not designed to be viewed at arm’s length and because of that our relationship with this form factor changes. We can use it in different ways and more importantly take it places we would not or could not take our clamshell PCs.

I would argue the tablet form factor lends itself to more mobile computing use cases than a clamshell notebook. Because when consumers use a clamshell notebook they are not truly mobile–they are stationary. Whereas one can actually use a tablet and truly be mobile. I know I am tweaking slightly the classically held definition of mobile computing. However, due to the nature of tablets impact on the market I believe the traditionally held definition of mobile computing needs to be challenged.

The PC, tablet, smart phone, and perhaps something new down the line, are all tools to get jobs done. Each one has its place and each will remain relevant in some way shape or form. However, when it comes to mobility the tablet is mobile computing in its purest form.

The Mysteries of Office 15

As Microsoft works on the next release of Windows, it has been remarkably forthcoming about its details. The Building Windows 8 blog has not only laid out the changes in the new version, but the thinking behind them.

But Microsoft has said almost nothing about the new version of Office it is developing in parallel with Windows 8. It has distributed an early version to a select group of testers, but wrapped it in a non-disclosure agreement. We’re not likely to get the full details on Office 15 (a development name unlikely to be used for marketing) until a public beta is released this summer.

The new Office is a big deal, perhaps the most important release in the suite’s history because Microsoft has to pull off a number of difficult and contradictory things. On one level Office and its associated back-end components such as Exchange and SharePoint are both mainstays of enterprise technology and by far the most important source of Microsoft profits. The last thing enterprise customers want to see is a drastic change in Office.

At the same time, Microsoft must deal with a revolution in user devices. Conventional PCs are giving way to tablets and, to some extent, smartphones. Even in the enterprise, where desktops and laptops will continue to rule for a long time, mobile executives and field workers are depending more and more on tablets and phones.

Office as it exists today is a catastrophe on any sort of touchscreen device, let alone one with a 10″ or smaller display. Starting with Office 2007, Microsoft began replacing Office applications’ traditional cascading menus with a “ribbon” of choices. For a traditional mouse-driven user interface, this is probably an improvement, but it’s no help for touch.

The little icons on the ribbon (above) are too small to hit reliably with a finger, and most of them open a window or drop-down with additional icons or menu choices. In addition to the difficulty of navigating this clutter by touch, the ribbon occupies an amount of real estate that is intolerable on a tablet, let alone a handset. And Office as it exists today is way, way too big for the limited storage capacity of tablets.

Still, the richness of functionality that all those icons represent is the essence of Office. It’s true that many consumers never use 90% of the functions, but in a business setting, complex options such as edit tracking, table of contents creation, and mail merge are often regarded as essential. It’s not at all apparent how this sort of rich application can exist in a simplified, touch-optimized user interface like Metro, which will be the default paradigm for Windows 8.

It seems likely that Microsoft will end up with two versions of Office, a classic UI for traditional PCs and a stripped down and simplified Metro UI for tablets. How seamlessly can these two versions co-exist? Will the simplified version be able to display complex content correctly (this has historically been a problem with all programs that purported to offer limited editing of Office files)? How do you even begin to make Excel useful on a tablet? Can Microsoft developers find a way to bring full offline functionality to Outlook without downloading a multi-gigabyte database?

This is only the beginning of a very long list of questions about how this new two-headed Office should work. And it doesn’t even touch on the question of how much Office functionality will be available in the version that is to run on tablets powered by ARM rather than Intel processors. (Intel users will, in theory, have the option of running older, classic versions of Office. ARM users will not.)

Depending on how strictly testers adhere to their NDAs (and how serious Microsoft is about enforcing them) we may begin to get some answers soon. A version of Office that makes business users productive with their key applications could be a big competitive advantage for the forthcoming Windows tablets. But making this work will be one of the biggest challenges Microsoft has ever faced.

Microsoft’s Future in Tablets: Forget Consumers, Go for the Enterprise

Only huge a company with massive cash flow can make a mistake of the magnitude of Microsoft’s error in missing the movement from PCs to smartphones and tablets and survive as a major player. Legacy cash flows allowed IBM to recover from its errors of the late 1980s and the money flowing in from Windows and Office can do the same for Microsoft. But time is growing short. With the latest version of Windows Phone and its partnership with Nokia, Microsoft is at least making a play in smartphones. But it’s a long way from even playing in the increasingly important tablet market.

Apple iPads and Amazon Kindle Fires are flying off shelves now and even the justly criticized Android tablets could become attractive in coming months with a new version of the the operating system, Microsoft is at least a year away from tablets running Windows 8 on either Intel or ARM processors. But Microsoft has to make some critical decisions right now about what these tablets are going to be.

The first thing the company should recognize is that by the fall of 2012, the consumer market is likely to be lost. Over the next year, Apple is likely to sell at least 50 million iPads, Android tablets should gain traction, and Kindles and Barnes & Noble Nook Tablets will be gobbling up the low end of the market. In consumer markets, Microsoft is shooting at a moving taget that’s not moving in a favorable direction.

The enterprise market, on the other hand, is wide open. iPads have definitely been turning up in the enterprise in large numbers. And Apple has worked hard, including some quiet cooperation with Microsoft, to make the iPad play reasonably well in an enterprise environment dominated by Microsoft back-end services such as Exchange. But enterprises need more than Exchange mail, contacts, and calendar. They require support for all of Microsoft Office, including the SharePoint collaboration and document management service on which many enterprises depend, far better document handling than today’s tablets provide, and better ways to load and maintain custom applications.

Office is the key, and it is where Microsoft faces the hardest choices. The cool kids, startups, ands tech pundits may be happy with Google Apps or perhaps OpenOffice and emacs, but the fact is that business (and government) runs on Office. Documents are written in Word, numbers are crunched in Excel, presentations are shown in in PowerPoint, mail is read, meetings are scheduled, and calendars and contact lists are kept in Outlook. And it is all tied together with Exchange and SharePoint.

There have been large-scale corporate deployments of iPads, but as ancillary tools, not really as replacement for computers. For example, airlines have given thousands of iPads to pilots as replacements for the paper documents that used to fill their weighty flight bags. Tablets will remain in enterprise niches until they can offer reasonable support for corporate Office installations. This is unlikely to happen on iPad, even if rumors about some sort of Office version for the Apple tablet are true, and even less likely on Android, where the lack of standardization and built-in security are a huge barrier to enterprise adoption.

Is There a Technology Race to the Bottom With Price?

I have been surveying the collective schools of thought related to the Amazon Kindle Fire launch. One thing that many writing publicly on the matter emphasize is the price of the Fire and rightly so. $199 is an aggressive price but I would argue that price is not everything when it comes to personal technology.

Those that incorrectly believe the Kindle Fire is a threat to the iPad use words like commoditization of hardware. Again the common logic is that because one competitor comes in at a lower price it will force the market down. This however is entirely incorrect.

There will be some who try to compete on price with Amazon however they will likely fail and either lose a ton of cash attempting to compete or exit the tablet market entirely.

Apple however has no need to get more aggressive on price with any of their products.

What is key to understand is that if Amazon did not have a robust services business as a retailer and distributor of digital media the Kindle Fire would not be successful even at $199.

This statement is made clear in Jeff Bezos quote to Brad Stone in his Business Week Article.

“What we are doing is offering premium products at non-premium prices,” Bezos says. Other tablet contenders “have not been competitive on price” and “have just sold a piece of hardware. We don’t think of the Kindle Fire as a tablet. We think of it as a service.”

I have said before that the Kindle is to Amazon what a retail store is to Wal-Mart. The Kindle represents access to Amazon’s services.

That philosophy is made clear when Bezos states that they don’t view the Kindle as a tablet but instead as a service.

This backs up my point that without the backing of the Amazon services the tablet would fail even at $199. Subsidizing hardware in order to make up revenue on the services is a strategy employed by many. However it only works when a service powers the hardware.

What Could Really Change the Game
I’ve had this discussion lately with a few other analysts around whether or not Amazon ultimately wants to be in the hardware business. Right now they have to in order to gain market momentum and validate their service with hardware.

What could be very interesting is if Amazon gave away or licensed their software for other tablet vendors. This would allow for hardware innovation in and around Amazon’s ecosystem. If the business model panned out Amazon could even include hardware partners in the services revenue over time. Amazon already has revenue sharing business models in place so this is not a stretch to imagine.

Amazon does not have the desire or expertise to make extremely elegant hardware. Which is why it is interesting to think about the possibility of letting those who have hardware expertise design some innovative hardware around the Amazon software and services platform.

Like Google, Amazon is a services company who thinks about hardware and software as a way to access their services.

The other thing this strategy would do is put pressure on Google with Android. If Amazon’s Android fork can provide a better experience and economics for hardware partners and developers Android could be in trouble.

Price is important but I contend it isn’t everything. Just because products are cheap it doesn’t mean they are quality in all aspects of experience.

We will see what the reviews have to say once they actually get to review the Fire. My sense though is that everyone will make a bigger deal of the experience with the Amazon services over the hardware.

Can Amazon Make a Cheap iPad Challenger?

Developments in the tablet market in the past couple of weeks, especially Hewlett-Packard first killing the TouchPad then successfully disposing of tens of thousands of them in a $99 fire sale, has led to some very strange commentary on how competitors can take on Apple. All they have to do is sell a tablet that’s as good as the iPad–or at least nearly as good–for a lot less.

Kindle icon For example, in a Cnet post, Brooke Crothers quotes analyst Roger Kay as saying the TouchPad “wasn’t really a product failure, it was a pricing failure.” That’s self-evident as far as it goes. The TouchPad at $500 was priced higher than people were willing to pay, and when the price was cut 80%, they flew off the shelves.

The problem is that in the real world of business, pricing has to bear some relationship to cost. No one is going to beat the iPad by building a product of equal performance and quality for less. Apple has mastered the supply chain and, with sales of the iPad in the area of a million units a week, achieves considerable economies of scale. It’s in the rare and wonderful position of offering a premium product while actually enjoying a cost advantage over competitors.

That means that no one can hope to compete with Apple simply by offering a product similar to the iPad for less. If Apple were to perceive it as a threat, they could underprice the interloper while feeling less pain than the competition. It’s a game that only Apple can win.

Another alternative is a subsidy model. Both my colleague Tim Bajarin and Kevin C. Tofel at GigaOm suggest that Amazon could afford to subsidize the hardware and cover the subsidy cost either through advertising on the tablet or through sales.

The one place where the subsidy model has succeed in in mobile phones, including the iPhone. But wireless carriers are in a unique position. Because they sell the phone on a contract, which gives them a revenue stream of known amount and duration, they can be certain of recovering the subsidy and making a profit besides. (Those early termination fees take care of most of the contingencies.) The carriers, however, have shown little interest in extending the subsidy-plus-contract model to tablets.

An Amazon subsidy would be a lot more problematic. Amazon’s operating margin runs less than 4% of sales. On a crude calculation, that means that every $100 in subsidy would require $2,500 in incremental sales just to break even. Maybe tablet customers buy higher margin goods, but the math of the subsidy model seems truly daunting.

All the signs point to Amazon doing a tablet of some sort, though the company itself has remained silent on the subject. But I don’t expect that it will offer an iPad-like product at a substantially lower price. One possibility is a tablet that competes with the iPad not on price but on a distintive feature set. (What might that be? If I knew, I’d design it myself instead of speculating about it.)

The other, which I think is a lot more likely, is a sort of super-Kindle: A 7″ tablet more capable than the Kindle or Barnes & Noble Nook, but simpler and cheaper to make than the iPad. It would primarily be a book reader, casual game console, and media player with, of course, an optimized Amazon shopping experience. A product like that could probably be sold for $300 without much subsidy. (B&N is selling the color Nook for $249, apparently without subsidy.)

Another, bolder approach, would be for Amazon to come up with its own subscription-based revenue model. The company has been steadily diving deeper into online services. It currently sells a somewhat odd bundle of movie streaming and free shipping on Amazon purchases for a $79 annual fee. The trick is finding enough other services to roll in to provide enough revenue–and profit–to pay for substantial subsidies. Book rentals are an intriguing one, but would be a tough sell to publishers. It’s a difficult proposition, but amazon has shown itself to be nearly as creative a company as Apple, and if any one can do it, they have the best chance.

Is There Room for A New Mobile OS?

A couple of years ago, when various handset makers were looking for a mobile OS to back for their devices, they were given a proposition from Google that was hard to refuse. Google would provide an open source version of Android and with it allow the vendors to customize and add their own features so that they could differentiate their products from other Android licensees.

At first this worked well and Google got dozens of device makers to hop on the Android bandwagon. And for the most part, Android took off, especially in smart phones. But over time, many Android licensees found Google difficult to work with because of their design approach to Android, which was always a moving target. And while Google called it an open mobile OS, as time went on, it became much more controlled by Google and licensees have had less room to do things to help differentiate their devices. Even worse, they have found it more challenging to control their own destiny when it comes to many key services tied around their own offerings.

Now that Google has bought Motorola, many Android licensees believe Google will be exercise tighter control over Android and with Motorola develop a more vertically integrated approach to the market. This is similar to what Apple does through owning the hardware, software and services; integrating them tightly together to provide customers a seamless user experience. While Google has said that they will continue to develop Android as an open source product and work with licensees equally, none of the licensees I have talked to actually believe this. At the very least, they expect Motorola to get early code. Many believe tighter integration between Android and Motorola hardware is inevitable and doubt they will get a similar deal in any way. The various lawsuits against Android as well as the potential of having to pay extra royalties to Oracle and Microsoft should they win their legal cases against Android does not make them happy either.

Not long after the news that Google would buy Motorola, and that HP was going to ditch webOS, Microsoft started courting Android and webOS developers even harder. In fact Microsoft is offering free Windows phones to webOS developers and more hand holding if they jump ship and start developing for Windows Mobile 7and 8.

But what I am hearing from vendors and carriers is that the original need for a completely open mobile OS is what still they really want. Supporting Microsoft is equal to just supporting Android. Indeed, Microsoft would still control the OS and dictate the terms of use and development and give licensees very little room to innovate at either the hardware or software level.

It is also not clear where webOS is going. We don’t know who its owner will be yet. Does it stay with HP or go with the spinoff? We also don’t know if it will ever be an open OS that licensees of the future can freely customize for their own markets and customers. One thing that needs to be kept in mind is that in developed markets, complete ecosystems of hardware, software and services define the user experience. But that may not be the case in emerging markets.

In emerging markets, the need to have a truly open source mobile OS is very important since they need to be able to customize their offerings around a specific language and localized services. This is especially true for emerging market carriers. The fact that mature markets demand hundreds of thousands of mobile apps does not necessarily translate to the actual needs of smart phone users in emerging markets. There they need the dozens or hundreds of apps that are customized for their regions, customs and traditions.

Everyone knows Apple’s approach to their OS is proprietary. Even though Microsoft’s Windows Mobile 7 OS is freely licensable, it is fully controlled by Microsoft. And now that Google has bought Motorola, Android is looking more and more like it could become more tightly controlled as part of a vertically integrated offering. Unless HP quickly states that webOS will not only be licensable but also truly open (which I don’t think they will ever do), then I believe that there is serious room for a completely new mobile OS to emerge and especially give handset vendors targeting emerging markets an OS of their own to work with.

We are already hearing that even the big handset vendors who are backing Android are seriously looking for an alternative OS to back to hedge their bets and to help them go after emerging markets where giant app stores are less important for success. This leads me to believe that there is not only room for another mobile OS but a need for one that is truly open that will never be encumbered by big company agendas that drive the designs of their mobile OS.

Should Tablet Makers Concede the Market to the iPad?

Recent reports, news and analysis have come out that underscore an industry cliche, there is not a tablet market only an iPad market.

From news on the rather weak sales of Android tablets from vendors the last few quarters to the recent news that HP TouchPad sales are dismal, it is clear that the masses have spoken loud and clear – they want iPads.

Those who make tablets entered this market for a variety of reasons. One however I heard often was that they were afraid Apple would “iPod them” in the tablet market. Years ago there was a similar analogy that went “there isn’t an MP3 market just an iPod market.

The logic was if they could get into the market early enough they could hopefully not get “iPoded.”

However this is exactly what we are observing happen today. I believe this will be the case for the next few years. So the question is for the time being should the vendors concede this market and commit those resources to other areas where they have a chance to compete, like Smart Phones for example. Or perhaps they themselves can focus more on RND and create new product categories and innovations all together.

Jim Dalrymple at the Loop makes a great point:

“Apple has spent 10 years working on the iPhone, iPad and the integration with iTunes for app, music and video downloads. The competition would have us believe that in a few short years they too have perfected all of this.”

The bottom line is at this point in time the barrier to entry to the tablet market is actually quite high. There are market forces at work that explain why other tablet makers are having a hard time competing and succeeding.

Harvard Business Review in a foundational strategy article called “The Five Competitive Forces That Shape Strategy,” highlight seven essential points on barrier to entry. I’d like to focus on three that relate heavily to why the barrier to the tablet market is quite high.

Incumbency Advantages

“No matter what their size, incumbents may have cost or quality advantages not available to potential rivals. These advantages can stem from such sources as proprietary technology, preferential access to the best raw material sources, preemption of the most favorable geographic locations, established brand identities, or cumulative experience that has allowed incumbents to learn how to produce more efficiently.” – HBR Five Forces

In this point the HBR article points out how the incumbent has advantages not available to new entrants. Things like brand, forcefully constraining supply chain, holistic experience, preferential access to the best raw materials (at favorable prices), efficient manufacturing and scale, and more are all in Apple’s favor.

Unequal Access to Distribution Channels

“The new entrant must, of course, secure distribution of its product or service.” – HBR Five Forces

Retail is and will continue to be one of Apple’s strongest competitive advantages. I’ve wrote extensively about this “Apple Retail is Key to Their Competitive Advantage.”

By controlling their own retail store, which is in extremly convenient geographic locations all over the world, competitors simply have unequal access to distribution channels.

Also more simply put, in a big box retailer you see vendors competing with each other for retailer and consumer attention.

Walk in to an Apple retail store and you will find zero Apple competitors.

That is what I call unequal access to distribution channels.

Demand-side benefits of scale

“These benefits, also known as network effects, arise in industries where a buyer’s willingness to pay for a company’s product increases with the number of other buyers who also patronize the company. Buyers may trust larger companies more for a crucial product: Recall the old adage that no one ever got fired for buying from IBM (when it was the dominant computer maker). Buyers may also value being in a “network” with a larger number of fellow customers. Demand-side benefits of scale discourage entry by limiting the willingness of customers to buy from a newcomer and by reducing the price the newcomer can command until it builds up a large base of customers.” – HBR Five Forces

This is a big one. Look around and you see tablet makers offering extremely aggressive price promotions. It seems like the prices of competing tablets drop every month. Yet Apple has not lowered the price of their latest generation iPad one single time. What’s more competitors make razor thin margins less than 10%. Let’s just say Apple’s margins on the iPad are significantly more.

In short the cost cutting strategy to undercut the incumbent and gain market share is simply not working.

If competitors are making little to no money, struggling to get distribution, and overall struggling to compete in general how long can they stay in this market?

Conclusion
The reality is the lure of the bright shiny new tablet market is too attractive for vendors to concede to Apple. That however does not change the fact that competing will be monumentally difficult. Even if they did concede I would recommend it only be until the market matured. At which point new entrants have a chance to succeed as the market fragments and consumers begin to shop based on preference. The evolution of consumer markets show us that a standard technology brings a market to maturity and then that market fragments allowing for a more vast variety of consumer choice. The tablet market will mature at some point and at that point consumers may desire a more wide variety of choices.

The brilliance however of Apple in this regard is worth noting. Apple has strategically lured those who compete with them in categores like PC’s and Smart Phones into competing in a category they have no chance in for the foreseeable future.

The result is that Apple competitors are allocating invaluable resources away from other product segments that could be significantly more profitable and competitive for them.

I believe that success will only come to those who want to compete with the iPad by thinking fresh and taking bold and innovative risks.

Why A Tablet is Key To Amazon’s Business

I was being interviewed by a journalist recently where the discussion was around the impending release of an Amazon Tablet. I enjoy helping journalists out with stories and I gladly accept interview requests because the discussion is always engaging and often helps sharpen my own thoughts on a subject.

This was the case again when I was asked why a tablet is important to Amazon’ business and business strategy. That is the question i’d like to address in this analysis.

A Tablet is Amazon’s Brick and Mortar
Here is an analogy: a tablet is to Amazon what a physical store is to Wal-Mart.

If you think about Amazon’s business, it started with selling books online and then quickly became a place where consumers can buy just about anything and shop competitively from one single location. It just so happens however that this location is not physical it resides fully within your browser. Amazon’s location is virtual.

To contrast, a company like Wal-Mart is evolving into the digital age with a strategy that includes their brick and mortar stores. To some degree Barnes and Noble is doing something similar but only in the realm of books. Amazon however has no intentions to create a physical location where you walk in to experience their service. I would argue however that Amazon is very interested in giving you a physical storefront and it started with the Kindle.

The Retail Experience Matters
I wrote an article on Why Apple Retail is Key to Their Competitive Advantage. In that article I highlight some key things about retail.

Any retailer will tell you how important the overall retail experience is to their success. Some companies do retail poorly and others do retail extremely well.

The Kindle for Amazon started completely around discovering, purchasing and reading books. The Kindle is the retail storefront to Amazon’s digital book library.

This is one of the reason’s I believe Amazon re-jiggered their iOS app strategy to stay away from Apple’s transaction model and fees. I don’t believe this move was just about avoiding fees but that Amazon wanted to control the user experience with their storefront instead of Apple. This is why previously with the Kindle app on iOS the Kindle store launched a web browser and took you out of Apple’s ecosystem and into Amazon’s.

Reflecting on that point briefly it becomes clear that Apple’s app store commerce model works for those for whom billing and storefronts are a problem but it does not work for those companies who have spent millions of dollars perfecting their own e-commerce experience.

Amazon also has an interesting strategy with their Prime service that could be strategically integrated as well with their tablet. Perhaps Amazon gives better deals or promotions to those who own the tablet thus incentivizing more purchasing from their store directly on the tablet.

This is why I believe a tablet is strategic for Amazon. Of course they can and will make sure their services are available on every device imagineable. However if they bring a device to market that is a full blown tablet but also includes the most elegant and seamless experience to research, discover and purchase from; then that device becomes the retail storefront to everything Amazon sells – and more.

Further Reading on Amazon:
How Amazon Could Own the Android Tablet Market

Android Is at A Critical Junction

I believe that the next six month’s will be the defining point in the future for Google’s Android platform. Whether this future is bright or gloomy will depend on the next six month’s.

It seems right now like Android is riding the big wave reaping in success left and right. The reality is however that there is truth to the Android success but there are also walls still standing in the way.

The report from Nielsen relased yesterday that I opined on shows the meteoric rise of Android in such a short time to garner 39% of US smart phone OS market share. This is truly remarkable success in such a short time. However the question that we have to investigate is how defendable Android is as a platform or is it vulberable at a fundamental level.

If we conclude that Google plays their cards right and builds the right “moats” around the Android castle then it is strong at a fundamental level. However if we conclude that their “moats” are not that strong or deep then it could be vulnerable at a fundamental level. If the former is true Android remains a viable force in the market. If the later is true Android could encounter market volatility and market share could sweep back and forth.

Google’s Hardware Partners
At this stage of the game Google depends on hardware partners to develop devices that take advantage of their software and services. This is a strength as long as your hardware partners stay commited and loyal to you.

There are challenges however with hardware partners. First off there are other companies competing for their business. In the case of smart phones and tablets, Microsoft is Android’s competition. If HP ever wised up and licensed Web OS then there would be three very good options for hardware partners to build products upon.

Android is still the obvoius choice for OEM’s looking to bring a smart phone or tablet to market. Consumers understand the value proposition and there is a large enough app ecosystem in their market place to appease the market.

The question is six month’s or even one year from now will Android still be the obvious choice? I know many people will quickly say yes but I still have concerns. One major reason is the now over 50 law suits facing Android in some capacity. Right now Android is free for most OEM’s to take and implement. However if some of the key lawsuits go against Google we could see license fees from between 15-30 dollars depending on the OEM.

If this happens Android is no longer free. I wonder if that happens whether manufacturers would re-consider their commitement to Android.

App Store Economics
Now you may argue that no other licensable or free platform has the developer ecosystem that Android does. This of course is true but again continuing to develop and maintain that ecosystem will be key.

App developers want to get paid. And as BlueStacks CEO Rosen Sharma pointed out in his column on “How the App Store Money Flows;” there are still issues facing the economics of the Android market that many developers we talk to do not want to deal with. Believe it or not among the larger app developers and as well as some of the more savvy ones, there is heavy consideration still for Windows Phone and for WebOS.

Google must continue to develop a robust economic system that works for everyone who wants to write software for the Android platform. If developers see no economic growth or ROI of their allocation of precious resources to Android they will go elsewhere.

There is a lot I like about Android and I want to see it continue to develop and flourish. Google however will have to navigate and maneuver the waters of the next 6-12 month’s extremely strategically in order to preserve the moats around their castle. Android @Home for example has a great deal of potential I believe and could add real value to the Android platform and ecosystem if done right. Chrome OS is another strength that can be leveraged and assets can be shared across Chrome OS and Android.

As Tim pointed out this morning Amazon could come in and change the game. There are a lot of un-answered questions around Amazon’s tablet strategy from pricing model, to proprietary app development etc, but so long as Android is the underlying platform i’m assuming Google will benefit still in some way.

Android is still behind in tablets and this is another weakness that needs to be addressed. Tablet sales of Honeycomb devices have been less than lackluster. If the Android Honeycomb activation dashboard is any indicator there are between 1.2 and 1.5 million Honeycomb tablets in consumers hands. Motorola released that the XOOM sold 440,000 units; we are yet to see Samsung’s Galaxy Tab sales, Acer’s Iconia sales and Asus Transformer sales.

What we need is a truly break out Android tablet that can excite the mass market. From what I know is possible with hardware and from what I am seeing from the semiconductor companies I know it is possible, i’m just not sure when or who will deliver it to the market.

We will have to wait and see but I have to say I am extremely excited about the next 12 month’s.

How Amazon Could Own the Android Tablet Market

One of the first marketing classes I had in college discussed the concept of razors and razor blades. Sell the razors cheap and then sell men blades over and over. The profit would be in the blades, not the razors. In our tech world, we have our own version of this. It is called printers and printer cartridges. The printer companies sell their printers at a very low price, perhaps even under cost, knowing full well that they will sell users expensive ink cartridges over and over. The profit is never in the printer. It all comes from the ink cartridges and companies like HP and Epson make billions of dollars a year from their ink business.

With this in mind, if I were Jeff Bezos, CEO of Amazon, I would really go to school on this concept and see if it could be applied to tablets. This model would never work for the PC vendors at this stage of the PC game. Although their PC’s are getting cheaper, they are not tied to an eco-system of software and services in which they could derive additional revenue tied to the PC and earn recurring revenue this way.

But I believe that the tablet is the first PC like device where this could be possible. So, Jeff, if you are listening, here is my suggestion to you. Sell your tablet at a price that is really cheap. Perhaps you sell it for 20-25% below cost. I know this sounds crazy and radical, but you actually have the recurring revenue ecosystem to potentially pull this off. It would take some serious guts to do this but if any one could do it, Amazon could.

In this model, think of the tablet as the razor. And in Amazon’s specific case, their Android Store, UnBox movie service and music service would be part of the “blades” they sell to users over and over again. And add to that the profit they could get through their Kindle bookstore as well as items you might buy from the Amazon store. And then add any Amazon cloud service revenue tied to the device that could also be part of an amortized profit pool over perhaps a two-year accounting period.

With info I have on components from my contacts in Taiwan, I was able to do some back of the envelope calculations to see how this could work. Bill of material costs along with manufacturing costs, shipping and tariffs most likely would put the device cost around $300 depending on its specs. For sake of argument, let’s use this as the baseline. But let’s say Amazon discounts this by $51,00 and sells it for $249.

Now, they do some research and determine that over a two year period, a person who has that tablet would buy or rent 15 movies, stream or download 50 songs, could buy 18 books and might pays $5.00 a month for cloud storage from Amazon. And, they purchase let’s say five items through the tablet’s Amazon store that can be counted against a 2 year amortized profit curve. And lets throw in some advertising in this mix as well. Although the prices of the books, video, music, etc would vary, by my guestimates, they would make back the lost “cost” of that $51.00 within six months and realize a profit of anywhere from 20-35% on the tablet over the last 18 months of the devices accounting period.

Amazon already has the trust of over 200 million users as well as their credit cards. And their “one click” buying model would make it quite easy for an Amazon tablet user to buy often through both the Android store and the Amazon store in general. Of course there are a lot of variables in this model, but you get the idea. The tablet is the razor and all of these apps and services are the blades.

Now imagine how this could affect the other Android vendors making tablets. Amazon would provide a product that if sold under cost with the goal of making up the rest of the cost and profit from apps, services and even advertising, it could give all of the other Android vendors a serious run for their money. And, given their deep eco system, other Android vendors would find it very difficult to compete with them. This could make Amazon, measured by units shipped, the king of Android tablets very quickly. In fact, I would go as far as say that they could “own” the Android tablet market.

For Apple, this would be a competitive threat but they have a pretty big lead and their own rich echo system of apps and services that could continue to keep them a market leader in tablets. And given their history of riding down prices of the iPod once it gets to scale, you can imagine that Apple will also be more aggressive with the iPads pricing over time and, as they are today, use their apps, services and the upcoming iCloud to deliver high margins for a long time.

But as radical as this idea might sound, it could make a lot of sense for Amazon to go to market with their tablet with this business model. As I stated earlier, it would take guts, but the impact on the market for tablets could be significant if they did this right and the consumers bought into their version of the old razor/razor blade school of marketing.

The Post PC Era Will Happen in Two Stages

In much of my work providing industry analysis to many companies in the technology industry, I come across the question of what the post PC-era actually means quite often. As the technology industry shifts from one computing platform (the PC) to multiple computing platforms (tablets, smart phones, TV, more) the landscape is changing and continuing to bring new challenges to industry leaders.

I believe the Post-PC era is going to happen in two stages. First there is the stage we are just entering into that can best be understood as the PC plus era. In this phase the PC is still needed as a central platform in the lives of most consumers. Meaning the PC is still a valued and sought after part of the ecosystem. Other devices like smart phones, tablets, smart TVs etc are capable and complimentary computing platforms but none can adequately replace the other.

The traditional PC as we know it is still the central computing device in this phase; however more devices are entering the ecosystem that allow consumers to become less dependent on it. Another key point of the PC Plus stage is that the PC is a general platform for computing and other devices are more specialized.

The next phase will be the phase where truly de-centralized personal computing starts to take shape. In this phase you will be able to do most if not all desired computing tasks comfortably, reliably, and conveniently from any connected smart screen. In this phase the personal computing cloud becomes a key ingredient that is the central glue of the personal computing experience.

I say this phase is de-centralized because our dependence moves from the PC to the cloud thus allowing any device connected to our personal cloud to become our computing platform of choice.

Consumers in this model can choose just one or any number combinations of screens that fit their fancy to accomplish any and all computing tasks. The key difference in this stage from the PC plus stage is that most if not all computing devices can become general purpose devices rather than specific function.

There is of course going to be a great deal of variation in how this plays out in the market place. We will see quite a bit of experimentation by both the manufactures and the consumers of these products as we flesh out the needs of the market.

This personal computing market is large enough that a one size fits all approach will not be the standard. This opens the door for many different innovations and product approaches to support each other and allow for healthy diversity and competition.

De-centralized computing becomes more personal
I’ve often explained that as we get smarter devices, smarter software, and smarter cloud services we will also get more personalized devices, software and cloud services. The translation is smarter = more personal.

This is not to say that there isn’t a level of personalization with these devices already only that it will be more so in the future.

The technology industry has used the term “personal computer” for three decades now, however the term really means “owned by a person.” My personal computer isn’t really all that personal at this point in time. It knows nothing about me and everything personalized about it is because I put in the time and effort to personalize it. A better term would be “customized computers” rather than “personal computers.”

In the future however I believe these devices really do become more personal rather than customized. The roadmap the semiconductor companies are on will pack an incredible amount of compute power into nearly everything imaginable. When that happens smart software and smart cloud services will have the opportunity to transform devices into truly personal computing companions.

Tablet Price Promotions to Boost Demand

Staples is the latest retailer in the tablet market to offer a price promotion on tablets. The company is offering a coupon for $100 off tablet purchases (excluding the HP TouchPad) through July 30.

The coupon is the latest price move by a tablet player to spur demand. Tablet brands have recently been lowering prices to boost demand as the US market enters the high volume back-to-school season. Motorola dropped $100 off its Xoom, from $599 to $499, earlier this month. Acer cut $100 off its Iconia A500, from $499 to $399, this past week in Best Buy circulars. Toshiba launched its Thrive at $429 for the 8GB version. Apple’s iPad starts at $499 and had initially set the bar for what tablet pricing should be. However, brands are having trouble reaching levels similar to the iPad’s success with their devices.

Brands and retailers have been gradually catering to the emerging device category through differentiated floor space, dedicated business units, and specific sales strategies. Staples is the first major retailer to offer a price promotion on tablets. Price cuts tend to be viewed as a last resort. Still, many are aiming for significant adoption, viewing iPad sales as the basis for their expectations. Apple reported sales of 9.2 million units in Q2, up over 180% Y/Y. Other brands are nowhere near experiencing iPad-like success.

These price moves may boost demand in the short term, although I doubt it will be to the level they’re expecting, but long term, it devalues the category and threatens the margin levels that they are hoping to achieve. This is especially risky at the start of a category because it sets the consumer’s expectation of what a product should cost. It also makes it difficult to raise that price expectation in the future. We saw that with mini-notes (or netbooks) and the impact on notebook average sales prices.

To a certain extent, the brands and retailers have their hands tied because Apple is having so much success with their tablet. There is an impression that if you can’t reach that level, then you’re messing it up. The reality is: the brands and retailers competing with Apple are playing from behind, and in their desperation, they might be digging themselves into a deeper hole. One could argue that the brands and retailers are responding to what the market is willing to pay for their tablets. That might be easier to accept if the devices in the market were fully mature and not experiencing glitches; however, it is giving the impression that these products aren’t completely finished.

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What is the future of the PC Industry?

As I perused the recent PC shipment numbers from last quarter and saw that they were rather anemic and with relatively slow growth forecast in the future, it became even more evident to me that we are at a major inflection point in our journey with personal computers. We started this journey in the 1950’s with mainframes and then went on to minicomputers. But with both of these technologies, only a limited amount of people had access to them.

But when the PC came on the scene, it democratized the computing experience and made it possible for millions of users to experience the virtues of a computer. At each point in history, as we moved from mainframes-to-mini’s-to PC’s, we have had a major inflection point in which one technology faded from the forefront and the one’s following it took center stage. But even as we moved from one computing design to another, the older technology matured and took a different place in our digital world. Mainframes are now the super computers and backbones of huge enterprises. Minis have transitioned to powerful workstations and clustered servers in a sense. And the PC’s, which cut the cords to mainframes and mini’s to define their existence have become the workhorses within a family’s home, managing their digital movies, photos, finances, etc. At this stage PC’s have matured and settled into a comfortable place where its reason for existence is more and more focused on handling the heavy digital lifting we need from time to time.

Now, even if the PC market is slowing down and is not as robust as in the past, we are still going to sell 350-400 million PC’s every year for some time. They have a place and will continue to be important digital tools in business and the home. However, we are at the next major inflection point and PC’s are about to take a back seat to the newcomers that will define the next major growth phase of computing.

I believe that this inflection point can be described as going from personal computing to personalized computing and will be defined by tablets and smartphones that take all types of shapes, form factors and designs that make the computing experience more personalized and customizable. This inflection point is just as dramatic as when the PC came on the scene and cut the chord between the mainframes and mini’s and brought personal computing local. Another way to think of this is that we are moving into a phase in which people want a PC on their desktop and in their pocket.

But, it goes even deeper if you look at the PC, tablets and smartphones as just another screen in our digital lives. In the future we will have a lot of screens in our lives as well. A screen in our cars with a 3G chip in it so that our cars can be connected to the cloud at all times. Or screens in our refrigerator that is tied to application specific functions related to the kitchen and food. Or a screen built into the mirrors in our bathroom that is tied to the Internet and can deliver custom information on demand as we get ready to head out for the day.

Here is a chart from one of our presentation decks that shows what this might look like. Out in the periphery are a whole host of screens. Next is a layer of services that serve as gateways to things like apps and various services that are then tied to the cloud.

This new inflection point is being led by tablets and smartphones but is bound to carry over to a whole host of others screens people might choose to meet more personalized needs over time.

On the surface, the PC industry and PC companies who have a history as hardware vendors should see this as a new opportunity to extend their PC design and manufacturing prowess to this new extended personalized computing opportunity. But that is not the case. Except for Apple who has made this transition quite smoothly, the rest of the PC vendors are quite challenged when it comes to designing products outside their normal PC expertise. And it is really unclear to me if they ever will be able to extend their experience in PC and laptop expertise to personalized computing.

It gets even more interesting when you realize that hardware is actually only 1/3rd of the equation. In the future of “personalized computing” there is also the apps and services layer and then how all of these work with and react to a cloud based back end. These screens may be smart but they get much smarter when they have apps and are connected to the Internet.

At the moment, most of the Windows PC vendors realize that moving to a tablet/smart phone extension of their business is pretty tough. Indeed, the big guys seem to be putting more energy in the core strength’s, which are enterprise computing and SMB. I don’t think they will give up but I suspect this will be a big struggle for them to create “personalized” computing devices that really add to their bottom line.

This leaves room for potential outsiders to swoop in and become major players if they have the ability to create new “screens” of their own that can be tied to a rich eco system of apps and cloud services. The one that I see on the horizon that fits this description is Amazon. It is widely rumored that they will do a tablet this fall. But it is their back end and services that could make them a major player over night. They have a music store, a video store, an Android apps store and the big kicker-credit cards of over 200 million users. Like Apple, they have spent over a decade building this back end and customer loyalty/commerce engine and would be well positioned to end up being the #2 consumer tablet player almost overnight.

Further Reading: The Amazon Tablet Opportunity Could be Huge

So how will this ultimately impact the traditional PC vendors? My best guess is that they will not be able to compete in the consumer tablet and smartphone market unless they pour billions of dollars into building similar cloud based back ends and services that make their digital screens sing. The only traditional PC vendor who could have a chance at playing in this new personalized computing consumer space is HP if they are willing to make the billions of dollars in investments to build out their own eco system of apps, services and a rich cloud back end that equals Apple and Amazon.

Further Reading:
HP TouchPad Review – 3 Things that Set it Apart
10 Days with the HP Touchpad

Instead, what I believe will happen is that the traditional PC makers could and should make a major push into corporate with tablets and own that space. Yes, Apple is gaining serious ground here, but they don’t have an enterprise sales and service organization that is really needed to support and integrate tablets into an IT department. In the end, I believe they will realize that it will be almost impossible to compete at the consumer level with Apple and Amazon and put more of their energy into enterprise and SMB focused tablets.

The PC market is maturing and mainstream PC vendors are still well positioned to create new and innovative products around PC ‘s and laptops that could still see yearly growth as much as 10% over the next few years. But I am not optimistic about their chances of extending their computing expertise beyond the more traditional PC and laptop form factors and take serious ownership of the digital consumer. That will come from Apple and Amazon and anyone who can build out a complete eco system of hardware, software and services that really meet the needs of the consumers of the future.

Did Android Tablet’s Gain on The iPad or Did The Market Grow?

Yesterday Strategy Analytics released some numbers showing the latest in the overall tablet shipments which included iPad and Android tablets. In that report Strategy Analytics reported”

Apple sold 9.3 million iPads in the second quarter of this year, giving it a commanding 61% share of the market
Android captured [a] 30% share of global tablet shipments in Q2 2011
Motorola, Samsung, Acer and Asus – shipped 4.6 million tablets running on the Android operating system in the three months to the end of June.
Microsoft managed to capture a 4.6% of the tablet market
PlayBook tablet, shipping half a million units in Q2 to give it a 3.3% share.

Now there are several things we need to bear in mind when we look at these numbers. First is that these numbers are only for Q3 2011. So Strategy Analytics is saying that during the third quarter Android tablets sold 30% of the total tablet sales just in this quarter. Strategy Analytics is not saying that Android tablets have 30% of the total tablet market share to date.

Second Apple’s tablet sales are sell through (actual sales to consumers), meaning those are actual numbers of consumers walking around with iPads in their hands. The Android tablet sales are shipped in to retail sales which is not necessarily indicative of how many consumer actually purchased them, only how many retailers purchased into the sales channel.

Now to look at the actual current market share numbers of tablets. According to sales figures to date Apple sold just over 29 million iPads. Sifting through as much public data I could find i’ve come up with total Android sales to date of just over 9 million, again sell into channel not sold through to consumers. If that is correct then Android tablet market share of total sales into channel to date is just over 25%.

I am keeping a close eye on these numbers and the next two quarters will be very telling. Since the most accurate tablet forecasts for 2011 are in the 40-55 million range, the next two quarters look like they could be huge. I believe Apple will easily sell in the double digit million range of iPads in each of the next two quarters. The true sell through numbers of Android will be key and i’ll update my market share figures when we get them.

We must also remember that tablets are a growth category, this year they will have grown nearly 200%. Meaning that the overall size of the tablet pie is growing. In my opinion discussing market share is great but I’m not sure its entirely helpful until a market has reached its peak.

Should the Media be Proclaiming RIM’s Death?

Over the past few weeks i’ve been reading a number of articles from the big media outlets all proclaiming the death of RIM. Most of these articles are pretty grim and their headlines say it all. I have nothing against a good or controversial headline its more the content of the article i’m interested in. What i’ve noticed is the content of these articles being fairly negative on RIM don’t really offer much helpful insight for either the consumer or RIM itself.

Two articles in particular this week are examples of what I mean.

BGR: Inside RIM: An exclusive look at the rise and fall of the company that made smartphones smart

All Things D: Bring Out Your Dead: Is Research In Motion The Next DEC?

So what I am wondering is what the role of the media should be in a situation like this where a company is struggling. Given that the media is extremely influential and actually does affect the mind share of consumers, it seems that if all the outlets go around saying RIM is dead, consumers will believe it and write them off no matter how good any future products may be.

Perhaps it would be more helpful if these articles contained a balance and point out what has gone wrong but offer helpful suggestions on what RIM could do to remain competitive. The result would be that the market may not write RIM off entirely and instead look to see if RIM responds to the helpful insights to the media, using the media to their advantage, and still have a shot at competing.

Too often it seems like the media is powerful enough to claim a companies death, thus affecting the mind share of investors and consumers and in return create a self fulfilling prophecy where the company actually does disappear.

Now i’m not saying the media does not always write negatively. In fact a number of good articles have come out that do offer helpful suggestions. I simply believe they are more rare than the norm. A few examples:

In BGR’s Open letter to BlackBerry bosses: Senior RIM exec tells all as company crumbles around him the letter itself contains helpful insights and suggestions.

Even though we are analysts not journalists Tim and I have also covered the topic.

Tim Bajarin wrote one for PC Magazine called What RIM Needs To Do To Survive that offered a number of suggestions for RIM.

And in my article last week for the tech section of Time.com I wrote about The Tragic Decline of BlackBerry and offer some insights as well on how to turn it around.

The bottom line is I would like to see more competition and consumer choice than less. I know negative news drives traffic but what i’m hoping is that there is a balance. I’d love to see the media also use its influence to do all they can to help struggling companies better compete going forward.

Again it comes back to my original question. What should the role of the media be when a company is down?

Netflix as a Streaming Service is the Bandwidth King

News broke yesterday that Netflix was raising the price of its streaming plus DVD-in-the-mail plans. It was interesting to see all the backlash from some media and from consumers on Twitter. As much as this may be shocking in the short term what it really signals is the bigger picture story that Netflix is really a streaming video service not a DVD-by-mail service.

In fact I think this piece in the Wall St Journal got it right: Reed Hastings Doesn’t Want You To Pay More For Netflix. He Wants You To Stop Using DVDs.

If you noticed, the cost of their streaming only service did not go up at all. Only the packages that included an option for DVD-by-mail went up in cost. The age of Internet video is undoubtedly upon us. This reality is cemented in stone if we do a quick case study of Netflix.

I’ve recently analyzed a Q2 2011 report on Netflix from Sandvine Networks. Here are the key points from that report as I see it.

Netflix now accounts for 29.70% of all downstream traffic during peak period (evening traffic)
Netflix has 23.6 Million Total Subscibers
The average Netflix consumer consumes more than 40gb of data per billing period
Playstation 3, XBOX 360, PC, and Wii (in that order) account for 85% of Netflix traffic
Average consumer using Netflix on an XBOX 360 consumes over 80gb of data per billing period

To quote a statement from their report:

“It is difficult to understate how truly staggering the growth has been. Lest the reader think that this phenomenon
is limited to peak period, even when measured over 24 hours, and when measuring all traffic (upstream and
downstream), Netflix is #1.”

Netflix is now the undisputed bandwidth king of the Internet in North America. What’s more is that they have caught Comcast in total US subscribers both with just over 22 million.

What I find most interesting about the Netflix streaming service is how the non-techie community has embraced it. We are hearing more and more frequently in our interviews with mainstream consumers (non-early adopters) how they are turning to Netflix as a part of their prime time evening experience. The reality is for this to happen Netflix time is taking away from their service providers time. In fact we are beginning to hear frequently in these interviews how many are cutting the chord to cable and using Netflix streaming only.

These are telling signs about the value these types of services offer into the main part of the market. As more online streaming services from companies like Apple, Amazon and perhaps even Google continue to grow and become attractive, traditional MSO’s will have no choice but to adapt and adapt fast.

The Bandwidth Story
The real point I want to make is around bandwidth demand. The bandwidth Netflix is demanding from North American service providers is simply stunning. Keep in mind this is just one service. I expect many entrants into the streaming media sector from major players over the next 5 years. The impact on broadband will be overwhelmingly significant.

Not only are the bandwidth demand numbers I pointed out above only from one service; they are also only from one device and one concurrent stream. What happens when you have multiple people in homes consuming Netflix on a tablet, PC and TV all at the same time? The answer is the 29% of downstream traffic could double or triple.

The multi-connected-device reality that is coming is one i’m not sure the network and broadband providers are ready for.

Are Service Providers Prepared?
The Wall St Journal Heard on The Street section published a commentary on this subject titled: “The Time Bomb in Netflix’s Streaming Strategy.”

If we do see a continued explosion in streaming services how will the broadband service providers meet the demands of their consumers? Are the networks themselves capable and ready to handle this explosion of streaming media?

These are all questions we will have to wait to see how they are solved. I do however hope that whatever costs that get passed to consumers do not hinder the success of these services as the WSJ article suggests. What could very well happen is that the costs of traditional TV packages go down and data packages go up – just a thought.

It is in the best interest of the network and service providers to add more value to their broadband networks. Right now they believe their broadcast services are the most valuable but very shortly that value will transition into their broadband services. And that transition will happen on the back of services like Netflix.

Microsoft’s “Can’t Lose” Mobile Strategy

Microsoft has been trying to recapture momentum in mobile after ceding the early market leadership it had 5-6 years ago due to its lack of adequate investment and resultant inability to stay competitive. And its renewed focus and execution over the past 1-2 years is indeed enabling it to make progress. But behind the scenes Microsoft has a strategy to become a driving force in the market and will likely produce more profits than many of the handset manufactures. And this is regardless of whether Windows Phone is successful.

Microsoft makes no mobile hardware, and licenses its OS software to several handset manufacturers (e.g., HTC, HP, Samsung). Its latest version of Windows Phone 7 (Mango) is refreshingly competitive and shows a lot of promise. And its distribution partnership with Nokia could propel it into a leadership position (although we remain skeptical that it will happen as quickly as some predict). Many observers focus on Microsoft’s attempt to gain ground on the competition by increasing its anemic smartphone OS market share. But the number of smartphones now being sold with windows mobile or the newer Windows Phone 7 is pretty small (various estimates are less than 5% of the market). Even at an estimated $10-$15 license fee per phone, the stakes are pretty small for a company the size of Microsoft.

But licensing the OS should actually be Microsoft’s back-up position. Frankly, there is far more money to be made other places. First, Microsoft is now putting a squeeze on all of the Android handset makers by enforcing its patent portfolio and claiming all such manufactures must license Microsoft IP to prevent infringement. And the handset makers are coming on board. Deals have been struck with HTC to start, and negotiations continue with others (e.g., Samsung). It is quite likely that Microsoft will be able to extract licensing fees (eventually) from all the manufacturers. And at $5 per handset produced, that is a staggering sum.

Adding to this revenue stream is yet another lucrative deal for Microsoft. Virtually every smartphone made (including Apple and Google Android, but with the exception of BlackBerry) licenses ActiveSync as the way to both connect to email (via Exchange) and to control the device (e.g., kill, provision). Microsoft controls 80%-85% of the enterprise email market. Without ActiveSync capability, the devices are unable to work in the business world, and what high end smartphone maker wants to be excluded from the corporate world? So licensing fees of $3-$5 per smartphone device for ActiveSync licenses has huge potential.

So what does this mean for Microsoft’s revenue streams?
Currently, all versions of Microsoft powered phones sell about 12M units per year (based on smartphone sales of approximately 400M worldwide estimated in 2011*, and 3% market share for Microsoft). That amounts to $180M best case (at $15 per device). There will be an estimated 140M Android phones (based on 35% market share) and 80M iPhones (based on 20% market share) sold this year worldwide. That amounts to $660M – $1.1B for ActiveSync licensing. And it’s likely that Microsoft will get many (if not all) of the Android vendors to pay royalties, so that’s another potential $700M (at $5 per device). This is not guaranteed, given it has not yet signed licenses with many of the vendors and some vendors in emerging markets may not care if they are infringing. But even if Microsoft only generates half of this amount, it’s a substantial sum. The OS revenues look paltry by comparison to potential IP revenues. And IP doesn’t require the substantial investment in updates and improvements that the OS does, making it even more lucrative.

Further, the smartphone market is likely to at least double over the next 3 years when we expect Microsoft to capture 15% of the smartphone market (primarily with Nokia). So 15% of an 800M device smartphone market = 120M devices and at $15 per device for licensing the OS = $1.8B in revenue. But the number of devices to be sold on Android = 45% of the total or 360M and on Apple = 15% or 120M. And at $8-$10 license fee per Android device and $3-$5 per Apple device, that’s $3.2B – $4.2B in revenue.

And moreover, even though Bing is currently way behind Google search in market share, it is now the favored platform for phone manufacturers distancing themselves from Google’s dominance. We expect Bing to capture 25% of mobile search in 3 years. This represents a huge revenue opportunity for Microsoft, although it’s hard to quantify at this point.

Bottom Line:
Microsoft can generate a lot of revenue from its deal with Nokia. But even if it doesn’t, the number of licensees of its IP will guarantee Microsoft a sizeable chunk of the mobile revenue stream. And that doesn’t even include the potential for revenues generated by cloud-based and Bing centered services. So Microsoft stands to gain handsomely from mobile, whether it succeeds with its own OS or not. It really can’t lose.

*Market Statistics and Projections (compiled and adapted from various estimates):

Current Smartphones shipped worldwide 1Q 11 = 100M units. Estimated 400M total units in 2011.
Approx Shares: Android = 35%, Apple = 20%, RIM = 15%, Symbian (Primarily Nokia) = 25%, Windows Mobile = 3%, Other = 2%

Future Smartphone estimates for 2014 = 800M units
Shares: Android = 45%, Apple = 15%, RIM = 15%, Windows Phone (Primarily Nokia) = 15%, Other = 10%

China’s Real Role in Tech   

I have had the privilege of traveling to about 55 countries as part of my job over the last 30 years. And while I really enjoy Italy, France, Hong Kong, and Singapore, the one country that fascinates me the most is China. I first went to China in the early 1990’s, just when they were starting to establish their special trade zones. At that time the government was still leery of outsiders and we could not travel anywhere without a personal guide of some sort.   

Fast forward 20 years and the China I visited in 1990 is not the same place it is today. China has emerged as an industrial powerhouse and a major manufacturer of all types of goods, especially electronics and computers. I became aware of China’s real interest in computer manufacturing during a dinner I had in Taipei with ACER founder, Stan Shih in 1991. At the time, it was illegal for any Taiwanese company to do business with mainland China. But Mr Shih told me that he was working through private channels and was planning to put one of his computer manufacturing facilities in China shortly.

Indeed, within a few years, China had opened its doors to various partners throughout the world and started down a path to become one of the major manufacturers of personal computers and tech related products.  But China has gone down another path that has enhanced its role in the world of technology. They have made hardware, semiconductor and software engineering a keystone of their educational system and in fact, they produce the most doctorates in these fields then any other country in the world. And all of their engineers and most of their college educated youth take English as a second major, thus making it possible for them to communicate well within the international business community.

Software Expertise
Last fall I want to China to speak to a couple of thousand software developers who had gathered to learn more about developing specifically for smart phones. They came from all over China and represented top students from the universities as well as individual developers who were specifically interested in developing for the Android platform. Although the iPhone is a hot item in China and there are a lot of people developing for the iPhone, most of the major Chinese handset makers are backing Android (a completely customized version) and this will clearly be the OS of choice for smart phones in this country.

To put this into perspective, China will sell about 500 million cell phones in 2011 and at least half of them will be smart phones, with Android phones taking the lion’s share of this market. I spoke to a professor at one of the universities after my speech and he told me that two years ago he had about 30 students signed up for his smart phone developer class. This year he had over 3000 sign up for it.

What is perhaps most striking about modern day China is that a middle class is developing and even in the outer provinces, people have cell phones and TV’s. And the traffic jams in Beijing are amazing. One of my hosts told me that there are at least 100 million cars in and around Beijing now, which unfortunately makes it the most polluted place I have been to in years, next to Mexico City.

Thirst For Education
But the thing that both impresses me and concerns me the most about China is the incredible drive and interest in education that makes these students tick. After years of incredible oppression, the ability to learn more freely and to think for themselves is surely a welcome change from the past. Their emphasis on math and sciences at all levels of education puts them so ahead of the US that it is frightening. I don’t want to get on a high horse here but to not emphasize math and science in the US educational system will only put the US at a disadvantage for future competition, especially in the world of technology.

While China clearly has made major strides in education and commerce and has become a powerhouse in manufacturing, banking and world trade, I was reminded that it still is a society that has a lot of controls over its information and people. During my visit I could not get access to Facebook or Twitter at all. It was blocked, at least through the server of my Hilton Hotel Internet connection. And various types of searches through Google were also blocked, although on this trip I had less trouble using Google then in the past.

And it is still clear that China favors home grown properties over outside sites like Google, Yahoo, etc. Baidu is their top search engine and China created apps drive most of the smart phone market. But what a lot of people don’t know is that a great deal of the apps created for the rest of the world is actually coded in China. I deal with many US based software firms who use Chinese software shops to help create, fine tune and support their overall software development projects. China’s influence on hardware and software is much more far reaching then people understand.

But it is the drive of the young people I met on this last trip that really struck a chord with me. I spoke to dozens of kids who just want to be normal, hard working folks who can contribute to the world of technology development. Some were true entrepreneurs and dreamed of having their own companies and in some way making it big. They know of the many tech millionaires and billionaires that have risen within the Chinese tech community and some aspire to that type of fortune.

But for most, they just want to have a better life for themselves and their families. They want a simple apartment and the big prize for them is to own their very own car. To them that is the symbol of success. More importantly, they are serious students of technology. The kids I met are not techies in the sense that they just love technology. Instead they represent millions of engineering students who want to invent new technology products, not just play with them.

Although I still have great faith in Silicon Valley and its role in the world of technology development and the other key tech centers around the US dedicated to technological inventions, China’s emphasis on math and science and its focus on technology innovation cannot be ignored. This is the real role they are playing in advancing the world of technology. In financial circles, we clearly know that China is a country to be reckoned with, especially since they hold most of our debt. But its rise as a tech powerhouse and one that has millions of engineers dedicated to finding new tech solutions and products means that its competitive position in tech will only rise. It should be admired and feared at the same time. The US really is in danger of losing its edge in tech if it does not reverse its course and make math and science more important to our educational system.

Why Tablets Won’t Cannibalize Laptop Sales – Yet at Least

If any of you have gone out to buy a laptop computer lately, you may have asked yourself “do I need a laptop or could I get by with a tablet?” We know from our research that this question is top of mind with a lot of consumers these days as tablets have really clouded their thinking when it comes to new laptop purchases.

Last summer, when the PC vendors were planning their spring collection of laptops, consumer tablets were still in their infancy. Apple’s iPad had some serious interest from consumers but at that time, it had only been on the market for a few months and the vendors did not see it as a threat to their laptop business. But by the holiday season they realized that Apple not only had a hit on their hands but also were pushing more and more non-PC vendors to jump on the tablet bandwagon. They also saw that Apple’s iPad and Google’s Android tablets were starting to get serious attention from potential laptop buyers.

But the problem for the PC vendors is that the projection of cannibalization of laptops by tablets is also all over the map. Some financial analysts that I talk to who cover the PC vendors think that tablets could cannibalize as much as 50% of the laptop business for traditional PC vendors by 2014. In my talks with PC vendors, they currently fear that tablets could impact their total laptop sales by more then 10-12% over the next three years.

However, a new report from Bernstein Research Analyst Toni Sacconaghi is challenging this assumption. John Paczkowski over at the AllThingsD blog shared the reports findings and added some thoughts in his article. Sacconaghi believes that tablets are not cannibalizing notebooks but are instead converging with them. He postulates that a product like Apple’s MacBook Air, with its thin and light design, is more synergistic to Apple’s iPad. And that it represents a broader convergence of the tablet and notebook designs.

He is on to something here. If you look at the key trends in processor designs that focus on very low voltage yet high performance, you see that PC vendors now have the technology to create very thin and light laptops that in some ways work the same way. With a tablet, all you need is a Bluetooth keyboard and it in essence is a notebook. What’s more, if you take a very thin and light laptop and put a touch screen on it that can be folded back or slid down, you have a tablet.

Mr. Saccononaghi also says “ironically, availability of such notebook devices might undermine tablets sales rather then vice versa.” That is a possibility. But the blurring may really come through what we call Hybrids or sliders. When I was in Taipei a few weeks ago I saw a couple of products called sliders. The one officially launched was the Asus slider but I also saw one behind the scenes that will be ready for the holidays that was even cooler then the one from Asus. Both work like a laptop when the screen is slid up and then works like a tablet when the screen is slid down. A tablet and laptop all-in-one!

We see this hybrid slider as the device that actually does blur the two devices into one and could end up driving a portion of the market to buy products like these instead of a laptop or a tablet individually. However these designs still have small 10.1 inch screens and laptop users – who are used to larger screens to work with – may be intrigued by this design but still opt for a laptop and a tablet if they feel the need both.

What’s interesting is that if you consider a tablet a portable computer and lump them into total portable computer sales, Apple would be the #1 portable computer maker in the market today with HP being a distant second.

In the end I believe it will come down to personal choices. If a person uses their computers more for productivity, then a laptop is still needed. But if they mostly use computers for content consumption, then a tablet is more ideal for them.

Either way, consumers will end up with a lot of compelling choices and form factors for ultra light computing and will buy the ones that make sense for them. And for the PC industry, the amount of portable computers shipped starting in 2013 will increase by at least 50%. The big question when we get to 2015 though will be who the real Apple challengers will be and how much market share Apple will still own in both the ultra light laptop and tablets markets by the middle of the decade.

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