Why Nokia is Interesting

What if I was to tell you that the global handset war of the future will be between Apple and Nokia? On a global scale this may very well be the case as I am convinced now that, from a global perspective, Apple and Nokia think very similarly.

This of course does not mean that other handset OEM’s will not be competitive in these areas. However, from a brand and global handset strategy perspective, Apple and Nokia seem poised to compete head to head.

Nokia has never fully exited the realm of relevance. I follow the WW market for phones and am quite interested in what are the big picture global handset consumer trends. Because of that, Nokia and even RIM for that matter, still come up in conversations. However, I believe Nokia has a brighter future than RIM.

Nokia has maintained its relevance both in the terms of product offerings and brand very well on a global scale. Those of us who live, watch, and study the US market primarily, often forget that the world is bigger than the US. Nokia has a weak to non-existent brand in the US so it’s easy to count them out–although we shouldn’t.

There are a few key reasons why I think Nokia is interesting and I will be keeping a watchful eye on them as a global handset competitor. The first is their ability to manufacture handsets in massive quantities.

Nokia currently manufactures 1 million phones every day. Now, those are not all smart phones and mostly feature phones. However, what is key is Nokia’s ability to handle scale. This is one of the key things any global player will need to be able to manage and execute to meet the global handset demands of the future. Nokia can manufacture massive quantities of a single phone design and that is not easy to do.

Nokia has an extremely efficient process for designing and manufacturing handsets and this is one of the key reasons I think they are interesting and, other than Apple, can meet capacity of the future demands.

Again this is not to say other brands like HTC, Samsung, Moto and others will not be successful, only that they will ship more products in lower volume rather than massive volume of only a few designs.

The other element I think Nokia brings to the table is their roots in design innovation. Nokia has certainly had their share of design flops but generally speaking, they are at least creative and out-of-the-box when it comes to design.

The design of hardware is one of the central things factoring into the buying process of consumers. The ability to design an object of desire is very difficult and even companies who do it well don’t necessarily hit home runs each time. Nokia has a history of innovative design and because of that going forward I find them interesting.

On a slightly lesser scale than the last two points, Nokia is also interesting because of their partnership with Microsoft. This, I feel, was a wise choice of an OS partner but it will still bring challenges.

I am very optimistic about Windows Phone and in particular Nokia as a partner in this area for Microsoft. Nokia has a strong brand in many parts of the region and with the release of two Windows phones, the Lumia 800 and the Lumia 710, they have taken their first step to become relevant in the smart phone segment.

Although I am optimistic and will follow Nokia with a keen eye from here on out, there are still many questions that need to be answered.

The first is how they will differentiate,beyond hardware design, on top of the Windows Phone platform. I’ve said this before and I’ll say it again- selling a standard OS only leads to the “sea of sameness” and overcoming that sea of sameness will be key for Nokia. I believe their penchant for design is a good start. They are also bringing core apps with maps, music and sports to Windows Phone and that is a good start.

Second question is how successful will Nokia’s North America brand push be? Although here at Nokia World, Nokia did not release any specific data but they officially stated their commitment to the US market with a portfolio of products in the first half of 2012.

I believe there is still market share to be had with smart phones in the US and I feel RIM in particular is vulnerable there as well. In regard to Nokia in the US, if their efforts are successful,I believe it will affect Android devices more than the iPhone. So although Nokia is late to enter the US market, I hope they enter the US market strategically and relevantly and with a serious marketing budget as well. We will have to wait for further news before analyzing their North America efforts.

Overall, my take away from Nokia world is that Nokia is perhaps still highly relevant. In emerging markets they are designing devices with features consumers want, like dual SIMs, at price points they can afford. Their commitment to Windows Phone gives them a solid first step in smart phones and now executing in these areas above will be key.

Android and iOS: Two Very Different Philosophies

In this column, I in no way intend to say one of these platforms is superior to the other. I simply want to explore how they both represent completely different approaches to software and user experiences.

We have to start with a fundamental agreement that we live in a free world and support a free market. In this world consumer choice is the most powerful market driver. Competition brings choice and choice is very good.

Therefore, consumers are free to choose whatever products in hardware, software, and services they so desire. Companies compete in an attempt to create features that appeal to consumer segments, interests, and preferences. Certain features in hardware, software, and services will appeal differently to different people. There is nothing wrong with that, as I said it is very good.

The Android Philosophy
At this point we must point out that Google is a services company. It is for this reason that we should expect a different hardware and software philosophy. As I continually point out in our analysis of Android for clients, Google is a services company and all hardware and software is to Google is simply a front-end to access their services.

Android was created for the primary reason to help consumers access Google’s services on non-PC devices. Hardware for Google is just the physical object needed to run the software that is designed to access Google’s services.

Google starts with a services mindset and philosophy then works backwards on how best to make those services as broadly accessible as possible.

Google is also an engineering company and engineering companies historically struggle with making innovations accessible to tech lay-people.

With all of that context, what Google has done with Android is impressive. Those who get excited about technology for technology sake get very excited about Android. Google and Android engineers regularly show some very visionary and perhaps “ahead-of-their-time-technologies.”

This is not to say that tech lay-people can’t use Android. Many do, however, I would argue that those who have a tendency to tinker, customize, and tweak their hardware themselves, get the most excited about Android.

Android’s challenge is to take many of these forward thinking things like, face recognition, fully customizable UI, flexible widgets, Android Beam (features found in Ice Cream Sandwich), etc, easier and compelling for every day people to use.

The iOS Philosophy
Apple on the other hand is a software company, who also cares deeply about making their own hardware. Apple is on the cusp of adding robust services to their ecosystem but unlike Google they approach everything as a hardware and software company not a services company. Services to Apple are a means where to Google services is the ends.

To Apple, making innovations accessible to the masses is the underlying theme of all their hardware, software and now services philosophies. This is why they may not always be first with certain features but it is clear that if they don’t offer something the market wants out of the gate they will certainly add it and make it simple to use.

Apple’s target with their products is those to whom technology is mostly foreign. Meaning not a core and central part of their every day lives. This is why when they release new products they only focus on certain features. The features they focus on solve tangible and every day needs and strike emotional chords with consumers.

For example, when they launched the iPhone 4, they could have touted any number of features, instead they just demoed FaceTime and that was enough. It spoke for itself and showed consumers the value of the latest feature.

Apple’s goal is to make technologists out of people who never cared about technology before. Their desire is to provide these consumers with sophisticated solutions that are extremely simple to use. I can’t stress how difficult this is but it is something Apple does extremely well.

As I stated in the beginning, these two approaches represent just that–two different approaches. To each his own is the critical point I want to make.

I am in the privileged position to get to provide opinion and analysis on all the platforms on the market. To some consumers where I influence buying cycles, like friends and family, I am comfortable recommending Android devices; to others, I recommend iOS.

Where this really gets interesting is with the generations who grow up with technology, some call them “Digital Natives.” I watch my kids, for instance, who are perfectly comfortable jumping back and forth between my iOS and my Android devices.

This next generation will grow up incredibly technical and tech savvy. Because of that, their demands and expectation of next generation personal computers will far exceed anything we can imagine today.

[thumbsup group_id=”3485″ display=”both” orderby=”date” order=”ASC” show_group_title=”0″ show_group_desc=”0″ show_item_desc=”0″ show_item_title=”1″ ]

How Apple Won the Mobile War

HP LX 95
The HP 95 LX

I have been following handheld computing products for about as long as they have existed, going back to such forgotten products as the Hewlett-Packard 95 LX and the Psion Series 5. In 20 years of effort, only three products truly caught the popular imagination: The Palm PDA, the BlackBerry, and the iPhone. And of these, only iPhone became a true mass market success.

Why? In the early days, especially, these products faced impossible technological hurdles. Miniaturization was still in a fairly primitive state,  so the devices were saddled with seriously inadequate processing power. Displays were awful–low-resolution, low-contrast LCD screens. And wireless connectivity was nonexistant.

But designers managed to make a bad situation worse by trying to make devices do too much. The HP 95 LX and its successors were actually tiny MS-DOS computers; their ability to run Lotus 1-2-3 was a key selling point. But only a relative handful of people, mostly engineers, had any desire for such a product and it attracted an enthusiastic, but tiny, market. Numerous other devices came along in the mid- to late-1990s in an assortment of sizes and form-factors: the Apple Newton MessagePad, the Casio Zoomer, the IBM/BellSouth Simon (perhaps the first smartphone), the AT&T EO, the Motorola Envoy. All tried to do too much with too little, and all failed miserably.

Palm P{ilot photo
The original Palm

The first device the break the paradigm was the original Palm Pilot of 1996. Its designer, Jeff Hawkins, had a Jobsian focus on the user experience; during development, he dropped any functions that he felt were too complicated and he swore that Palm users would never see an error message on their screens.

The Palm didn’t try to do much; essentially it maintained contacts and calendar in sync with your computer and took input through a modified handwriting called Graffiti. But it worked vastly better than anything else at the time and was a hit. It was also, by way of the Handspring Treo, the direct ancestor of the modern smartphone, though its only means of communication was to a PC over a cable. (My review of the original Palm Pilot.)

The first BlackBerry, in 1999, was also a very specific solution to a specific problem: mobile email. Early BlackBerries  had no voice capability. They were built on pager technology and the first model was called the RIM Inter@ctive Pager 950–the BlackBerry name came along a bit later.  The name is something of a giveaway; RIM came out of the pager industry and the 950 was conceived as a vastly improved pager.

Instead of having to know a special pager number, send a page, and wait for the recipient to call back, the BlackBerry let you send an ordinary email and reach the recipient anywhere, any time.  A tiny but surprisingly functional keyboard, much better than those on the primitive “two-way pagers” of the time, allowed replies.And like the Palm, it also synchronized contacts and calendar with a computer. (Read my review of the original 950.)

BlackBerry 950 photo
The BlackBerry 950

The BlackBerry was not an instant success. It started to catch on in a big way once RIM created the service that provided a secure link to corporate mail systems and enterprises started deploying the devices in large numbers. And, of course, the popularity grew once it gained voice capability. Like the Palm, the BlackBerry caught on because it served a real need and concentrated on doing one thing really well.

Throughout the late 90s and early 00s, there was a continuing effort to build handheld computers. Microsoft and partners such as Compaq, Hewlett-Packard, and Toshiba, struggled mightily to cram something resembling Windows into a handheld product, but its PocketPCs, with their miniaturized Windows desktops, left users cold. It was only when Windows Mobile imitated the much simpler design of the Palm Treo that it achieved some modest success.

Apple, after the failure of the Newton, avoided handheld computing in favor of creating a new market for the iPod. In typical Apple fashion, it let others get beat up and learned from their mistakes. By the time Apple came out with the iPhone in 2007, the world had changed again. The amount of processing power you could cram into a small device had grown tremendously. Big, high-resolution, touch-screen displays were economical. And wireless networks were ubiquitous.

But like its few successful predecessors, the iPhone didn’t try to do too much, at least not all at once. The original iPhone was a limited device. There was no app store and no apps other than the ones Apple provided. Despite the widespread availability of 3G wireless networks, the phone was limited to 2G. And the battery struggled to get through a day of normal use. But it was an  instant hit because it did what it did well, without compromise, and in a way that delighted users. A year later, the iPhone 3G remedied the most glaring defects of the original, the App Store let a million apps bloom, and people finally had a full-fledged computer that fit in a pocket.

Strangely enough, the rest of the industry was pathetically slow to respond to the iPhone. Microsoft stuck by Windows Mobile, not seeming to realize that the iPhone’s design had rendered its Windows-derived user interface as obsolete as punch cards. RIM, too, saw no need for fundamental change even as the iPhone began to steal away its core corporate market. Only Google, with no history in the business, rose to the challenge with Android. Android is good enough, and has an attractive enough business model, to make it the only real remaining challenger to Apple. But even it has yet to prove that it can do any better than remain a beat behind the iPhone.

When Markets Are No Longer Price Sensitive

There will always be a customer who only wants the lowest cost products. That truth however, does not represent the whole market. Price, for the majority of consumers, is not the only driving purchasing force.

If in every market the lowest cost product was all consumers wanted–then we would all be driving Toyota Corollas.

The fact of the matter is, in markets where consumers are mature low-cost is only attractive to a segment of the market but not the market as a whole.

Keep in mind, I am making a distinction between mature markets and mature consumers. Mature markets are one where a category or product is no longer new and well understood. Mature consumers are ones who have been shopping long enough to have pre-determined needs, wants, and desires on a variety of goods.

Developed markets for the most part have mature consumers. Because of that fact, new product categories will mature faster than in emerging markets. So for example, smart phones are still largely an immature market. Many consumers still do not own a smart phone. This market however, is maturing rapidly because we have mature consumers. Interestingly, they are not just buying the cheapest smart phones on the market.

Emerging markets consist of consumers who are maturing, still developing their needs, wants, and desires for a variety of goods. This is because the big trend in emerging markets is the rising middle class. The rising middle class has not historically had much disposable income prior to their “rising”; therefore, they were not generally consumers of a large variety of goods.

Since they have attained more disposable income they have began to consume more goods and are therefore, maturing as a consumer learning what their needs, wants, and desires are with a variety of goods.

I belive that in a market where consumers themselves are maturing price is more important. You need to first consume goods for the first time before you refine your tastes and begin to appreciate differentiation. Therefore, low price products help these consumers consume the goods because of the lower barrier to consume said good.

PCs, smart phones, and tablets are a good example of this in emerging markets. Lower costs will help these consumers first experience these products and learn what they like and don’t like. As they flesh out their needs, wants, and desires for these products they will then begin to shop with a more keen eye. When that happens, differentiation or products designed for a market segment becomes the strategy–not low-cost.

In a number of books I’ve read on the subject the observation is continually made that when a market matures it fragments. The below slide shows how this happened within the automobiles market.

Consumers first owned a car that was of lower cost. As they continued to own more cars they began to mature as a consumer of automobiles and eventually decided they wanted a minivan, truck, sports, or economy car. They made this decision based on their needs, wants, and desires and then chose the appropriate product. To re-emphasize my point, this decision was not based on price alone but on needs, wants, and/or desires.

All of this has a profound impact on how consumer technology companies orient themselves going forward. The reality is some markets are price sensitive and some are not. Companies need to be wise to understand which markets to enter and have an appropriate strategy.

The bottom line is developing a product to fill a consumers need, wants, and desire is a better strategy than trying to be the low-cost leader.

The New Kindles=Razor and Razor Blades with eBook Readers

The new Kindles, with prices at $79 and $99 finally introduces the concept of the razor and razor blade business model to eBooks. We are all familiar with the idea of razor companies creating very cheap razors and then getting people to come back and buy a never-ending supply of razor blades to use for shaving.

We in the tech world already have a product that fits a similar model with printers and the continual need for ink. Printer makers make next to nothing with the printer hardware and make all of the money on the ink.

Now Amazon is blazing new trails with their two new eBook readers at price points that are almost give away the hardware. This is quite an interesting turn of events in the eBook reader market. When the Kindle first came out it was $399. The only people who bought it at that price were what we call early adopters. However, they became hooked on this eReader and once the first Kindle established that this product category was not a fluke, the competitive market kicked in. Within two years of the Kindle’s release, the competitors undercut the Kindle’s price by as much as $200.

But as more and more people bought the Kindle, Amazon was able to get better deals from suppliers and their costs came down as well. Last year they lowered the Kindle’s price, with ads to as low as $129. But with the new Kindles they break the magical $100 dollar price barrier and in turn have basically introduced to the market the eBook equivalent of the razor and razor blade business model for electronic publishing.

This is especially important since they have over 1 million commercially published books for purchase as well as hundreds of thousands of free books to add to their overall eBook distribution. What this does is virtually assures that Amazon maintains its lead as the world’s top eBook publisher.

This move should not be too much of a surprise though. The basic law of manufacturing is that the more you make, the lower the prices of the product. Once Amazon was building a million units at a time, they started getting preferential pricing on every component. Over the life of the Kindle Amazon has sold millions of these devices thus making it possible to finally break the $99 dollar barrier.

Although some smaller brands had already broken $99 dollars, it is Amazon’s move now that changes the game completely. The end result is that the market will move even faster from physical books to electronic books, magazines, newspapers and more. Many more people will, at this price, be enticed to jump on the eBook bandwagon and you can bet that both of these models will be hot sellers for the holiday.

But the fact that Amazon is driving this razor/razor blade model into ePublishing is very important. It will set the tone and define the role of standalone eBooks and push the concept of ePublishing into the mainstream even faster than many of us had expected.

It is a very good move for their business and it solidifies Jeff Bezos’s overall goal to become the worlds #1 eBook publisher and it will more than jumpstart the next generation of electronic publishing by making book reader affordable to all.

Why China is Apple’s Land of Golden Opportunity

Last fall, when I was in Beijing, I noticed that Apple’s iPhones seemed to be just about everywhere I turned. I was on the campus of one of the major universities and an abundance of students there had an iPhone. While Apple’s iPad was still relatively new to the Chinese market, I saw a lot of these also floating around the campus and in the hands of quite a few students.

This week I headed back to China via Hong Kong and got to see the new Apple store that was opened just a week ago. It is 15,000 square feet, two stories and laid out pretty much like any of the other big Apple store in big markets today. In this case, it is right in the heart of Hong Kong’s Central district and connected to the International Finance Centre Mall. If you come over on the Star Ferry from the Kowloon side, it deposits you on the Hong Kong side just about at the foot of Apple’s new store. To say that this store is centrally located would be an understatement.

I am told it is just the first of at least two big Apple stores to be in Hong Kong. The second one will be in Causeway Bay and will open later next year. A week earlier, Apple opened their largest store in Shanghai which can handle 40,000 a day and along with another one in Shanghai near the telecom tower and the ones in Beijing. It is pretty clear that Apple sees China as a very large market opportunity for them.

Apple is taking advantage of the new emerging middle class in China, which over here is known as the consumer class. This is made up mostly of young people who work in factories or are two income families who have moved to these bustling cities and they like to flaunt their new-found wealth. For them brand is key as they are very status conscience. In China, any Apple product fits into that definition of status perhaps even more so than in America. I am told that if you have an iPhone or iPad, you are looked up to and envied.

I spoke with a professor in HK and he told me that nearly every young girl he knows has an iPhone. They make about $300 USD a month but they still have an iPhone. What’s more is that the iPhone in China is not cheap. They start at around $750. To them however them it is a status symbol. For those of us who travel to Asia a lot, especially Japan, we already know how status crazy some Asian youth can be. For example, when Michael Jordan goes to Japan, he is always mobbed and people want his shoes and anything with his brand on it.

But these Asian kids are not only status conscience. They are also gadget freaks who love their tech toys. So they gobble up iPhones, iPads and iPods in very large numbers. There are rumors that Apple will soon be on other carriers in China and that could triple their reach in China over the next two years.

Now, if you don’t believe that Apple has gotten to high value status, think about this. When I was on the Kowloon side of Hong Kong, I found a shop that had paper iPads and paper iPhones for the dead to give during funerals or days honoring ancestors. At first I thought these were just paper displays until the guy in the shop slapped my hand and told me they were sacred.

I also spoke with telecom execs who were at the same meeting I was at and they pointed out that we who follow Apple in the US are too myopic. We see them as just being a US and European focused company instead of what they really are, a world-wide technology force. They pointed out that Apple has their phones with 145 WW carriers today and are adding about 5 carriers a month around the world. And like in China, the iPhone is a hot product and in great demand with those who are starting to move into the middle class of their local economic bracket. To them the iPhone is not only a status symbol but the crème of the crop in smart phones.

Before I left the new Apple store in Hong Kong, I asked a group of young people who were in the store looking at Apple products if they were interested in Apple’s upcoming iPhone 5 announcement. I got a resounding yes and in fact, many of them will be glued to blogging sites covering the iPhone launch even though it will take place in Hong Kong at 1:00 AM.

Of course, there is a lot of competition in smart phones and tablets in Asia, but Apple’s products appear to be the one that this new consumer class really wants to own. While Apple has only 5 stores in China, I am certain that there will be more given the huge appetite for Apple products in this country.

So, if you look at Apple and think that their growth and future is limited, just consider the fact that they are just starting to tap into the China market. Not to mention the fact that these newly minted middle class consumers are becoming a major part of the new Chinese economy.

It seems to me that Apple has perhaps more opportunity to grow this market than any of us can imagine.

Will an HP PC Spinoff Make a Stronger Competitor?

I have been having conversations with key executives around the industry about HP’s decision to explore spinning off their Personal Systems Group, which is the group that makes their business and consumer PC’s. An interesting question that has come up is whether or not spinning off PSG will make for a stronger or weaker competitor in the PC industry?

The logic goes that PSG was so tied up in big company atmosphere, who as of late was prioritizing software and services over hardware. Knowing how large companies often move slow and conservatively I can see how this could be an issue for a group who wants to act more like a startup.

So the real question is if HP does decide to go ahead and spin off PSG, will this move put them in a better position to compete?

I certainly can see and sense the desire from my PSG colleagues to move and innovate faster. The PC marketplace is changing rapidly and competition is getting fierce. But PC’s are not going away and can still be a legitimate business if managed well and they innovate in a more timely manner. So it makes a fair bit of sense to build a case that if spun out they could innovate, create and compete in a fast moving market.

It is also very difficult in today’s changing technology landscape to run a business with a successful enterprise and consumer division. Both require very different mindsets, strategies and leadership.

The fact of the matter however is that whether or not an HP spinoff can make for a stronger competitor in the industry will depend on the leadership and the talent that goes with it or is acquired as a new organization.

If the spinoff is approved by the board and moved forward with, this new entity would start its life as a Fortune 60 company with over $40 billion in annual revenue and it would be the #1 PC manufacturer (if you dont’ cound tablets).

That is not a bad way to start off. However the real test of the leadership will be not just to maintain but to grow their percentage of market share in all the areas they choose to compete.

Although execution will be critical and will be what others affirm as the challenge, what may be even more important is the right vision.

HP’s slogan has been the “PC is personal again.” However the real challenge of the companies who aren’t Apple is to make the “PC interesting again.”

Intel is hoping they can assist makers like Dell, HP, Acer, Samsung and others with their UltraBook initiative. Will UltraBooks Make PCs Interesting Again?

If HP does decide to spin off PSG what we will look for is their vision. What categories will this new entity focus on? Where do they believe the growth areas are? How will they compete, differentiate and add value?

Those questions and more will be what we look for as analysts in order to come to an opinion on how successful and competitive this new business will be in the marketplace.

Here’s a Ridiculous Idea-Split Apple in Two

I saw a story earlier today that said that some on Wall Street have suggested that Apple should split their business in two- A Mac business and the more profitable iOS business.

I normally don’t criticize my brethren on Wall Street but I have to say that this is a very dumb idea and shows that some of them still don’t get Apple. Apple is growing because they have created a growth engine around their total ecosystem of hardware, software and services. And the devices, whether it is the Mac, iPod, iPhone or iPad, are elegant screens that are designed to tap into the rich set of apps and services and soon to be cloud synchronization that ties them all together.

Now, I kind of get their original thought, which is that the iOS business should stand on its own and the Mac business should not be allowed to impact the higher growth to their total bottom line. I am sure some are thinking about HP’s move to sell or spin out their PC business as their example. But this misses the beauty of Apple’s ecosystem and integrated device strategy. Yes, the PC market as we know it is not growing much anymore, but PC’s are not going away. Indeed, they will still be the workhorses in business, education and even in the home where they will be needed to do what I call heavy lifting tasks such as managing your music and video collection, handling personal finances and using it for long form documents and email, etc.

And in the Mac’s case, there is a huge audience for its rich OS, especially in graphics and marketing departments, Hollywood and for certain engineering tasks. More importantly, I believe that Apple still has some mind blowing products in both desktop and laptops in their bag of tricks-products that will drive even more users to the Mac platform. And if that is not enough, keep in mind that the Mac taps into all of Apple’s compete ecosystems of software and services. Once people really understand how iCloud works with the Macs and iOS based devices, they will see the folly of the suggestion of splitting Apple in two.

This is also why I believe they will not merge the Mac OS And iOS together anytime soon. Apple is very proud of the Mac OS and will continue to make it more powerful for those who need it. At the same time, iOS will become more powerful as well, but for use in the more consumer oriented devices in their line. iCloud will be the way they are all tied together in the end.

So Wall Street, get this idea out of your head. Apple won’t split the company in two and never will. They really do know what they are doing and how their entire line of hardware, software and services will work together under a single Apple company.

They have made a lot of money for their stockholders and will continue to do so with this integrated approach to making all of their products easy to use and work together as part of Apple, Inc.

Why the iPad is Not A Tablet

It’s not a tablet, it’s iPad 2.

That statement is a subtle but powerful one embedded deep in Apple’s iPad 2 website. I challenge you to find Apple call the iPad 2 a tablet anywhere on their website.

So I also ask this question that others have posed. Is there a tablet market?

On the surface this is probably a dumb question. Apple is selling millions of iPads a month and tablet fever is all around us. Or is it? Is there tablet fever or iPad fever?

You will notice that when Steve Jobs introduced the iPad he never once called it a tablet. And since then, you have never heard anyone at Apple call the iPad a tablet.

The competition has. Analysts and media have called the iPad a tablet. But not Apple. There is a reason for that. It goes back to Steve Jobs overall view of a tablet. As Windows tablets came out, he looked at them and said “people don’t want that.”

He felt that Windows tablets were too PC like and while more portable it just delivered the same old PC experience just in a new form factor. (Are you listening Microsoft and the Windows 8 tablet team?)

Instead, he put his team to work trying to come up with something people would actually want and actually use. He concluded it would not be a tablet in the PC world’s definition but rather, something completely new and different. It is not his fault that we (competition and the media) keep calling it a tablet. Apple will try and distance themselves from this tablet concept and terminology as much as possible.

Software Is the Real Magic
What Apple has actually created with the iPad is just a portable screen that gives users access to what is Apple’s real genius – its apps and services. They just happen to make a portable screen that is elegant, beautiful and easy to use for accessing these apps and services. What is even more interesting is that if you really look at what Apple does in hardware, it is just to create stylish screens like the iPod, iPhone and now the iPad, that front-ends their apps and services. Hardware is only as good as the software it runs.

When Apple first introduced the iPhone, a Sr. Apple exec laid it down on the table and asked me what I saw. I told him I saw a device with a blank screen. He then said that is what he wanted me to see. When off, it has very little value. But once turned on, that is where the magic is- in the software and services. His point was that Apple is a software company and it is the software that makes this “screen” sing and dance. I fully expect Apple to deliver more elegant screens that front these apps and services in the forms of TV’s, in-car navigation systems, and who knows what else that they may feel is needed to serve as a front end to their software and services.

While Apple is creating these screens to serve as front ends to their software and services, most of the competition is stuck in the old line PC way of thinking about creating a tablet that has its roots in the tablets of the past. They take the typical hardware approach and at the moment are hoping Google will create the software and services that they can tap into. Or those waiting for Windows 8 tablets are hoping that Microsoft will deliver a world of apps and services that they can hitch their wagon to.

Stop Making Tablets
But to be competitive with Apple, vendors have to realize SOON that they cannot create a tablet if they have any hope of challenging Apple. In fact, I would stay away from the word tablet altogether as this term is pure death for them. Rather, like Apple, I would give my “screen” a name of its own and start working on my own software and services play that would allow me to also build more screens that front my apps and services. (By the way, when Amazon introduces their “tablet” soon, listen carefully to what they call it. It will probably have the Kindle brand but don’t expect them to call it a tablet. It is just another screen, like the Kindle, that front ends their apps and services.) Why A Tablet (screen) is Key to Amazon’s Success.”

Of course, the opposite is happening. Competitive vendors think that this “tablet” market will follow what has happened in the PC world and the smart phone world where Windows and Android have surpassed the Mac and IOS. But something tells me that this is different. Apple has not created a tablet. They have created a lightweight portable screen that is the gateway to their software and services. The iPad and its ecosystem will stand alone. In that sense, Apple has proven there is a market for iPads, not tablets.

Now it will be up to the competition to prove that there is another market for what they want to call tablets. And at the moment, considering what HP just did with their TouchPad and the slow adoption of any other tablet out there, it leaves one to think that at the moment there is really just an iPad market, not a market for tablets.

What Does the TouchPad Fire Sale Tell Us? Not Much.

Way too much is being made of the success of Hewlett-Packard’s fire sale of TouchPad tablet, essentially the liquidation of a lot of distressed inventory.For example, this The Next Web article speculates on what TouchPad sales might mean for Amazon’s still completely notional tablet.

First, let’s put the TouchPad “frenzy” in some perspective. HP, directly and through channel partners, probably moved somewhere between 300,000 and 500,000 units. By past TouchPad standards that was fabulous. But Apple is likely selling close to a million iPads a week, at full price, every week.

Second, it’s pretty easy to get people to buy a product with a $300 bill of materials (iSuppli’s estimate for the TouchPad) for $99, even a dying product. Folks just can’t resist a deep-discount bargain. The problem is there’s no business model that will sustain it for much more than a weekend. Only wireless phone operators, with lucrative two-year contracts, can afford to offer that much subsidy. Amazon might be able to subsidize a tablet, but by nowhere near that much unless it was very, very selective about who got one.

There are lots of retail liquidators around who know how to move distressed goods of much more dubious value than a TouchPad. All you need is a channel and a low enough price. We shouldn’t read a lot of meaning into this.

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.

5 Reasons Why HP Would Spin Out the PC business

There are various reports out today that HP will announce at earnings that they will spin out their PSG unit or their PC business. If they do this it is for a couple of major strategic reasons.

1-Leo Apotheker, HP’s CEO, is a software guy.
He understands software and services and knows that this is the most profitable tech business on the planet. Software and services have margins of 50% to 80% on average. This is the direction he wants and needs to take the company and put all of its energy on this focus. IBM came to this conclusion in 2005 and sold off their PC business to Lenovo for the same reason. And now, if HP is to really compete against IBM, Dell, Oracle etc, in this business it needs to put all of its efforts in this space.

2-They needed to get PSG off of their books.
Although PSG is still profitable, its profits are very small compared to HP’s other businesses. If they kept PSG on the books, even if their other businesses were doing well, it would continue to impact their total earnings numbers and threaten their overall earnings growth. This would be an important strategic move to keep their operating margins up and make sure they are more profitable in the future.

3-PSG would now have its own P&L.
This would allow them freedom to create other types of PC products as well as be more aggressive with the WebOS licensing. And they would still be the key supplier to HP for PC’s in any HP IT bids. But they would be free to sell their PC’s to IBM and others who need PC’s for their own IT projects as well. The PC business is a low margin cutthroat business and if PSG is to stay viable, it needed to be free to sell even to HP competitors.

4-The PC market is going through a great transition now.
PC’s are still viable for use as productivity tools. And we think that we still will sell between 350 and 400 million PC’s a year for a while. But they are commodity products now. They are almost all the same. HP’s PSG may need a lot of partners and different products that would not be in HP’s overall corporate thinking and this gives them more flexibility if they are unshackled from PC’s

5-Tablets will continue to dominate as consumer consumption devices.
While PC’s can still be used for consumption, they are not ideal for a lot of media consumption, especially since people are increasingly mobile these days. At the moment, there is an iPad market and we are not sure when a tablet market that will pan out. HP is already struggling with their TouchPad and they may need to focus on their webOS software as a key market product and as an alternative to iOS and Android, especially in light of Google buying Motorola as the Android vendors may start looking for an alternative. On their own, they could be much more aggressive with webOS, even if it meant not being in the hardware business.

It will be interesting to see what the details of the spin-out will be if it is announced later today. But there are a lot of good reasons HP’s board might have decided to let it go off on its on.

Once the formal news is out and we have reflected on the details we will publish a more formal analysis including the details of the announcement.

Time for a Smartphone Patent Pool

Most of the creative energy in the smartphone industry seems to be going into lawsuits, with just about everyone claiming that everyone else is violating their patents. In addition to keeping a lot of lawyers in work, the disputes are having real world consequences, with, for example, Apple blocking the sale of Samsung Galaxy Tab 10.1 in the European Union. It’s time to stop the madness, but any solution is going to have to come from the industry itself, not from Congress or the courts.

A patent shingleIf you are seriously interested in the issue, however, stop right now and read “The patent system isn’t broken, we are,” Nilay Patel’s detailed and incisive analysis of the issues surrounding software patents. In addition to analyzing where we are and how we got here, Patel offers some helpful suggestions for reform.

The problem is that serious changes in the patent system require legislation, a tall order from a Congress that would probably have to break a filibuster to pass a Mother’s Day resolution. (a useful but relatively minor reform bill may pass this fall, but it does not address the fundamental issues.) Courts can impose some sanity, but they are slow moving and constrained by existing legislation.

It seems to me that the best way out of the smartphone mess would be for all the the folks now beating each other up in court and before the International Trade Commission to get together and form a patent pool. Everyone owning relevant patents contributes their intellectual property. Members and others wishing to use the patents pay a reasonable fee for a license and the proceeds are divided among the contributors.

This is hardly a novel idea. Philips and Sony, which each owned key technology behind the compact disk, set up a patent pool that helped launch the enormous success of the CD format. Six companies that owned key DVD technology (later joined by three others) created the DVD6C Licensing Group. The numerous patents behind MPEG video compression technology are pooled into MPEG LA, which licenses their use.

A pooling of smartphone patents would make life a lot simpler for everyone in the business. There are so many patents covering so many aspects of the hardware and software that it appears to be all but impossible to build a phone that doesn’t infringe on something. And right now, it looks like the big long-term winners will be the lawyers. In theory, the issues could be resolved by a series of pair-by-pair patent cross-licensing agreements, but a single patent pool seems simpler and more efficient.

Not that creating such a pool is going to be simple. First, any arrangement would probably need the blessing of U.S. and European antitrust regulators, who tend to see such cooperation as potential collusion. The other pools I referred to were easier because they were created at the onset, before an industry existed to be divvied up. A tremendously difficult issue would be determining how to share the license fees among the contributors, a problem that would probably call for a complex arbitration. The position of Google, a major smartphone player with a relatively puny patent portfolio is particularly difficult, although in fairness, Google also stands to be the big loser if the industry proceeds down its present litigious path.

A key step any patent pool would have to take to be successful is to indemnify its licensees against attacks by non-member patent holders. In effect, the pool would have to say: “A license from us gives you access to all the intellectual property needed to build a modern smartphone. If a third party claims otherwise, we will defend you.” This sort of insurance can be expensive, but certainly within the means of a pool that included Apple, Microsoft, HP, Samsung, and other giants.

One serious concern is that the existence of a pool could cripple innovation. If inventors have to share their creations with competitors. will they have any incentive to innovate? One solution would be to limit the pool to current patents–often the most troublesome because their existence and extent is unknown–and leave companies free to claim exclusive rights to future inventions.  That might set up more problems for the future, but could still deal with the difficulties of today.

Why Public Wi-Fi Isn’t Doing the Job

The easiest and best way to relive many of the pains of mobile wireless is to offload traffic from 3G or 4G networks to Wi-Fi. But this doesn’t work nearly as well or as smoothly as it should.

Wi-Fi logoFor the past couple of days, I’ve been at Mathfest, the summer meeting of the Mathematical Assn. of America in Lexington, Ky. There’s free Wi-Fi,  of variable quality, in the Louisville Convention Center. Like many public networks, free or paid, it is set up so that network access requires login on a web page. And, as with the case of many such networks, you have to log in every time your network connection is broken and reestablished, effectively every time you move from one room to another.

It’s not a good idea to run completely open Wi-Fi. Even if you don’t care who gets on the network, communications over open networks, other than those with secure sites supplying their own encryption, are wide open to anyone who cares to listen in. Since most users are unaware of this, they are very dangerous.

The best way to provide free public service is using Wi-Fi Protected Access (WPA). This requires giving all potential users a passphrase (you could oost it on the wall.) The advantage is that once the passphrase is entered, most devices will store the configuration and automatically reconnect as needed.

Unfortunately, this approach does not work for paid services, whether pay-by-session or subscription, because there is no way to authenticate individual users. I think the best solutions for these is to provide apps for all devices that will automatically handle the authentication, requiring the user to enter a username and password at most once (you start talking like that after a couple days as a math meeting.)

Boingo does something like this for its subscribers. You give your Boingo credentials to the app–typically just once–and Boingo takes care of the mechanics of logging you on to a wide variety of networks. Unfortunately, Boingo’s coverage is far from universal; it did not, for example, work in either my hotel or the convention center.

Wireless carriers should really be leading the way in making this happen. They are increasing anxious to move traffic onto Wi-Fi and are building hotspots to facilitate this. But sometimes even getting onto your own carrier’s Wi-Fi is nowhere near as seamless as it should be, and using a rival carrier’s network is often impossible.



The Stage is Set for An iPhone Christmas

Data from Piper Jaffray analyst Gene Munster was released Monday that resulted in similar data to research my firm has been conducting. The conclusion of Munster’s data is that there is huge pent up demand for Apple’s next version of the iPhone, the iPhone 5. Munster’s data revealed several key points.

  • Among those who do not have an iPhone but plan to buy an iPhone next, 60% are specifically waiting for the iPhone 5
  • Of those Verizon subs who do not have an iPhone but plan to buy an iPhone next, 74% are specifically waiting for the iPhone 5
  • Among existing iPhone users, 94% expect to buy another iPhone (6% expect to switch to Android)
  • Among existing Android users 47% expect to buy another Android smartphone (42% expect to switch to iPhone).

Granted his sample size was relatively small at 216 people however the data resulted in similar findings to our own independent research. Our interest was in non-smart phone customers primarily but we did survey a mix of current early generation smart phone owners as well. This research is still underway but early conclusions are showing something similar to Munster’s, which is a large amount of consumers are waiting for the iPhone 5.

Over 75% of those we have surveyed so far state that they are waiting for the iPhone 5 for their first smart phone. In fact I was speaking with a college student who has a two year old and very worn BlackBerry. When I asked him what his plans were for his next phone he looked at me like I was crazy and said “duh the iPhone 5.”

What else is interesting is that when we dig into the kinds of consumers we are talking to we find out that they are largely in the early majority and late majority. These happen to be the largest group of consumers and demand for smart phones is entering into the largest sector of the market. What Munster’s data and our early analysis is showing is that a significant number of people will be in the market for new phones this holiday season, smart phones in particular, and their overwhelming choice appears to be the iPhone 5.

Another interesting bit of information we are finding is that a large number of BlackBerry consumers are due for upgrades this holiday season and are in the market for a new smart phone. We are in the process of finding out the mix of Android to iPhone preference in these consumers and will release those stats when we have them.

The bottom line is if you combine the number of new consumers in the market for a smart phone this fall who are leaning toward an iPhone with the number of consumers upgrading, the result is a huge holiday season for smart phones in general but may tip heavily in Apple’s favor with the iPhone 5.

I would not be surprised if in the US this holiday season more iPhones are sold than Android phones.

Why Apple Scares the Wintel Vendors

You might think that this is a trick question. On the surface, the answer should be the iPad and its eco system. But the iPad is a new category and while it is true they fear Apple’s potential of owning this market and making it hard to create products that are competitive, this is not the product that they fear the most.

The product they fear the most is Apple’s MacBook Air. When Apple first introduced the MacBook Air, a lot of the PC vendors thought it was a gimmick. While it was very thin and light it was very underpowered. And well over $1000. PC Vendor’s thin and lights (their definition, not mine) had broken $1000 and PC”s under $700 were dominating the overall market for laptops. And this first generation MacBook Air had no impact on their laptop market at all.

The only company to kind of take this Apple move serious was Dell, who created the Adamo XPS, supposedly their version of the MacBook Air. But while it was relatively thin compared to all of the other “thin and light” laptops on the market, it was also so high priced that people stayed away from it in droves. At least for the short term, Apple’s MacBook Air was considered the thinnest and lightest laptop albeit slightly underpowered and with Apple’s upper end pricing scheme behind it.

In the mean time, the demand for cheap PC’s started to take off. In fact, a new category of thin and lights called netbooks was all the rage for about two years. And while Steve Jobs considered netbooks toys, he watched its growth with interest. While he publicly said Apple would never make a netbook, it was pretty clear that Jobs and company had decided to make the next MacBook air lighter and thinner than a netbook yet as powerful as most mid to high end laptops. And, while their starting model is $999, their proprietary unibody casing and integrated graphics chips still make these the most powerful ultralights on the market today.

But when Apple also decided to kill their MacBooks, or their entry level laptops and only bring to market MacBook airs at prices close to their older entry level models, the PC vendors sat up and took note of this quickly. To them it signaled that Apple is getting ready to start a full out assault on what has been sacred territory for them. Sure, they can still create laptops under $500 and sell them all day long. But they also realized that Apple is now setting the bar for laptops at a new level by using the MacBook Air to help define the next generation of laptops and, they know that with Apple’s buying power and International reach Apple could price them even more aggressively in the very near future.

The PC industry itself had somewhat anticipated this and is working on creating what they call Ultrabooks, Windows based systems that are much like the MacBook Air. But the one that is on the market today that is the closest to the MacBook Air is the Samsung 900 3X which is priced about $1600 Euro’s in Europe and well over $1800 in the US. Apple’s comparative model is $1599. Although the Samsung 900 3X is a solid product, Apple’s lead in these types of “ultrabooks” along with their stores will help them sell even more of these in the future. In fact, in the last earnings call, Apple said they sold about 4 million computers in the last quarter and that 73% where laptops. And we believe that 75% of those where MacBook Airs.

Given the MacBook Air’s pricing and Apple’s apparent commitment to be even more competitive with the mainstream PC vendors with this model, signals to me that they really want more of the hallowed ground that traditional PC vendors tread today. And it looks like Apple is about to crank up their laptop supply chain prowess, industrial design skills and marketing and retail emphasis and will go right at the heart of these PC vendors most profitable laptop segment.

Oh yeah, and they will soon have their iCloud offering that will bring their eco-system in sync to their laptops and desktops as well, another value added piece of technology that I am sure will strike a chord with users. And given the possible halo effect of the new iPhone 5 when it comes out as well as the iPad and the iCloud, I am certain that Apple will drive even more people into their stores and will put an even greater effort on selling MacBook Airs and MacBook Pro’s in the future.

Yes, the iPad is a real concern for the PC vendors as Apple has a huge lead in tablets and strong demand. But if Apple starts eating into their laptop market share, this will have the greatest impact on these PC vendors in the future and make it even harder for them to make strong profits on this part of their laptop business.

Make Competitive Smart Phones or Get Out of the Market

We all know the world is moving from feature phones to smart phones. This is happening in some regions like the US and Europe faster but it is happening at a global level.

The latest data from Strategy Analytics and IDC released today both show overall growth in the global handset market along with declining growth of the feature phone market.

This is significant when we look at the top 5 leaders of global handset sales. They are in this order:

The first thing we need to observe is that one on that list is not like the other. Everyone but Apple makes both feature phones and smart phones. This is why the Nielsen data released yesterday confirms Apple as the number 1 smart phone handset maker.

So if you look at the data over the past few days you will conclude that having a competitive smart phone will be critical to anyone on that list above Apple if they want to stay above Apple. Apple climbed to the top of the smart phone vendor chart quickly and they can climb to the top of the global handset list as well just as quickly.

I agree that feature phones are still important particularly in the developing regions but those who are in that market hopefully realize that priority needs to shift in future thinking and RND around the smart phone market. If they don’t they will become irrelevant.

For more data on the profits captured and lost related to this data check out Asymco’s article on how “Apple Captured two thirds of available mobile phone profits in Q2.”

Lastly I believe it is only a matter of time before HTC makes it onto this list. They released record earnings today as well as 12.1 million handsets shipped in Q2 2011.

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.

Why It Matters that Apple is the Number 1 Smart Phone Manufacturer

Data came out this morning from Nielsen providing insight to the current smart phone operating system market share in the US. There are several observations about this report that I want to make.

First off, although this is a report highlighting the state of smart phone operating system market share it demonstrates that Apple is the leading manufacturer of smart phones. Android has 39% smart phone operating system market share however the key point is that is spread out across multiple device manufactures.

What’s amazing to me is that Apple has accomplished 28% iOS smart phone market share with only one single new product each year. They haven’t needed a dozen or more devices on the market at any given time to garner such a large footprint in the market place. They have only needed one called the iPhone.

Second, I am pleased for HTC collecting 20% of the handset market between their mix of Android and Windows Phone. HTC is being rewarded in the market place for their own innovations with things like Sense and other custom applications. These things were created intentionally to differentiate them from other vendors using the same OS and it is working.

Lastly RIM has dropped to 20%. It seems like just yesterday that most of my market share analysis was pointing out that RIM was leading the pack with OS market share and smart phone handset shipments. How quickly things change in this industry.

One last-last point. I also like how Nielsen choose to visualize this data. Rather than a pie chart they broke it out in what they like to call a “brownie pan.” I actually think looking at data represented this way is more helpful than a pie chart.

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.

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.