Applesauce

 

The Wall Street Journal: “More fizzle than pop.”

The Los Angeles Times: “An evolution, not a revolution.”

The Washington Post: “It wasn’t exactly blowing my mind.”

FoxNews.com: “Lunch-bag letdown.”

Business Insider: “A huge disappointment, or just a regular sized disappointment?”

Analyst Roger Kay: “Underwhelming.”

 

People, please. There’s nothing wrong with evolution. Without evolution, we would still be apes. (Insert your own snide comment here.) Apple obviously thinks the new iPhone 4S is evolutionary. Otherwise Apple would have given it a new name, like, say, Shebang, or Razzmatazz, or maybe even Five.

Tesla
Lotus

But Apple’s new iPhone 4S is the same old iPhone 4 in the same way that a new Tesla Roadster is the same old Lotus Elise. Physically, they’re both sleek and sexy. Under the hood, though, the new model is revolutionary.

Not because of the dual-core processor. Other smartphones already have dual-core chips. Dual-band world phone? Faster upload and download speeds? Fancy camera and high-def video? Others have been there, done that.

No, the iPhone 4S is revolutionary because of Apple’s software, specifically iOS 5, iCloud, and Siri.

Disclaimer: I have not reviewed the iPhone 4S and have no idea if it works as advertised beyond the boundaries of Building 4 on Apple’s Cupertino campus. Apple stresses that the Siri personal assistant software is still in beta mode, even now, a week before the iPhone 4S goes on sale. But if the software does work in the real world, it’s a change as profound as replacing gasoline with electricity.

What is the future of the personal computer interface? Voice and gestures, not keyboards and mice.

Apple patented the capacitive multi-touch interface it introduced with the original iPhone. It included a gyroscope in the iPhone 4, transforming gameplay but also opening the way for new gesture controls. And now, with Siri (and backed by the new A5 and digital signal processors), Apple has added natural language voice control to the computer in your pocket.

Hello, Siri?

Remember the scene in one of the Star Trek movies where a bemused Scotty tries to control a 20th century computer by talking into a mouse? Seriously, does anyone doubt that our grandchildren will operate computers by voice?

Yes, Android phones introduced voice commands a while back. But from the day when Steve Jobs first walked through Xerox’s Palo Alto Research Center (PARC), Apple’s true genius has been to seize nascent technologies and make them so simple and elegant that they catch fire. Did Apple invent the MP3 player? No. Did Apple invent the mobile phone? No. Did it invent the portable game system? Negative. Did it invent the tablet computer? Nope. The music store? Uh-uh.

So, what are the best-selling MP3 players and game players and mobile phones and tablets and music stores in the world today? (SPOILER ALERT: iPod, iPod Touch, iPhone, iPad, iTunes Store.)

Did Apple invent the television? Wait, that’s likely to be the subject of a future column.

In my view, we’ve just seen a revolutionary shift from mobile phones to mobile personal assistants.

What’s on my calendar today? What’s the weather? What’s traffic like? How many calories in this bagel? Remind me to stop to buy coffee on the way home. Read me my mail. Send a message to Ben and Tim telling them I’ll be late to the office. Play this morning’s National Public Radio podcast. What’s the stock market doing now? Call my wife. Let me know when Steve gets to the office. Schedule a lunch with Dave and Kelley for tomorrow. When is Laura’s birthday?

The Siri software “understands” conversational language. It “understands” context. I am unaware of any other voice command system on any other smartphone that reaches this level of competence.

Add this to the intelligent ecosystem of iOS 5 and iCloud – comprising hundreds of new features, all of which make their debuts with the iPhone 4S – and it’s difficult to understand the griping and grousing that followed Apple’s announcement yesterday.

Was it also disappointing that Apple dropped the price of the original 8GB iPhone 4 to $99 (with the usual two-year mobile carrier contract)? Or that it dropped the price of the iPhone 3GS to free? Or that it priced the iPhone 4S at $199 and up? Those were evolutionary changes, too, but if I am Nokia, and my cheapest dumb phone is now the same price as Apple cheapest smartphone, my business plan just got sent back to the drawing board. Ditto Google-Motorola, now that the price bar for state-of-the-art smartphones has been set at $199.

The iPhone 4S is still the thinnest and snazziest smartphone in the world. Okay, so it doesn’t have a four-inch screen, and it’s not shaped like a tear-drop. (Darn, I was hoping I’d have to go buy all-new iPhone accessories.) It does not have built-in near-field radio communications, which prevents me from using it to pay my toll when I board the subway in Seoul, since that’s about the only place I’ve seen that accepts NFC payments. Has anyone seen NFC payment terminals here in the States?

And speaking of NFC, is your mobile phone carrier so trustworthy and transparent that you would trust it handling your daily purchases? Would you trust AT&T as your bank?

Which leaves me to conclude that the biggest cause for pundit, analyst and fanboy disappointment with the new phone is that your friends and co-workers won’t be able to tell that you have the new iPhone 4S just by looking at it, obviating its value as a status symbol. Here’s an idea for a cheap upgrade: Paint a big number “5” on your iPhone case, and they’ll never know the difference.

My Thoughts on the Passing of Steve Jobs

I have been asked by many in the media for my thoughts on Steve Jobs. I felt that I needed to write them out so that I could be succinct at this time. Please feel free to use them as quotes directly from me.

Steve Jobs will always be remembered as a pioneer and tech icon. While he will always be known for the great products he created, perhaps his greatest contribution was the creation of a new Apple that is one of the most valued companies on the planet.

Many tech executives would be thrilled if they had one major hit in their lives. Steve gave us the Apple II, The Mac, the iPod, the iPhone, the iPad and Pixar.

In a sense, Steve Jobs was part Thomas Edison, Walt Disney and P.T. Barnum. A modern technology visionary, focused in delivering products that are useful and provide entertainment and a masterful showman who really knew how to keep people on the edge of their seats wanting more.

His impact on the world of technology and American business can not be underestimated. His simple vision of creating products that he would want – ones that were elegant and easy to use, is what drove him and Apple to spectular success.

Under his leadership, Apple has become one the most recognized brands in the world. He created products that people line up for around the world.

Over 30 years of covering Steve Jobs as an analyst, I saw him at his highs and lows. But even in his lows he never took his eye off of the vision of creating products that were stylish and simple to use.

When he came back to Apple in 1997, I met with him on his second day on the job. At the time, Apple was $1 billion in the red and in serious trouble. So I asked him how he planned to save Apple. He said he would go back and meet the need of their core customers and then he said something that at the time puzzled me. He said he would pay close attention to industrial design when creating products. Not long after that he gave us the candy colored Macs that broke the mold of what a PC should look like. And as they say, the rest is history. From that point on, all of Apple’s products have bore the imprint of his eye for style and ease of use.

I am confident that Apple can move forward under Tim Cook and his executive team and that Apple will continue to be one of the most important technology companies in the world. Tim and his team fully understand Steve’s vision for Apple and will carry it forward and continue his legacy of creating products that will be elegantly designed, easy to use and that people will want as part of their digital lifestyles.

He was one of a kind and I doubt I will ever see anyone like him in my lifetime again.

Our thoughts and prayers go out to his family and close friends. So many of us in this industry owe much of our careers to Steve Jobs. He will truly be missed.

Why Apple Didn’t Release the iPhone 5

I have been fascinated by the various comments from people, Wall Street analysts included, that were disappointed with the new iPhone 4S. These folks have been having dreams of delusion trying to coax Apple to make each new iPhone conform to their imaginations. When I polled a few of them to see what they expected, they mostly tripped over themselves trying to explain their vision for a new iPhone. Common points were things like it should have been thinner, lighter, with a tapered designed to make it sleek and more unique.

I am pretty sure these folks who want this design don’t live in the world of engineering, manufacturing or even have a working understanding of physics. If you look at the iPhone 4 from an engineering stand point, it is already packed with more chips, batteries, antennas, radios, etc in order to give it the kind of features and functions it has today.

Now imagine that Apple decides that these folks are right. They make it slimmer, lighter and taper it at the bottom. That means they must use a smaller battery thus impacting total battery life. And it means they have to put in sub par or smaller antennas and chips on a smaller die, thus less functionality. And they would possibly have to change the kinds of radios they use to fit them in this new design, also affecting the quality of wireless voice and data signals.

Now, if I am a consumer and have the option of having a slimmer, sleeker iPhone but with less battery life, less power and less functionality, versus having Apple give me a similar physical design but with a CPU that is 50% faster than the one in the iPhone 4, a graphics chip with 7X the power of the one in the last phone, and better antenna and radios so that my voice and data connections are solid, the same size battery that is now tweaked with new software to give them even more talk time, music listening time, etc, which iPhone do you think they will choose?

While this is a key reason for Apple to stay with the “if it ain’t broke, don’t fixit” strategy for the iPhone 4S, there is another even more practical reason for staying with this design.

You may have noticed reports over the last two weeks from the channel that Apple was selling all of the iPhone 4’s they can make even though people were fully aware that a new iPhone would be coming out this fall. And we know that Apple can’t make these fast enough to even meet current market demand.

One thing it appears Apple concluded was that, after 16 months of making the iPhone 4, they actually do have the manufacturing of this phone down and in fact, are starting to ramp up even more production lines to meet demand. With this in mind, it made perfect sense to re-design it from the inside out, and still keep all of the manufacturing tooling and processes in place so that they could also make the new iPhone 4S in the kind of volume needed to meet market demands.

The manufacturing experts I know tell me that had Apple actually done a radical new design for this phone, they would have had to retool a lot of the production lines and that this would have been very disruptive, in a negative way. What people don’t realize is that this phone is not that easy to manufacture and Apple, in some cases, has to actually invent the manufacturing tools and machines just to make them in the first place.

Now, this does not mean that they could not have a new or even a radically designed iPhone in the future. But the process to ramp up a completely new manufacturing system takes time and is very difficult to do even on an annual basis. So while they are maximizing the current manufacturing lines for all the iPhone 4’s current physical designs, I am certain they are working behind the scenes to create perhaps a new form factor that can still have this level of functionality and designing the manufacturing procedures and machinery even now for when they will need it in the future. I suspect the next iPhone will be specifically designed to support LTE, a technology that is not ready for primetime because of modest US coverage but by late next year should be available in about 85% of the US.

I am also certain that once consumers really understand that this is a completely new phone even though it is in the same design package, they will flock to it in huge numbers. And Apple will not skip a beat.

Related:
Consumers Will Be Delighted by the iPhone 4S

But when people want to project their visions and ideas on Apple and hope that Apple responds to them, they need to look at the practical side of creating something as sophisticated as the iPhone. And in the end they need to realize that Apple actually does know what they are doing when it comes to designing the best and most powerful smart phone they can make and delivering something that customers really want and need in an iPhone, instead of delivering the design pipe dreams of over active imaginations.

Apple’s iPhone and Intel’s Tick-Tock

iPhone 4S web pageIntel has long followed a two-year product cycle it calls tick-tock. In a “tick” year Intel introduces new chips based on a major change in process technology, such as this year’s release of the Sandy Bridge processors. The next year, a “tock” brings refinement within the existing process.

This pattern is driven both by the pace of technology innovation and and the realities of manufacturing. Semiconductor technology evolves fast, but not so fast that major disruptive change is required every year. And a two-year cycle gives Intel the time it needs to perfect fabrication and reap the benefits of the investment in proces change.

It looks like Apple is falling into a similar patter with the iPhone. The 4S announced Oct. 4 was a tock to last year’s iPhone 4 tick. A similar tick-tock pattern marked the release of the iPhone 3G in 2008 and the 3GS in 2009.

There are still major changes in the 4S hardware, most notably the move to the A5 processor, the new camera system, and the use of a dual-mode GSM/CDMA radio. But the basic design is unchanged, allowing the new models to be slipstreamed smoothly into Apple’s (or Foxconn’s) production process.

A change in the industrial design of a handset may not be as disruptive as new semiconductor process technology, but it never happens without difficulty. Apple had problems ramping up production of the iPhone 4 and manufacturing difficulties caused many months delay in the release of the white version. Then there were the notorious problems with the antenna.

Keeping the  basic design the same gives Apple more time to perfect both the design and the manufacturings processes for what will almost certainly be next year’s tick, the iPhone 5, while maintaining smooth, high-volume production of the 4S.

 

Siri Could Be Reason Enough to Buy the iPhone 4S

Siri iconFolks who found Apple’s iPhone announcement disappointing, and there were plenty of them, weren’t really paying attention. My colleagues Tim Bajarin and Ben Bajarin have outlined the reasons consumers should be excited about the new phone, despite the fact that it looks identical to its predecessor. I’m going to focus on just one of them, the Siri personal assistant.

It’s a huge mistake to regard Siri as a speech recognition component. Speech recognition has become highly developed, but by itself, it doesn’t do very much. Anyone who has used voice control on an Android phone knows it is very good at letting you dictate messages, but not much else.

Siri cracks a much tougher nut. For it to work, the software, which runs partly on the iPhone 4s and partly on Apple’s servers, must understand not just your words but your meaning. If you ask “should I wear a raincoat today?” and Siri responds with a weather forecast, were are looking at very significant advance in machine intelligence.

At this point, a couple of very important caveats are in order. Siri looked spectacular in Apple marketing chief Phil Schiller’s demo. But it was a demo, and the people who create demos carefully limit their choices to commands and functions that they are confident will work. Apple didn’t give attendees at the announcement any hands-on time with the phone. So until users have a chance to try out Siri in the wild, we’ll have to reserve judgment on how good it really is. In a move that seems more Googley than Apple-like, Siri is being released with the iPhone 4 on Oct. 14, but it is officially designated as a beta product, perhaps in and effort to temper expectations.

A second question is just how good it has to be for people to find it useful. If it doesn’t truly make the iPhone easier to use, people will abandon it quickly. But if it works anywhere near as well as it did in the demo, I suspect it will revolutionized the way we interact with devices.

While science fiction computers has been able to carry on intelligent conversations for decades, it has taken real world computers about that long just to learn to recognize words reliably. Speech recognition, which companies such as IBM and AT&T began working on seriously in the 1960s, was based primarily on signal processing and statistical analysis. Natural language understanding seemed hopelessly beyond reach, whether the input was spoken or typed.

Siri was developed by a company of the same name that was acquired by Apple. The original research was funded by the Defense Advanced Projects Research Agency, but Apple may have thrown more engineering and computer science muscle into the project than even the Pentagon can afford these days. But it also had to wait foir a dramatic increase in the processing power of mobile devices—one reason that Siri will not be available with iOS 5 on older phones–and more seamless communications that allow the work to be split between the phone and the server.

As smart as smartphones have become, simple tasks can require annoyingly many steps. Setting up a meeting requires checking a calendar for the proposed time, finding attendees in a contact list, and sending out invitations. If all that can be replaced by pushing a button and saying, “Set up a meeting with Tim Cook for 10 am on Friday,” ease of use will have taken a great leap forward.

One secret to any successful attempt at natural language understanding is restricting the range of commands, known as the domain, that it must make sense of. If you tell Siri, “Write Mr. Smith a script for simvastatin,” your iPhone will probably stare at you blankly (unless, of course, someone uses the Siri application programming interface to create a prescription-writing program.) The range of things you can reasonably ask a smartphone to do is still pretty limited.

The critical question is how much of that repertoire of requests Siri will handle well.  If it is a reasonable fraction, Siri alone will provide ample reason for the iPhone 4’s success.

Consumers Will Be Delighted With the iPhone 4S

 
I’ve been reading and digesting much of the post Apple event news where they introduced their newest iPhone, the iPhone 4S. I’ve attended every major Apple product launch event since 2003. The last few years the media hype and anticipation around Apple product launches has reached astronomic proportions.

Even today post the event I am not surprised to see “disappointed” and “underwhelmed” in the headlines. It seems as though at every launch event for the past few years the question of “did they do enough” gets asked of me by the media.

The media, luckily for Apple, is not Apple’s target customer. In fact at the launch event Apple showed some very telling slides showing statistics that highlighted how much market share in every major personal electronics category is still left for Apple to gain. These slides tell the story of how Apple thinks about the market as a whole and how all their decisions are geared to grow their market share using product strategies that work.

When I look at the Apple’s current iPhone lineup with the 3GS being free with a new contract or the iPhone 4 being $99, I am convinced that now is as good of time as any for consumers to jump into the Apple ecosystem. However the 4S is now the flagship of the iPhone lineup.

The iPhone 4 is arguably the best designed handset in the cellular industry. In my opinion no handset on the market comes close to the iPhone 4 design. For this reason Apple didn’t need to change the design. In fact earlier in the year I argued that Apple didn’t even need to release a new iPhone this year and they would have still stayed the number one smart phone manufacturer. The iPhone 4 is that good so why fix what isn’t broken.

However they did improve on it and as a matter of fact they improved on it all the ways that make it even more useful than its predecessor. They made if faster both in terms of network speed and core performance. They gave it 7x better graphics which will make it one of the most impressive mobile gaming platforms graphics wise to date. They engineered a better antennae to make the phone download and upload data faster as well as deliver better sound call quality. They made the camera significantly better. They made a bunch of improvements that alone make the device attractive.

Apple is still attracting new iPhone customers at alarming rates. By offering the 3GS for free and the already amazing iPhone 4 for $99 and the iPhone 4S starting at $199 they have a very strong holiday lineup.

Design is important but it is only one part of the equation when consumers make buying decisions. The iPhone’s are still the leading objects of desire in the industry for the mass market.

One thing that seems to get left out, that I think is a very powerful point, is that by not changing the iPhone design new customers or those who upgrade will be able to tap into the already vast iPhone 4 accessory ecosystem. Consumers who buy the iPhone 4 or 4S will immediately find a plethora of accessories. This is a very attractive proposition.

Apple’s current tagline for the iPhone 4S is “Picking up where amazing left off.” That is fitting since they are still leading in the realm of handset design. The media may have expected more and the media may be disappointed however I am confident that actual consumers will be delighted with the iPhone 4S. And really that is all that matters to Apple.

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Five Reasons to Upgrade to the iPhone 4S

 
While design enthusiasts may have wanted a smaller, lighter and even thinner iPhone, the fact remains that the current iPhone 4 design is about as thin as you can get a smart phone and still pack it with all of the additional new features that will make it the most powerful and best-selling smart phone on the market.

What disappointed people may have in the fact that it is identical in design to the last model, is made up by the high-powered A5 chip that delivers 50% more processing power, and a new dual core graphics chip that is 7X faster than the one in iPhone 4. It has a the new signal processor that makes it possible to deliver Siri’s voice command driven personal assistant, the new 8 megapixel camera with enhanced image sensor, the new video processor that delivers stunning video and the dual antenna system that makes calls and wireless sensitivity better than ever.

From an engineering standpoint, this is the most powerful iPhone Apple has ever made and should help them deliver their first 25-27+ million iPhone quarter this holiday season. With the 3GS being free with contract, this phone could finally attract the laggards who hesitated buying an iPhone because of cost. And the iPhone 4 starting at $99, with its dual cameras and capability to do Facetime, will also be in high demand. However, there are millions of users with 3GS contracts that are out of subscription hell and will gladly make the jump to this new phone in huge numbers. And many iPhone 4 users are close to being out of their contract and many of these folks will also upgrade as soon as they can.

From a consumer standpoint, there are five major reasons why a person should upgrade.

The first is the new 8-megapixel camera sensor at 3264 X 2448 which is 60% more pixels than in iPhone 4 that Apple has in the iPhone 4. This includes a new powerful image sensor and will become the gold standard for digital cameras in smart phones. The images are just stunning. They are 30% sharper.

The second reason is the new video sensor that delivers the best video recording on a smart phone available. The demo they showed of a video taken and actually edited on the iPhone 4 S has to be seen to be believed. It now shoots at 1080P. A user would likely now be more than happy to just use their smart phone to take all of their pictures and videos as the quality of this is beyond what most point and shoot cameras deliver.

The third reason to upgrade is for the SIRI voice assistant. This introduces a whole new way to interact with your iPhone. You can ask it things like, what is today’s weather and get an exact answer instantly via voice. Or you can say, set my alarm for 6:00 AM and it does that automatically for you. Or you can ask, what time is it in Paris, France and it reads out that time to you on demand. It can answer hundreds of questions and enact immediate commands to the phone as part of its design.

What’s more if you are driving and hear a message alert, you can just ask it to read the message to you. Or you can just speak it your message and who to send it to and it does that as well. It can also do dictation in messages, email, and in any app that uses a keyboard. Most importantly SIRI and its voice system only works on an iPhone 4S because of its use of this special signal processor that Apple has on this new iPhone.

And the fourth reason is because of the new antennas. Apple has employed a breakthrough in the way antennas work by making them handle incoming and outgoing calls and data signals differently. This enhances quality of service and it goes a long way to delivering a better voice and data experience. Along with their CPU boost and speed gains from the Antenna that let the iPhone 4S operate at 4G speeds even though it is still a 3G phone, should get it a lot of street cred with users.

And the fifth reason to upgrade is because it is a world phone. That means it can handle CDMA and GSM and can switch between networks when traveling in every country around the world. This is great for anyone that has to travel the world for work or pleasure.

Another hot feature for all IOS users will be the new iMessage system that provides free messaging to any IOS device, which now includes all iPod Touches with the new IOS 5 software.

Of course, iCloud and its amazing synchronization engine will be a godsend to those who want to keep all of their music, video and docs always in sync and up-to-date. In fact, I consider iCloud a most important Apple product and one that will actually help define what the cloud is for consumers and force all competitors to follow suit.

Lastly of course, iOS 5 with 200 new features, will deliver much more power and capabilities to all iPhone and iPod Touch users and make them even more indispensable than before.

iOS 5 and iCloud will both be release on Oct 12th.

The new iPhone 4S will ship on Oct 14th.
The 16 gig is $199. The 32 Gig is $299 and a new 64 Gig is available for $399 with contract.

In the US the iPhone 4S will be available on AT&T, Verizon and Sprint. By the end of the year worldwide it will be available in over 70 countries.

2 Things I Want in the iPhone 5

 
I want to dream for one second about the only two things I would love to see in the iPhone 5. After that I want to add some bigger picture perspective.

A Bigger Screen
Studying Apple for as long as I have I know they make very intentional decisions with hardware. It is for that reason that they choose a 3.5 inch display for all their iPhones. In our talks with app developers it is the consistency in screen size that they appreciate in Apple’s ecosystem. Namely because they do not need to worry about variation in hardware or screen size when they create software.

That being said I would love a 4″ screen on my iPhone 5. I have used a number of 4″ screen devices and I think it is or is close to the perfect size for a smart phone.

I don’t believe adding half an inch to the screen size would have any significant impact on any of the existing iPhone apps, especially if developers have created universal apps.

Voice to Text Speech Recognition
The only reason this feature does not exist today in iOS is because the technology is not perfect. As Steve Jobs has famously repeated when they launch new groundbreaking features “it just works.”

The challenge with voice to text speech recognition is that it just works 70% of the time. In that 70% of accuracy it needs a nearly perfectly quiet environment. My guess is that Apple would want a higher accuracy rating as well as some new technology that doesn’t require near silence to work correctly.

These however are all innovations in voice to text Apple is capable of and hopefully working on. They do have some minimal voice command technology in current iOS software but I’d love to see full voice to text supported.

The Bigger Picture
Now if you are paying attention to the world of smart phones you will know that both of those features I hope for are available in the Android ecosystem of hardware. This leads to my bigger picture point that hardware is not the only buying decision going on in the minds of consumers. We live in a world where the experience with the software is beginning to play a larger role in the decision-making process.

Most consumers do not shop on specs.

The hardware is important but we live in a software world. Regardless of what Apple releases hardware wise tomorrow I will go out on a limb now and guarantee it will be the sexiest smart phone in existence. This is because Apple’s hardware design passion is second to none. This is why even if my two feature requests don’t come to the iPhone 5, I will not be disappointed.

However as the saying goes within Apple “those who serious about software should also be serious about hardware.” As I will point out in a column later this week Apple is really a software company.

Putting this all in perspective the user experience, the apps, the Apple ecosystem are all reasons why I consciously choose Apple products. Even though there are devices on the market with features that I do desire, I am willing to make the trade-off. Primarily because those few features do not outweigh all the other areas where the Apple experience is superior – in my opinion.

There Already Is a Cheap iPhone

Image from Apple invitationThe oddest thing about the rumors bubbling around Tuesday Apple media event is the speculation about a “cheap” iPhone. Gizmodo, for example, published blurry pictures of quality-control rejects from Foxconn’s new plant in Brazil as “proof” of the imminent new cheap iPhone.

We know very, very little about the new hardware that Apple will announce; after losing an iPhone 4 prototype the last time around, Apple has done an even better than usual job of controlling leaks this time. But we can be very sure of what the “cheap” iPhone will be.

Apple’s practice for iPhone releases has been to keep the one-back model in the lineup while introducing a new phone as the premium product. At AT&T today, you can buy a 16 gigabyte iPhone 4 for $199 or an 8 GB iPhone 3GS for $49 (Verizon only has the iPhone 4 because there never was a CDMA version of the 3GS.)

So whatever the new iPhone model is and whatever it is called, we can expect the 15-month-old iPhone 4 to continue to be available, at sharply reduced prices. Maybe Apple will shave the price a bit by offering an 8 GB version, maybe not. But Apple has already said that the new iOS 5.0 software will run on the older iPhone, so it could be an attractive buy.

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.

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.

Related Articles:
Apple Doesn’t Want to Sell Corollas
Why Apple Can’t Chase the Low End

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.

10-4, Good Buddies

It’s official: Apple will unveil the iPhone 5 on Oct. 4.

But it is widely expected that they’ll make an announcement for the iPad, too:

Last week, Facebook CEO Mark Zuckerberg said Facebook would probably introduce an iPad app at some point. I suspect “at some point” means Oct. 4. And the Facebook iPhone app, which kinda sucks, deserves a refresh at the same time.

But wait: Aren’t Apple and Facebook wary of each other? Apple tried to launch its own social networking system last year. Remember Ping? And Apple is well aware that Facebook will soon have ONE BILLION USERS who don’t really care if they access Facebook on an iPhone, an iPad … or an Android phone, an Amazon tablet, an HP TouchPad (er, nevermind), a toaster, an Xbox, or an Etch-a-Sketch.

Facebook currently has 800 million regular users, and 350 million of them tap into Facebook on a mobile device, even though the mobile Facebook apps kinda suck.

Yes, Apple and Facebook are wary of one another. But they share a common enemy:

Oh, hi, Larry.

And, as the ancients so wisely noted, “The enemy of my enemy is my friend.”

Mobile is the future; Facebook lacks a strong mobile platform, which Apple can provide.

Social is the future; Apple lacks a strong social platform, which Facebook can provide.

Google is the enemy; Android competes against Apple’s iOS and Google just bought a mobile phone maker (Motorola Mobility for $12.5 billion), and Google+ (the fastest-growing social network in history) competes against Facebook, and everywhere Apple and Facebook want to go, Google is there waiting for them, licking its chops.

So, I expect Facebook to “friend” Apple, and vice versa, at next Tuesday’s events. And that, to me, is far more interesting than the incremental improvements we expect to see in the iPhone 5.

Why The iPad Could Be Huge in China

I’ve stumbled across some interesting research from Citi Group Financial’s internal research group. The research report was specifically about tablets but the part I found interesting was their research related to tablets and China.

Citi surveyed almost 2000 people and found some interesting results globally for tablets. With the US they found that tablets and specifically the iPad were not an immediate threat to replace PCs. Their research pointed out that in the US only 8% had purchased a tablet with the intent of replacing a laptop. The bulk of the usage of tablets the research turned up was for more lightweight consumption. Things like web browsing, email, social networking and multimedia were the top usage models. Their China research however turned up very different results.

It appears that in China there are significantly more people looking at buying tablets and using them as a laptop replacement. 21% of the people in their China survey said they currently own a tablet compared with 17% in the US/UK. 26% of China respondents said they intend to purchase a tablet over the next 12 months compared to 12% in the US/UK.

More interestingly with this data was that 31% of Chinese respondents said that their interest in purchasing a tablet was to replace their notebook. Another 26% expressed interest in a tablet to replace their desktop and another 30% interested in replacing their Netbook with a tablet.

The reason the iPad could be huge in China is firstly because China is a huge market and second because they appear to be interested in a tablet as a PC replacement. Which is a fundamental difference than why US and UK consumers are buying tablets.

If it was clear before it should be crystal clear now why Apple is so laser focused on China. In fact all the trends in China are playing to Apple’s favor. The iPad for example has 73% of the tablet market share in China and we can expect that to grow over the next few months and even more with version 3.

The other interesting thing about China is that it is one of the fastest growing regions for PC sales. This data seems to suggest that China could also become one of the fastest growing regions for tablets as well.

When I first read this data, I thought it seemed a bit too optimistic about China and tablets. Mostly because we are constantly reminded by all the large PC vendors how fast China is growing as a market for PCs. So this data seemed at odds with the reality that PC sales are accelerating in China.

PCs are still maturing in China so why would there already be significant interest in tablets over PCs? The answer I feel lies with China’s need and desire as a market for small and mobile technologies.

Netbooks had quite a run in China and for many Chinese consumers Netbooks were the best priced and sized computers for their first PC purchase. The iPad in terms of size and mobility are highly desirable among the Chinese consumers and may be some of the central reasons they are attracted to tablets so heavily.

Because China is so large and because PCs are selling like hotcakes over there I don’t suspect that tablets will eat into PC sales in any way that should alarm manufactures. Both will continue to grow and accelerate extremely quickly.

It is important to note that the China based research was done with those who are in the upper and rising middle class, which is a large and quickly growing segment of China consumers.

Whether it is with iPads or Macs Apple has a huge opportunity in China.

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Will Amazon Announce the un-iPad?

Amazon invitation

 

Amazon.com has called a press conference for next Wednesday and all expectations are for an announcement of the long-awaited Amazon tablet. You’re going to read a lot of stupid stuff in the next few days speculating about whether Amazon can come up with an iPad killer. Pay no attention to any of it.

Amazon is a very smart company, and one thing they are smart enough not to do is to challenge Apple on its home turf. Nor do they have to. It is important to remember that Amazon and Apple, while perhaps being the two sharpest consumer companies in the world, are in very different businesses. Apple sees content and software as a way to sell hardware, because that is where it makes its money. Amazon needs hardware as a platform for its content, because that is where it makes all its money.

I suspect Amazon is mostly backing into a tablet business, think of it an an un-iPad, it would rather have left to hardware specialists. It brought out the original Kindle because it felt the time for an ereader had come and no one else was doing the job, although its Kindle platform quickly became hardware-agnostic as other alternatives emerged.

In the field of more capable tablets, Amazon is looking at another vacuum. Android is a mess, with no product gaining significant market share and most of the tablets not very good. iPad, while an important outlet, became a hostile environment when Apple effectively imposed a 30% tax on all in-app sales, an arrangement that would leave Amazon with little or no gross margin on most purchases. (Amazon has countered with an HTML 5 browser-based version of the Kindle app, but the technology isn’t quite there yet.) Amazon was an early partner for the Hewlett-Packard TouchPad, but we know how that turned out. Windows 8 is a promising tablet operating system, but we are probably a year away from seeing products.

So once again, Amazon seems ready to come out with its own hardware to give its customers a more effective way to consume its content. So rather than a product challenging the iPad in the general tablet market (such as it is), look for a specialized device, running a customized version of Android, that is optimized for Amazon services. That means Kindle, of course, but also Amazon Instant Video, Amazon Music, the Amazon App Store, and a great Amazon shopping app. I also would not be surprised if the tablet has a subscription component, perhaps a discounted price with an Amazon Prime subscription, or a discounted Prime subscription with a tablet purchase.

The key thing to remember is that this is not Amazon vs. iPad. There is a vast market in which both can thrive.

 

 

Lack of iPad Competition: A Tale of Missed Opportunity

HP touchPad photoIn a new report on the tablet market, Gartner predicts that the iPad will account for two-thirds of the 103.5 million units it expects to be sold next year and nearly half of the 326 million units in 2015. While its easy to quarrel with some of the details in the forecast (not to mention the ridiculous habit of forecasting sales to the nearest thousand) the general drift of the prediction seems dead-on.

It wasn’t supposed to be this way. This year, the iPad was supposed to get three serious competitors in Android, Research In Motion’s PlayBook, and Hewlett-Packard’s TouchPad. Instead, the TouchPad was killed before it had a chance, PlayBook’s heart is barely beating, and Android, while still promising, is beset by mediocre products, fragmentation of the operating system, and a severe lack of applications. The only really good news is that Microsoft is determined to make Windows 8 tablets succeed when they launch next year, though it is way to early to assess its chances.

For competitors, 2011 was a year of badly missed opportunities and at least in the case of RIM and HP, these flubs have serious implications for the future of the companies. For RIM, the PlayBook, based on the QNX operating system, was to breathe new life into the slumping BlackBerry line. It showed great promise at the Consumer Electronics Show last January, but quickly flopped when launched in April.

The reasons were pretty obvious. Not only was it buggy, but the PlayBook shipped without native email, calendar, or contact apps. It was usable only if paired with a BlackBerry, which it also relied on for a 3G connection. In practice, its market was limited to existing BlackBerry owners on carriers other than  AT&T because AT&T blocked installation of the software required for PlayBook pairing. To make matters worse, the selection of apps was dismal, even by BlackBerry standards. Summer came and went without promised software improvements appearing. Little wonder that PlayBooks mostly sat on dealers’ shelves.

In fact, the QNX sales forecasts are one of the odder things in the Gartner report (table).  The analyst firm projects sales of 3 million for all of this year, odd because RIM shipped (to dealers, not sold through to customers) only 900,000 units in the six months ended in August. In would take one spectacular autumn to hit 3 million, and some sort of miracle–or at least a while new product line–to hit the forecasts of 6.3 million next year and 26 million in 2015.

Worldwide Sales of Media Tablets to End Users by OS (Thousands of Units)

OS 2010 2011 2012 2015
Android 2,512 11,020 22,875 116,444
iOS 14,685 46,697 69,025 148,674
MeeGo 179 476 490 197
Microsoft 0 0 4,348 34,435
QNX 0 3,016 6,274 26,123
WebOS 0 2,053 0 0
Other Operating Systems 235 375 467 431
Total Market 17,610 63,637 103,479 326,304

Source: Gartner (September 2011)

The failure of the TouchPad was even more tragic. When HP bought Palm and its webOS last year, company executives saw it out of a path in which its software choices were controlled by microsoft and its hardware was increasingly commoditized. But all the steam, heart, and funding went out of the effort when CEO Mark Hurd was fired and replaced (temporarily, it seems) by Léo Apotheker. What could have been a serious iPad challenger launched this summer as an intriguing but half-finished product. A battle that HP officials once said would take years, not months, ended in abject surrender after six weeks, when HP killed the TouchPad and the rest of the webOS Global Business Unit. The main impact of the whole HP-webOS affair was to set of an existential internal struggle over the future of HP. Gartner wisely projects next year’s sales at 0.

Android’s future as a tablet OS is hard to assess because the present is so muddled. This year saw dozens of products, or widely varying quality, hit the market, but none of them really took off, and none could answer the essential question of why they should be purchased rather than an iPad. Google will try again this fall with a new version of the software, called Ice Cream Sandwich, that is supposed to unify the fragmented Android landscape. But, in fact, further fragmentation may be in store if Amazon.com goes ahead with rumored plans for a custom tablet based on its own modified version of Android. If the rumors are correct, Amazon doesn’t want so much to challenge Apple as to create a new market for a low-0cost media consumption tablet.

One place I think Gartner may be seriously off the mark is in its forecast for Windows tablets. An estimate of 4.3 million units might be on target for next year because we don’t yet know when Windows 8 will ship, but 34 million, barely 10% of the total, seems unduly pessimistic for 2015. We’ve just gotten our first real glimpse of Windows 8, but it is clear that this is a very serious effort by Microsoft–the first, really–to design an operating system optimized for PC-like devices that lack mice and keyboards. Many questions, including how well Microsoft will do in attracting developer support, remain, but Windows 8 has the potential to become the iPad’s most serious challenger.

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An Apology

I messed up. I owe you an explanation.

Well, not really. I was on a delightful trip to Colonial Williamsburg with my 92-year-old father and hero, Ken Lewis, and took a couple of weeks off from blogging and tweeting. I apologize for not staying in touch.

You see, apologies seem to be trending. One of the emails in my neglected inbox was from Reed Hastings, the CEO of Netflix, which angered customers recently with a blockbuster price increase and a confusing bifurcation of its DVD and streaming movie service.

Hastings began the email with an apology: “I messed up. I owe you an explanation.” He continued:

It is clear from the feedback over the past two months that many members felt we lacked respect and humility in the way we announced the separation of DVD and streaming and the price changes. That was certainly not our intent, and I offer my sincere apology. Let me explain what we are doing.

Did this appease angry customers or impress Wall Street investors? No. A million customers quit the service, and Netflix’s stock price is less than half what it was earlier this year. “Netflix seems to be making a snuff film starring itself,” a Dow Jones Newswire columnist just tweeted.

The Mob Smells Blood

Then, the other day, the New York Times columnist David Brooks apologized for “being a sap.” Specifically, he apologized to his conservative readers for his previous admiration of President Obama’s centrist, willing-to-compromise, pragmatic approach toward Congress. Obama’s sin: Proposing a $4.4 trillion deficit reduction plan that did not completely cave in to the Republicans. Brooks wrote:

It has gone back… to politics as usual… I was hoping the president would give a cynical nation something unconventional, but, as you know, I’m a sap.

Did this appease angry conservatives bitter about Brooks’s earlier tolerance for Obama? No. The flogosphere erupted in a fury of anger, from both left and right.

In an email to The Atlantic, Brooks mused on the value of apologies:

One thing I’ve noticed is that columns in which you admit error generate more hostility than any other kind. I did a series on what I should have known about the Iraq war and the response from the left was more vicious than at any other time, and I was making a few concessions to them.

Either they smell weakness and exploit it, or they feel more self-righteous than ever. In any case, the lesson is that from a public relations perspective, politicians are probably right in never admitting error in public.

Does this hold true as well for business executives? Should you apologize to customers or employees or investors for upscrewing something big? Is the best policy never to apologize at all?

The obvious advice is to avoid upscrewing in the first place. But upscrews happen. The key is to apologize strategically.

Do you hear HP’s Board of Directors apologizing for allowing a once revered Silicon Valley company to spiral into chaos and irrelevance? Or for even considering Meg Whitman as the next CEO? No.

[I started to list companies that ought to be apologizing for something, but that would consume far too much space. I apologize.]

Remember in April when Sony’s sloppy security allowed hackers to steal credit card information from 10 million Sony PlayStation Network customers? Sony had to shut down PSN for 10 days, knocking 77 million customers offline.

Kaz Hirai, Sony’s No. 2 executive, held a press event to apologize. These screengrabs say it all:

 

And remember when Apple cut the price of the new iPhone by $200 just two months after introducing it? Steve Jobs, not otherwise known for contrition, issued a public letter of apology, explaining why customers were ungrateful wretches but offering them $100 credit toward buying more Apple products.

Which reminds me of the delightful Joy of Tech cartoon from 2007:

Anyway, I apologize that this post has gone on so long without a conclusion. I promise to do better next time.

P.S. Hey, Reed, how about an apology for naming it “Qwikster”?

Is Apple Stock and Customer Satisfaction Tied Together?

The American Customer Satisfaction Index (ASCI) recently released their findings across multiple industries. Unsurprisingly Apple continues to reign supreme when it comes to customer satisfaction. In fact according to the release Apple’s customer satisfaction is now at 87% 9 points higher than their closest competitor.

There was however another point in this release that caught my eye. A quote from the release states:

In the eight years that Apple has led the PC industry in customer satisfaction, its stock price has increased by 2,300%,” remarks Claes Fornell, founder of the ACSI and author of The Satisfied Customer: Winners and Losers in the Battle for Buyer Preference. “Apple’s winning combination of innovation and product diversification—including spinning off technologies into entirely new directions—has kept the company consistently at the leading edge.”

Perhaps there is a correlation to customer satisfaction and stock price. One could make a strong argument looking at the above quote and statistic.

This I believe speaks to the difference in thinking quarter by quarter with your product roadmap and to Apple’s approach that innovates for the long-term and for the future.

Many intelligent financial analysts and consultants have remarked on how developing products that satisfy consumers is a more valuable and sustainable strategy then developing one that satisfies investors.

The Harvard Business Review calls this thinking Customer Capitalism and I believe it is spot on.

I would argue that this data validates that focusing relentlessly on the customer experience as a holistic part of the brand and product experience pays off with Wall Street in leaps and bounds.

The iPad is Hot in Small Business

One of the most interesting things related to our tablet research of late is what is happening with the iPad in small business.

Apple in their last earnings reports made some points related to the iPad and the enterprise but it is small businesses who are adopting the iPad at incredible rates.

We are still underway surveying small business all over the US but with more than two dozen small business owners already surveyed it is clear the iPad is hot in small business.

This is a significant trend. First of all because the sales of these devices would fall under general consumer sales. So we wouldn’t necessarily be able to track them as specific sales to be used in small business like we can enterprise adoption.

I have a hunch, which would be hard to quantify, that a significant portion of iPad sales are being put to use in small business in some way shape or form.

I have talked to restaurant owners using them to take orders and send automatically back the kitchen. I have talked to financial advice firms using them for notes, organization, and to walk clients through data. We have talked to consultancies, legal firms, small boutique shop owners, automobile dealerships, photographers and a host of other types of small businesses and nearly all of them are finding creative ways to integrate the iPad into their business.

Interestingly so far in our study over 85% of small business owners we surveyed are either using the iPad in some way or plan to purchase and use one within the next year.

A key observation coming out of this research so far is how all of the small business owners using the iPad for business have been using non-customized apps right out of the app store.

This differs from many enterprise solutions where the enterprise or IT department often times creates custom applications. Small business owners don’t have the luxury or resources to have custom apps built to serve their needs so they find apps or combinations of apps that fit their purposes.

Another key finding in the remarks of many small business owners and users of iPads was that they felt the iPad made them competitive. For some, part of their reasoning for buying the device was that their local competition was now integrating iPad and they wanted to stay current.

Another fascinating finding was how many small business owners found that using the iPad as a part of their business gave their customers or prospective customers the perception that they were “with the times” or on top of the trends. They remarked how using technology and specifically the iPad was “cool” and they wanted to send the right message to customers.

Perhaps even more interestingly many also said that they believed that using the iPad actually helped them land new customers. This was especially true when small business owners, like several financial firms we spoke with, compete with larger firms who are not using iPads. These small business owners believed that new customers viewed their use of the iPad in their services business gave them an edge over the larger firm’s reps who still used pen and paper. Apparently it isn’t cool to show up to a meeting with a pen and paper these days. Ebay mobile is currently running a commercial that makes this point.

Lastly although we have only spoke with just over two dozen small business so far, many remarked on how many iPads they are seeing by small business in their towns by friends and even competitors. It is clear the trend of iPad in small business may be larger than most anticipated.

When asked about Android tablets price and lack of key apps for their business needs were the biggest factors keeping them from considering anything other than iPad at this point. That and they kept hearing glowing reviews from other small business owners about iPad and mixed results if any about Android tablets.

The iPad phenomena is so much more than just consumption. Small business owners, who can claim the iPad as an expense, are finding new and creative ways to integrate iPad into their workflow.

My sense tells me that we are barely scratching the surface of iPad in enterprise and small business. I believe the next year will shed much more light on the potential for iPad and business.

If you are a small business using iPad in unique ways feel free to share with us how you are using iPad in your business.

The Apple Brand Is a Powerful Selling Point

At the Intel Developer Forum this week I saw a number of interesting products and product concepts from a wide range of manufacturers.

As I looked over many of these products, some from known brands and some from more obscure brands, which are known as white labeled laptops, I started thinking about how important the role of the brand is as it relates to consumer purchasing decisions.


Currently my consumer research focus is North America, so I can’t speak for the other regions, but in the west consumers resonate with brands.

I saw many very thin and very light notebooks called UltraBooks from Acer, Asus, Toshiba and a slew of others.

Many of the UltraBook designs that I saw were poorly attempting to look like the MacBook AIR. One from Asus came incredibly close. However it was that product that got me thinking about the role of brand.

My thesis, which is and has been evolving, is that Apple’s brand is a major factor in the overall appeal of their products. This is something that can not be created or duplicated overnight by competitors.

Of course Apple makes great products but these products fall under a very distinguishable and relatable brand.

I see a lot of interesting UltraBook designs coming from manufacturers. Intel wants to get these prices down so the lure of one of these products over the MacBook Air would be price.

But here is the problem. A growing number of American purchasers don’t want cheap. Our research is showing that the value and premium segment of the market is growing at an alarming rate. And, with that segment, brand matters.

In the US and perhaps even in growing segments all over the globe, the strength of the Apple brand is unparalleled in computing currently. That causes real problems for companies like Acer, Asus, Lenovo, Toshiba etc who don’t have nearly the brand strength as Apple.

I view what is happening in personal electronics similar to what has been happening with fashion. People make brand or style centric decisions based on what they feel reflect them as a person. Again in this reality brand is very important.

Never before did this hit me with such truth than when I was doing consumer market research for a PC OEM who was struggling in the consumer segment.

My goal of the research was to explore the role of design with the younger more influential early adopter audience. The issue of design as a personal statement hit home when I showed the current non-Apple notebook design to a college student and asked for his thoughts. Calmly and quickly he said to me “I wouldn’t be seen in public with that notebook.”

Consumers in the west are now making conscious decisions about the tech products they buy and how carrying that brand around is a part of their self-image. Because of that, brand matters.

The Apple brand is just one part of a fast and deep collection of competitive advantages.

We will be doing more research on this subject soon, but I have a hunch that if you stuck any of the current UltraBooks next to the MacBook Air and asked which product would these customers would buy, a very large group of them would choose the Air and the Apple brand would play a role in that decision.

Many could argue that price matters. To this I would agree however I don’t believe that in the US, where PC’s are a mature market, that price is the only factor in that decision. Even if UltraBooks come in at $200 or more less than the MacBook Air, I don’t believe in any way that threatens Apple’s growth going forward.

There is No Such Thing as an iPhone Killer

Samsung recently released its latest smart phone in the Galaxy S II line called the Epic 4G. Some in the media are hailing it as an iPhone killer, a statement that is at its deepest level entirely ignorant. Amazon will soon be releasing a tablet version of their popular Kindle e-reader and again people will proclaim or at least ask the question “is the Kindle Tablet an iPad killer.”

What I want to make clear is that there is no such thing in today’s technology landscape as an iPhone or iPad killer, or any other product killer for that matter. Many seem to assume that the tablet and the smart phone markets will be very similar to the historical PC landscape. Historically with PCs one dominant software operating system dominates and the rest have marginal market share at best. Even the PC landscape is changing.

The fact is that the market for PC’s, smart phones, tablets, and anything else we dream up will never again look the PC landscape during the 90’s and early 2000’s. There simply will not be one single OS that dominates the landscape. The market will support many and therefore there will be many choices and choice is good.

The reason for this is because when a market is maturing there is generally fewer or less quality options. There is in essence a market standard that leads the market to maturity. With PCs it was Microsoft and Windows which led the way as the standardized technology by which the market matured. With the Smart phone and tablet it will be the iPhone and the iPad that will lead the market into maturity. However once a market matures it begins to segment.

With Windows and the PC it took the product nearly 25 years to reach maturity. Smart phones, tablets and more will not take nearly that long and in fact will mature in around 3-5 years.

Due to the rules of market maturity, I can confidently say there is no such thing as an iPhone or iPad killer. There are only other product choices. John Gruber over at Daring Fireball makes some similar observations on how the market will support multiple solutions.

Why do I know this you ask? Because a Toyota Corolla is not a Mercedes-Benz killer. A Ford Truck is not a Prius killer. And an even closer analogy, a BMW series 3 is not a Mercedes C300 killer or vice-versa. The market can sustain all these automobile products.

To use another example Pepsi is not going to release a Coca-Cola killer. You simply have a choice of Coke, Pepsi, Sprite, Root Beer, Mt Dew, etc.

I have been studying the automobile market as it relates to a mature consumer market for some several years now and the similarities between the automobile market history and the technology market history are strikingly similar. The big difference is that the automobile market is about 20 years more mature than the PC industry. However when you study how the market matured and consumers adopted new technologies in the automobile industry you find moments in time that are very similar to the moment in time our industry is currently in.

Therefore we learn a lot about how today’s fragmented yet competitive automobile market and what it can teach us about what the consumer technology landscape of the future will look like.

This is the reality in mature consumer markets. There is a dominant solution that leads the market to maturity as consumer who are interested in their first product in the maturing market go with the market leader. As they become more familiar with their needs or wants with that product they then begin to shop around based on preference.

This is why the abundance of Android smart phone in the early stage of a markets maturing is actually more harmful than productive for the Android solution. I have stated before that the Android market is too saturated for its own good and that will be the case until the smart phone market reaches peak maturity in 3-5 years.

The critical key to any company in the market wanting to maintain or grow market share is to be around when the market actually does peak. Because once it does it is very difficult, without a pure market disruption, for new entrants or those who have minimal market share to grow.

Establishing market share early is of the utmost importance.

iOS is Still The Best Choice For Developers

Yesterday The Yankee Group released an interesting set of findings from a research study they conducted. The crux of the article was around how Android app piracy is hurting Android developers. The report claims that because of app piracy on Android, developers are losing up to $10,000 in revenue.

We have known for a while that Android has an issue with malware being brought in through apps and now to add to the issues plaguing developers they now have the added threat of having their software pirated.

Android has always catered to the “tech tinkerer” so it isn’t shocking that these underground app stores exist where you can get any app you want for free.

Google’s lack of control or polices related to the Android Market is one of the biggest weaknesses of the entire Android ecosystem. A quote from the report states:

“Android apps are living in the Wild West without a sheriff,” said Carl Howe, Yankee Group director of research and author of the report “Android Piracy: How Republished Apps Steal Revenue and Increase Costs.” “With five other major mobile OSs competing for consumer dollars, Google can’t afford to simply let pirates kill app developers’ businesses. They need to foster some law and order or developers will flee to other platforms and Android will lose customers.”

The Yankee Group’s survey findings from Android developers parallel our discussions with them as well. Many developers we speak with, who develop apps for both iOS and Android, constantly tell us of their frustration and fear with the Android Market.

This is one of the reasons we think that what Amazon is up to could prove disastrous for the Android Market. If some of our early theoretical analysis is correct, Amazon may be planning to use their fork of Android to entice Android developers away from the Android Market.

From many of the developers we have spoken with who also submit apps to Amazon’s app store we have heard much more positive things. Things like Amazon supports them more, has better recommendation algorithms to help their app get discovered and economic value as well. On top of that Amazon doesn’t accept every app submitted, they do actually have a process for approving quality applications to their store.

Based on much of our own research as well as many new reports like the one from the Yankee Group, we have to conclude that for the time being iOS is still the safer and more reasonable platform for developers to continue to pour resources into developing applications for.

For any platform to be successful it needs to have a robust, thriving and more importantly confident software developer community. Google needs to resolve these issues, take more control and cater more to developers if they want their version of Android to continue to garner support from developers.

To add further support for the argument that iOS is still the best place to focus precious developer resources to, the report also states that iOS consumers download six times more apps than Android consumers. So for the developer there is a 6x better chance of getting their application into the hands of consumers.

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It’s the User Experience, Stupid; How iPhone Critics Miss the Point

The title tells it all: 10 Reasons Why iPhone 5 Doesn’t Stand a chance Against Motorola Droid Bionic. The article, by Elias Samuel in International Business Times, not surprisingly, lists 10 ways in which the Droid Bionic, just announced for Verizon Wireless is superior to the the forthcoming Apple iPhone 5.

Photo of Droic BionicI don’t mean to pick on Mr. Samuel’s, whose other work I am not familiar with.  But this article is sadly typical of a common style of tech reviewing.

Never mind that we know very little about the iPhone 5 hardware, though that doesn’t stop everyone from speculating. The problem is that even if all of Samuels’ assumptions about the new iPhone are right, it just doesn’t matter. For example, you can probably count on your fingers the number of potential iPhone buyers who care that the Bionic’s  Texas Instruments OMAP 4430 processor has specifications superior to the iPhone’s presumed Apple A5.

Some of the other claims are downright inane. If the lack of support for Flash and absence of an external memory card slot mattered, they would have killed iPhone and iPad sales by now. Obviously, they haven’t. And the alleged “open source advantage” is of interest mainly to ideologues (not to mention the fact that Android’s open sourciness is questionable at best.)

What is entirely lacking in Samuels’ review, and many, many others of its ilk, is a discussion of the one thing we do know about the iPhone 5, it’s IOS 5 software and the improvements it is likely to bring to the iPhone’s already great user experience. There are many Android phones whose hardware equals or beats the iPhone. There are none whose user experience comes close. And that, not speeds and feeds, Flash and LTE, is what sells phones.

The Droid Bionic looks to be a fine handset and I expect it will do well. But to say “iPhone 5 may not stand a chance against Motorola’s flagship phone” is just plain silly.

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Is there a market for Good Enough “Tablets?”

In April I wrote in my PC Mag column about Amazon Stealing Android from Google and argued in this piece that Amazon was most likely building their own proprietary approach to integrating their overall Android Store and a set of music, video and cloud services and integrate it into their future tablet offering.

Then, in August I wrote how Amazon Could disrupt the tablet market by creating a tablet that could sell for $249 even though it would cost $300 to build, but make it up by amortizing users purchases of books, music and videos over an 18-24 month period.

I suggested that if Amazon did this they could disrupt the entire market for tablets by introducing a new pricing model tied to their services that would make it very difficult for any hardware only tablet vendor to compete in this burgeoning market.

Now, in a most interesting post from MG Seigler at Techcrunch we get an actual hands on description of this tablet and it reinforces the price I suggested Amazon would sell it for. And he goes on to give actual details about it coming out in November including the fact that it has a color 7” screen but no cameras and no i/o ports.

If what Mr. Siegler says is true, then this Amazon tablet is more like a Nook on steroids then a serious competitor to Apple’s iPad. It will have very limited features as a multi-purpose tablet, but will excel in offering Amazon driven music, video and clouds services. And of course, we expect that it will have a browser so it would give people using it broad access to Web based content although apparently it will not support Adobe’s Flash.

But this brings up a very interesting question. Is there room in the market for what we would call a “good enough” tablet? Clearly, Apple’s iPad seems like it will be the Cadillac of tablets and to stay with the GM metaphor, the Amazon tablet is probably more like the Chevy Malibu of tablets. Both are very functional but what is inside and what they can do on the road are very different.

While there is always a market for full-featured products like the iPad, there is also perhaps an even larger market for “good enough” tablets like the first gen Amazon tablet might me. And Amazon, with this limited design and low price point, seems to be aiming at the “Chevy” market for tablets where bells and whistles are less important then price and basic functionality.

This concept of good enough computing has been bandied about in the industry for decades. It started with desktops where high end gaming PC’s ruled the gaming and engineering/graphics market, while lower cost PC’s with less horsepower and functionality took the lions share of the bigger “good enough” PC market. And the same thing happened with laptops. Gaming laptops powered the upper end of the portable market, while thin and lights went after the business crowd and value laptops with less power compared to the other two models took the lions share of the broader portable market. And they were good enough for a very large audience of consumers.

Could this “good enough” approach to the market be repeating itself again with tablets? There is no question that even though Apple’s iPad may be the Cadillac of tablets today, Apple was quite aggressive with their pricing so that it has appealed to much more than a more well-healed audience that normally buys upper end models of everything. On the other hand, there will always be a large audience who either won’t spend much on products or can’t for economic reasons and will opt for something in this value line of products or in this place, a just “good enough” tablet if it is available.

My sense is that as with desktop’s and laptops there is room for both and I suspect we will see tablets at a lot of different price points taking aim at the needs of all level of customers wants and needs. And if history is our guide, the products in the “good enough” category could be very large indeed.

Why Apple Should Build a TV

While I don’t believe it, to many, it appears that Apple has already won the smartphone and tablet wars, so the next logical conclusion is “what’s next”. Many articles about the Apple in the TV business rumors (not to be confused with the “hobbyistApple TV) focus on what a lousy business TVs are or questioning if Apple could add enough incremental value given cable and content companies have the power position. These are good and pragmatic reasons, but then again when has Apple been pragmatic? I see nothing pragmatic about expensive MP3 players at 2X the price of others, paid music downloads or app stores 10 years ago. I personally would like to see Apple enter the TV market.

appletv

TVs and STBs Have Big Issues

Let’s face it, TVs aren’t very easy to use, especially when they are connected to a set top box (STB). Most of us tech-heads forget just how literate we all are with technology. Just ask a less tech-literate person to change inputs on the TV to go from the set top box to the DVD player. Many times they have “Channel 3” written down somewhere so they remember. Ever lost that remote? Sure you have and it really pissed you off. How about a set top box from a cable company? Mine takes almost a second to change the channel. And why do I keep running out of storage when I have TBs of secured storage in other parts of my house? I know what you are thinking… too complex, too many companies involved with too many conflicting agendas. Well, I’ve heard that same short-term thinking before with digital music.

uglyremote

Big Problems Need a Fearless Company like Apple

Apple has a solid track record in fixing those issues that have plagued users for years. Apple has significantly moved the industry in:

  • Simple digital content downloads
  • Application purchasing and updating
  • UI simplicity
  • Computer boot time, wake from sleep time
  • Reliability and dependability

So Apple fixes huge issues and TVs and STBs have big issues. It sounds like the perfect match.

A Bold Assumption on Content and the Distributors

My assumption is that Apple will find a business model the content providers will find advantageous or tempting enough to cross the cable and satellite companies. If not, then you would expect them to declare war and do everything in their power to circumvent this by investing in the “pipe” or content companies themselves. This market is too huge and too big an opportunity for the most valuable company on the planet to pass up. I know, this sounds impossible, but when Napster arrived on the scene, how plausible did iTunes sound? How plausible did downloadable movies sound with bit-torrent around?

So why should Apple make a TV? Because there is so much they could improve and people will pay a hefty premium to have a superior experience in a few different areas.

Finding Content via Advanced HCI

Controlling a device with 1,000s of “channels” makes absolutely no sense with a physical remote like we have today with up and down buttons and even numbers. This would be like instead of having Google web search as we have today, we were stuck with Yahoo directories and no search. Directories made sense until the options exploded, like we have today with content.

Apple is one of a few companies who could master controlling the TV’s content via voice primarily, then secondarily air gestures for finer grain controls. First, the TV needs to be smart enough to determine who in the room has “control” and who doesn’t. It’s the future problem of today’s “who has the remote” issue. Then it needs to separate between background noises and real people if you are to have the best voice control. After you have found what you want to watch, you can fine-tune with the flick of a finger. This takes technologies even more advanced than the Kinect to pull this off, including the right sensors and parallel compute power delivered by OpenCLTM frameworks.

Apple Device Integration

If Apple developed a TV, they could conceivably guarantee that the iPhone, iPad, Time Capsule and Macs could seamlessly share content between each other. We have seen from the issues with Android and webOS on getting Netflix and Hulu+ that content providers are more apt to license when there are more closed systems.

As I am watching my NFL Football game, I want perfect, real-time sync of stats on my iPad, and want to be able to carry the game from the media room with me on my iPhone into the kitchen. I’d like overflow content storage to go to my Mac, PC, or Time Capsule. Finally, I would also expect to see sharing of basic sensors like cameras, microphones, gyroscopes, proximity sensors, and accelerometers to extend and facilitate security, monitoring, and gaming applications.

Apple Basics

I would want some of the basic positive characteristics I get in my iPhone and iPad in my iTV. I would expect it to be very responsive, reliable, and with a sense of awesome style. My set top box or my TV is neither of these. I would know that every differentiating feature would work well or it wouldn’t be included. I would also expect some key 10’ UI apps as well.

Conclusion

I believe Apple can and will be able to arrive at a business model with content providers and cable/satellite companies. Either that or it will get very ugly for everyone. The most valuable company in the world with a huge pile of cash, no debt and a historic track record of pioneering breakthrough content deals can do this, or if forced to will go around it. Apple has been a company that fixes those nagging problems, and the TV and STB have a lot of them. Our basic method of finding content is broken. STBs crash and are slow and don’t work with other devices in the home. I’d like to see Apple fix these issues. How about you?

Why Content is the Biggest Roadblock for Apple TV

It appears as though the “Apple is making a TV” discussion is coming back around. Probably because of rumor reports that “sources in the know” are talking about a brand new product category.

Apple has a hobby business in a product called Apple TV. At some point in time this hobby will become a business, the question is when. The other question is will it be in the form of a full blown television? Will it simply be a set top box? Or perhaps will the iMac become a 40′ or larger monitor /TV?

These are all interesting questions and I can see good arguments for and against all of them. However the real issue as I see it is the content industry.

Problem #1 Hollywood
What many people don’t know is that Hollywood is nearly impossible to deal with. Unlike the record labels whose business is more distrubution, the movie studios and TV networks prefer controlled distrubution. Both the TV studios and the movie studios carefully control when, where and how their content is distrubuted.

They have exceptionally strong legal rights to their content and because of that they are in the driver seat. Take for example Starz, HBO and Showtime.

If you have ever wondered why there is no digital “subscription” service for first release titles of movies it is because Starz, HBO and Showtime own the rights to first run movies as a subscription service. This is why as a part of their subscription services comapnies like Netflix, Apple, Amazon etc can not offer a digital download or streaming subscription service which includes new releases on DVD.

This is why the only options to date to get a first release on DVD digitally is to buy it or rent it.

For any company to offer a subscription service to download or stream new release movies they would have to get HBO, Starz and Showtime on board, not to mention the studios, who I think have more lawyers than employees.

This is why in 2006 Starz tried to launch Vongo.com their attempt at a movie subscription service. The challenge with Vongo was that it didn’t have movies newer than 6-8 months depending on the studio.

The primary reason for this is because the studios want people to go buy DVD’s not subscribe to a service for the cost of a DVD that allows them to stream it as many times as they want. Because of that only the premium pay-per-view model is available for a movie in digital form until it has been on DVD for at least 6-8 months. So all though Starz, HBO and Showtime on the rights to a subscription movie service they studios don’t give them those movies until 6-8 month’s after it has come out on DVD.

Historically Blockbuster and now Netflix and Redbox get away with offering a subscription service for physical DVD’s because of copyright laws. Legally anyone can pay full price for a DVD and sell or rent that DVD at whatever price they can fetch. Unfortunaly digital copyright laws work differently.

Hollywood tighlty controls their first tier window of physical and digital DVD distribution and I don’t see that changing anytime soon. The fact of the matter is the purchasing of DVD’s is what they want people to do and they will protect that business to all ends.

To make a long story short, it would take a miracle for us to see a subscription service to stream new release DVD’s.

Problem #2 Comcast, Dish, DirecTV and others
What about a service to subscribe to network TV shows? We do this already since we pay a fee do Comcast, Dish, Time Warner, DirecTV or someone else. So it would seem logical to assume someone can offer something similar through the Internet.

The only problem is those above service providers pay hundred’s of millions of dollars for the rights to offer that content as a subscription service. The reason we get 100’s of channels for a fee each month is because hundreds of millions of dollars were spent to reserve the right to distrubute that content.

Put yourselves in the shoes of ABC, NBC, CBS etc. They get massive amounts of money up front for their programming. Do you think they are going to jeapordize that by letting people stream or access their content for free or cheap?

Although some networks today allow next day viewing for free with mandatory ads I am betting that at some point in time that model changes as well. What’s more is that even though supporting free streaming by ads is a business model, it comes no where close to hundreds of millions of dollars up front.

Hulu is in fact already experimenting with only allowing people to watch a show online the next morning if a fee is paid then anyone can watch it after seven days with ads.

I would expect in the near future if you want to stream a show for free online you will need to wait at least a week after it has first run. This will instantly kill any chance at the water cooler affect of a show and most likely discourage online streaming all together.

If you add up all the business model issues facing any company who hopes to offer or disrupt the current TV ecosystem it amounts to a monumental challenge.

The bottom line is the biggest hurdle for Apple to make Apple TV a business is not a technical one, it is a legal one.

I completely agree that the televion will someday become the next big platform to deliver rich content and services to and that it NEEDS to be disrupted in a major way.

But to quote a friend of mine who is a Hollywood lawyer:

“Two things drive Hollywood – fear and greed.”

I’m not optimistic that either of those forces will work in the technology industries favor.