Can Amazon Make a Cheap iPad Challenger?

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

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

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

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

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

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

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

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

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

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

 

Here’s a Ridiculous Idea-Split Apple in Two

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

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

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

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

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

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

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

Think Different

My favorite Apple marketing campaign by far was their “think different” campaign. I felt like that campaign profoundly spoke to me and I am a sucker for great marketing.

That slogan, I always believed, summed up Apple eloquently. Apple used the slogan powerfully by simply placing the phrase next to luminaries, visionaries and any other type of person who dared to think different. It was an amazing campaign.

Steve Jobs did not just create a culture of thinking differently; he also surrounded himself with people who also thought different, who saw the world with a different lens. The result is a passionate group of employees who believe they are working on some of the greatest products on the planet; that is why they make some of the greatest products on the planet.

Products created at Apple have the fingerprints of every single person who worked long hours to bring those products into reality. This is why, toward the end of many Steve Jobs speeches, he asked the audience to acknowledge the hard work of everyone who had a hand in Apple’s new creation. And it underscores that Apple is not just Steve Jobs. It is all of them devoted to Jobs’ vision of thinking different and working together to execute on that vision.

From what we have seen Steve Jobs do throughout his career it would be fair to assume that he has been playing on an entirely different level. He is the epitome of thinking different.

Regardless of whether Steve Jobs is at the helm of Apple as CEO or just its Chairman, I am in no way concerned about the future of Apple.

Steve Jobs hasn’t been deeply involved in Pixar for some time now and yet Pixar still is the leader in their feild.

He has done amazing things in and for this industry that employs many of us. I feel honored to have been in the industry, attending industry changing events, and some small part all of it. I look forward to being able to tell future generations that I saw Steve Jobs in action.

The right culture + the right people + the right vision + thinking different = Apple.

Apple After Steve

Everybody has heard the news by now: Steve Jobs resigned because he “could no longer meet my duties and expectations as Apple’s CEO.”

In his letter of resignation to the Apple Board of Directors and the Apple Community, Jobs wrote: “I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.

My first immediate reaction is sorrow that he’s stepping down. I presume that his decision is health related, and wish him and his family well.

My second reaction, to paraphrase Monty Python, is that he ain’t dead yet. His brief and eloquent resignation letter says he plans to hang around a while.

Will Steve Jobs die? Of course. Silly question, as he would be the first to say. (Actually, “stupid f&*$#$g question” is more likely how he’d say it.)

In his graduation speech to Stanford’s Class of 2005, Jobs said: “No one wants to die. Even people who want to go to heaven don’t want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life’s change agent. It clears out the old to make way for the new.”

I suspect he might see stepping down as CEO in the same Schumpeterian way. He and Steve Wozniak started Apple in a garage and it’s now the most valuable company on the whole f&*$#$g planet. Apple sets the agenda for the global technology industry. Jobs himself is by consensus the most important business executive alive today. Earlier this year he effectively decreed that the Personal Computer era was over, and last week the world’s No. 1 PC company, Hewlett-Packard, effectively said, “You’re right again, Steve. We’re toast. You kicked our butt. We give up.”

It would be hard to conceive of a better time to say “Mission Accomplished” and hand the keys to the next generation.

I haven’t checked the after-hours ticker but I assume AAPL is getting cored. That’s silly, too, for anyone with a view that goes beyond a day or two.

There’s always lots of new stuff in the pipeline at Apple, stuff that takes months and years to develop, and Tim Cook already has been running things on a day-to-day basis for some time. Will Cook be as good a CEO as Jobs has been? No one knows. Can he be even better? Again, no one knows.

Could he be worse? Hey, it’s not like Tim Cook is the second coming of Gil Amelio. I remember sitting in the front row at a Macworld conference in the mid-1990s, as a Jobs-less Apple appeared to be in a death spiral, as then-CEO Amelio gave a rambling keynote address while absent-mindedly beginning to undress himself on stage. Apple PR folks were apoplectic. It’s hard to imagine Tim Cook melting down in a similar way.

One thing we do know is that Jobs’s DNA already inculcates the culture at Apple. That may change a few years out, but … that’s a few years out. The fact that Jobs is no longer CEO of Apple is not suddenly going to make HP or Microsoft or Dell any smarter. The fact that Tim Cook is now running things is not suddenly going to invigorate any of Apple’s competitors to execute their strategies any better.

Another thing we know is that Apple is probably going to introduce a fifth-generation iPhone that will run on all carriers, including new carriers in China, the world’s largest untapped market for smartphones. That fact that Steve Jobs is no longer at the helm will not cause millions of Chinese, or Americans for that matter, to slap their foreheads with an epiphany that Android, Windows Mobile, and WebOS are suddenly better choices for mobile platforms.

Notice also the not-so-subtle jab at the media in Jobs’s letter of resignation: “I strongly recommend that we execute our succession plan.” There is in fact a succession plan at Apple and the Board just approved it.

I suspect that Tim Cook didn’t open his first conversation with the Board of Directors by saying, “Okay, boys, now that I’m running the show we’re going to reinvent this company from top to bottom. I’ve been itching to go completely open and dump this whole ‘Apple ecosystem’ strategy.”

At the same time, I can’t think of any company that is as closely identified with its CEO as Apple was under Steve Jobs. Apple without Steve Jobs (or, to be accurate, Apple with Steve Jobs in the Sinatra-esque role of Chairman of the Board) will not be perceived as the same company with Jobs on the sideline. Jobs is a genius. The genius is (sort of) gone. Therefore, some of Apple’s genius is gone, too, until proven otherwise.

In that commencement address at Stanford six years ago, a healthier-looking Jobs gave a speech that was very much like the Apple products for which he is known: Elegantly crafted, attentive to detail, rich in content, but no unnecessary words or buttons. He was talking to a fresh crop of Stanford graduates, but his message almost certainly applies to Tim Cook, Phil Schiller and all the other top Apple executives who are now at the helm.

“Don’t be trapped by dogma,” Jobs said, “which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

Jobs also said this: “I have looked in the mirror every morning and asked myself: ‘If today were the last day of my life, would I want to do what I am about to do today?’ And whenever the answer has been ‘No’ for too many days in a row, I know I need to change something.”

So, Steve woke up one morning recently and decided he needed to change something besides the world. Namaste, dude.

*

A version of this post appears in Fiscal Times.

Contemplating the Future of Apple Without Steve Jobs as CEO

Today’s news that Steve Jobs would step down as CEO came as a surprise to many. But I believe Jobs had been preparing for this day for at least 5 years. Apple watchers over that time began to see signs of Job’s putting more and more responsibility into the hands of his executive staff as he often had to step away for health reasons. And during that time Tim Cook, Phil Schiller, Peter Oppenheimer, and the rest of Steve’s executive team understood that they needed to be more in tune with understanding Steve’s vision, directions and ultimate thinking on the long term future of Apple.

While we may tend to be concerned about Steve Jobs the person, I am not concerned about Apple the company. Steve Jobs has in place a very deep bench of executives who really do know Steve’s long-term vision and Jobs’ 10-year roadmap for this very important company. And they are more committed then ever to carry it forward and to extend his legacy well into the future.

What people don’t realize is that Apple does not work like most companies that operate on a quarter-to-quarter basis or planning cycle. Instead, the products they have in the works now are designed through 2013 and the current roadmap extends well through 2015. In this time period, nothing will change for Apple. In fact, I expect Apple to continue to grow even more during this period.

Let’s also remember that while Jobs will not be CEO, he still is Chairman and as long as he can, he will be influencing their current and future product designs and roadmaps. My sources say that while his health wavers at times, he plans to be an active Chairman and to be deeply involved with major decisions and future directions.

But there are two other key reasons that I believe Apple can carry on even with Jobs in a more diminished day-to-day role. It is because Apple is no longer a device company alone. They are now driven by a vision that includes hardware, software and services. And more importantly, the devices they create are just elegant screens that give people access to their software and services. Although their main screens today are the Mac, iPod, iPhone and iPad, they have a lot of room to innovate around the TV, in-car navigation systems and who knows what other screens they may want to design that front ends their software and services. And more importantly, their software, apps and services are a solid foundation that they can continue to build on.

The other thing that makes me certain that Apple will continue to be a force is something Jobs said to me in one our discussions many years ago. I asked him what drove him. He told me that technology could be complicated to use. He felt his mission was to make technology easy to use so that everyone could reap the benefits of technology. He then said that making technology simple to use was hard work, but that this was at the heart of his vision for Apple.

If Apple’s current executive team has caught this vision, especially the one about making technology easy to use so that everyone can benefit from it, then Apple will be just fine. And given their rich integration of hardware, software and services, they still have a lot of room to create great product that people will want to use.

But Job’s Legacy will always be that of a pioneer who sits at the intersection of liberal arts and design and forever changed the way people think about technology. Most executives would be thrilled if they have one hit in their careers. Jobs has had the Apple II, the Mac, the iPod, the iPhone, the iPad, iTunes and Pixar. These technologies and more to come from his vision delivered through his team will keep Apple in the forefront of our connected world and a major player for a long time.

Why the iPad is Not A Tablet

It’s not a tablet, it’s iPad 2.

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

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

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

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

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

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

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

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

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

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

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

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

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

What If Apple Puts A-Series Processors in MacBooks?

Apple Insider posted a bit of news around the rumor that someday Apple may use its own A-Series chips in products like the MacBook Air and MacBook Pro. When Apple made the move to design their own ARM processor by acquiring P.A Semi and Intrinsity it became clear that using their own processors in all their products made perfect sense.

Apple wants to control all the critical elements of the value chain. For smart phones and tablets it’s clear that Apple wants to control the semiconductor in those products so it can highly optimize iOS for a proprietary SOC. The interesting question is if they want to do the same for OSX in the future.

Apple has no control over the architecture decisions that Intel makes, nor do they control the timeline of those decisions. One could see how future MacBook products could benefit if Apple specifically designed A-Series chips to run OSX. The optimizations they could make for efficiently running OSX could make the OS that much better and that much harder to compete with.

In this scenario Apple unlike Intel doesn’t need to try and make a processor that can run any and all software and operating systems. In fact they don’t even really need to follow Moore’s law in their designs like Intel and AMD. All Apple needs to do is design the most effective piece of silicon to run OSX.

You may think they could never do something like this because of all the software for OSX now running on Intel silicon. That is true but if you remember they made the move from the G5 to Intel and it was fairly smooth. Their developer toolkits and their virtualization software Rosetta could be key pieces in making a smooth transition to their own silicon.

The real question in all of this however is where would that leave Intel if Apple ever stopped using them as a supplier?

Should Tablet Makers Concede the Market to the iPad?

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

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

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

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

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

Jim Dalrymple at the Loop makes a great point:

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

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

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

Incumbency Advantages

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

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

Unequal Access to Distribution Channels

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

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

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

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

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

That is what I call unequal access to distribution channels.

Demand-side benefits of scale

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

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

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

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

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

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

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

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

Why the Open OS Model Failed in Smartphones

Fifteen years ago, when Microsoft ruled the world and Apple was near death, the tech world was convinced that the conceptual batter between Windows and Mac–open operating systems available to all comers vs. closed systems–had been decided firmly in favor of open. But what applied to PCs in the 1990s does not appear to work at all for smartphones in the 2010s, as Google’s planned purchase of Motorola Mobility marks the beginning of the end for the open OS approach.

BusinessWeek cover

A major reason for this is that phones–and tablets–are very different from PCs even though they perform many of the same functions. A phone is a much more tightly integrated device in which it is very difficult to tell where the hardware ends and the software begins. Getting the user experience just right is both harder and more critical, because quirks that are a minor annoyance on a PC–or which can be remedied through an accessory such as a better mouse or keyboard–become killer flaws.

It’s easy to forget today that the first real winner in the smartphone market was Research In Motion’s BlackBerry, a closed system. RIM’s accomplishment was to provide a tightly controlled, secure mobile email device (the earliest models offered neither voice not internet service) that provided seamless access to corporate mail servers.

RIM could make this work because it controlled the hardware, the software, and the BlackBerry Enterprise Server middleware. Its rivals in those early days were the Palm Treo and Microsoft Windows Mobile. Palm was a bizarre beast that never really worked. Its owner, 3Com, first licensed the Palm OS to other manufacturers, then spun its software unit off into a separate company, PalmSource. The Treo was developed by one of those licensees, Handspring, which had been started by Palm’s founders. Palm eventually bought Handspring and reacquired some rights to the Palm OS, but it never had full control of the software. That’s a major reason why Palm and PalmOS gradually became non-competitive.

Microsoft’s mistakes were different, but illustrative of the traps inherent in an open phone operating system. In the best Windows tradition, Microsoft gave its handset manufacturers a lot of design freedom. It ended up with phones with a variety of screen sizes and configurations, with and without touchscreens, with and without physical keyboards. The hodgepodge of hardware made it impossible for Microsoft to provide a consistent–or particularly good–user experience on all Windows Mobile devices. And third-party software developers had a very hard time writing applctions that worked well, or sometimes at all, on all devices. In a final irony, until almost the very end, BlackBerry did a much better job of providing mobile access to Microsoft Exchange servers than Windows Mobile did.

Apple, of course, changed the game completely with the 2007 introduction of the iPhone, and again in 2010 with the iPad. Apple controls every aspect of the ecosystem, Apple software running on Apple hardware that can load only Apple-approved applications. This has horrified fans of open systems. such a Cory Doctorow and Jonathan Zittrain, but the mass market’s love for these devices has allowed Apple to suck up the lion’s share of profits in the handset industry and to define the tablet market to the point where it has no effective competition.

Except for Android, the open model has now all but collapsed. Nokia never achieved widespread adoption of Symbian by other manufacturers. Linux-based LiMo went nowhere, as did Nokia’s Maemo, Intel’s Moblin, and their love child, MeeMo.

The status of Windows Phone is uncertain. After the Windows Mobile nightmare, Microsoft set very tight design standards for its attempt to rejuvenate the platform. OEMs have a limited choice of display size and a physical keyboard is optional, but other specs must comply with the reference design. And Microsoft’s tight alliance with Nokia could result in, effectively, a line of “official” Nokia-built Windows Phone products. It’s nominally still a market where Microsoft offers its OS to any willing license, buy Redmond really controls the game.

Android’s openness has been a blessing and a curse. The free-to-all-comers OS has allowed the platform to gain a great deal of market share very quickly. It has also proved extremely frustrating to consumers, with a proliferation of designs and software versions all with different capabilities and no consistency in their ability to run third-party apps. With an iPhone, you know you will always be able to run the most recent version of the iOS software and any product in the App Store (with minor exceptions for some older models that lack some hardware features of more recent ones.) With Android, you just never know.

I suspect this will change in significant ways as a result of the Motorola Mobility acquisition. Google is never going to become Apple, but I suspect that the Android market is going to look a lot more like Windows Phone does today, with Motorola playing an even more central role than Nokia will for Microsoft. This sort of hybrid of open software with an official hardware maker is novel and largely untested; Palm and Nokia both nibbled at it, but neither was a fair test.

However it turns out, however, it looks like any attempt to build smartphones on the PC model is over.

 

6 Ways Apple Has Influenced the Last 30 years of the PC Industry

On Aug 12th, the industry celebrated the birthday of the IBM PC and its impact on our world of information. But we would be remiss if we did not also point out some of the key technologies Apple brought to the PC industry and how some of their pioneering technology and decisions actually pushed the PC industry towards stronger growth.

Credit: Austin Computer Museum

The first technology was the Mac and its graphical user interface. When the Mac was introduced in January of 1984, the IBM PC had been out for three years already, and its UI was still text based. But Apple shook up the computing establishment by introducing the Mac with its GUI, mouse and voice feedback and forever changed the man-machine interface for good.

The second major thing they did is toss out the 5 ¼ inch floppy disk and move to what quickly became the next major storage medium for PC’s. Jobs and company decided that the Mac should have a 3 ½ inch disk. At the time, the computing establishment smirked at Apple’s bold move, but soon after realized that this smaller disk size allowed them to create smaller PC’s and by 1986 this smaller floppy became the mainstream industry standard.

Their third major decision was to introduce a Postscript laser printer at an affordable price. This was a huge industry breakthrough. Most laser printers at the time cost well over $50,000 and took up a large space in an office. Not only did Apple bring this laser printer in at a price under $10,000, but also their laser printer actually sat on a desktop. Then, they were smart enough to link Aldus’ Pagemaker to the Mac and this laser printer and desktop publishing was born. From a historical perspective, you cannot underestimate how much this desktop publishing solution has impacted the world of publishing, graphics and even movies.

The fourth major thing they did was introduce Mac’s with CD Rom drives. Again, this was a revolutionary move at the time and in fact, this ushered in the era of multimedia computing. I had the privilege of being a part of the first multimedia roundtable held at UCLA in 1990 that was co-sponsored by Apple and saw first hand the potential that a CD ROM would have on computing by allowing a PC, for the first time, to deliver a storage device that could integrate text, images, audio and video into a storytelling medium. Again, the traditional PC vendors smirked at Apple’s move and said it was just another unneeded expense. But within two years they got the message and started to integrate them into mainstream PC’s as well. And, with the CD rom in PC’s, for the first time, the PC garnered serious attention from mainstream consumers. If you know your PC history you know that it was multimedia computers that finally got the PC into homes and the consumer PC market was born as a direct result of the role the CD ROM played in bringing multimedia content to the PC experience.

The fifth major influence on the traditional PC market came with the introduction of Apple’s colored Mac’s not long after Steve Jobs came back to run Apple in 1997. In fact, this major move to make industrial design a cornerstone of all Apple Macs has, over the last decade, forced the PC industry to completely rethink what a PC should look like and again, it took Apple to lead the way and help them see the future of the PC.

And now they have introduced the iPad. While Jobs likes to say that this is product of the post PC era, I beg to differ with him on one point. If you open up an iPad, it has a motherboard, CPU, memory, IO’s, screens, etc. In my world, that is a PC. And in that sense, Jobs and team again is influencing the PC market in an even more dramatic fashion.

While over the 30 years of the IBM PC, Apple did not achieve the type of market share of the HP’s, Dells, Acer’s etc. And during much of this time, the company actually struggled to remain relevant. But nobody can deny their impact during this period and now, it is the Dells, HP’s et all who are all chasing Apple.

The 13″ MacBook Air is the Perfect Notebook

I have used a lot of notebooks in my 11 years as an industry analyst of consumer technology products. In fact I have used nearly every type of design, form factor, performance, and screen size imagenable across notebooks and desktops. Because of that I am convinced that the 13″ MacBook Air is the perfect blend of everything required to be a great computer.

Prior to using the 13″ MacBook Air I used a 15″ MacBook Pro. In conjuction with that Notebook I also used last year’s 11″ MacBook Air. The primary reason for this was I wanted a notebook that was more travel friendly but I also wanted one with enough performance to handle the media processing I do.

After using the latest 13″ Air I have found it to be the perfect blend of portability and performance.

Hardware/Design/Portability/Performance

In my office I have a 27″ monitor that I hook my notebook up to when I am at my desk, making screen size when “docked” somewhat irrelevant. However, I move around a good deal as a part of my job. Whether it’s commuting to clients’ offices all around the Bay Area or traveling the country or the world my notebook is in my bag a lot. Because of that I used to travel with the 11″ Air.

Although extremely portable, arguably the most portable and powerful sub 12″ notebook, I still found the screen size a hinderence to long term use. It certainly sufficed in a lot of ways but I found myself desiring a slightly larger screen often.

The 13″ is the ideal size allowing for a larger screen experience without sacrificing portability.

I also found last years 11″ slightly underpowered when it came to the media processing that I do. I make a lot of HD videos of family and events and such so I need a certain level of performance or I will go insane. Apple says the new models are 2.5 times faster, but the 13″ model is faster still, and surpassed my expectations in handling video and audio processing.

The backlit keyboards are certainly nice but not all that necessary for me. The internal SD card reader is another feature the 13″ has over the 11″ that has been a very nice to have.

At the end of the day, the 11″ is “under-screened” for my needs and the 15″ Pro is just slightly to large for me to travel with comfortably. Fitting right in the middle, the 13″ Air is perfect.

Battery Life
Lastly i’ve been extremely impressed with the battery life of the MacBook Air line. Throughout the last year using the 11″ Air I was constantly shocked how long the battery would go. Especially with what I will consider general use.

It seemed as though I could shut the computer and leave it for a week then pick it up and nearly no battery had drained. I attribute most of this to a true state of “sleep” due to the solid state hard drive. It’s very similar to the iPad experience.

I don’t like to do battery benchmarks because there are so many usage variables. All I can say on the matter is that I can use it for a full day on a single charge. Granted this includes opening and closing my computer as I bounce around for meetings. I’m not sitting stationary working all day on a single charge.

In my opinion all that matters when it comes to battery life is that when you are mobile and not able to plug in you have enough battery to work. In that regard the 13″ Air delivers.

I’ll say it again. The 13″ MacBook Air is the Perfect Notebook.

How Important is the Design of the iPhone 5 to its Success?

I continue to watch with amusement the various pictures and speculative drawings for the iPhone 5. And the rumor mills are working over time trying to figure out what the iPhone 5 might look like. In fact, the folks at MacRumors have one of the best mock up drawings I have seen on the rumored iPhone 5 and, at the very least, it is cool to see what an iPhone 5 might possibly look like.

But how important is the new design really to the iPhone 5’s success? Yes, it could have a bigger screen and maybe even be a bit slimmer, but I contend that the iPhone momentum is already so strong that no matter what Apple does with the design of the iPhone 5, it will be a monster hit and could sell as many as 30 million in the holiday quarter. (Apple sold 20 million iPhones in the last quarter.) In fact, our research shows huge pent up demand from both ATT and Verizon customers in the US and very strong demand for this new phone around the world.

I know that the design of the iPhone itself will make the most news when it is launched but there is an even more important technology that needs to be factored into the iPhones future success. To understand this technology, let me relate to you something that happened when the first iPhone came out.

When the iPhone was launched, I had a briefing from the top executives at Apple responsible for the iPhone. After they showed me its design and specs, they did something very pointed and telling. They laid the iPhone on the table and asked me what I saw. I knew this was a trick question and I could have answered it a lot of different ways. But what I said is that I saw a device with a blank screen on it. They affirmed my answer and went on to say that this is what they want people to see. Although they were very proud of the iPhone design, they told me that by itself and when not turned on, it is just a dumb device. However, when you turn it on and the OS and apps get fired up, that is when the iPhone becomes an iPhone.

From the beginning, Apple built into the iPhone’s success equation an ecosystem of hardware, software, applications and services that together make it the iPhone. Yes, the design of the phone is important. But when turned off, it is not very smart. On the other hand, when it is turned on and the screen lights up, that is when the magic takes place. The hardware is only 1/3rd of the iPhones success equation. And while Apple may tweak the design of the iPhone on a yearly basis and add things like more memory, better communications features, better camera, etc, I would argue that what they do with iOS is much more important to the iPhone’s overall success and increased world wide demand. It is what you can do with the iPhone that matters.

So while you might be hyperventilating about the potential features and design of the iPhone 5, keep in mind that the iPhone itself is only part of the iPhone’s success equation. I believe that what Apple does in the next version of IOS and future versions of their mobile OS is actually much more important to the continued growth and success of the iPhone. It is the software that will determine the real future of this important Apple product.

Why Google Hates Patents

In a rather testy blog yesterday, Google’s Chief Legal Council David Drummond lamented the fact that Android is under attack from competitors who are using a patent war to thwart Androids growth.

Mr. Drummond calls these patents that attack Android “bogus” and suggests that Apple, Microsoft, Oracle and others are ganging up to keep Android from being competitive and impacting its growth.

He especially calls out Apple and Microsoft’s purchase of Nortel’s patents and suggests that while normally Apple and Microsoft are at “each others throats” he believes that something sinister is going on. But Mr. Drummond does not know Apple and Microsoft’s history. In 1997, Apple and Microsoft entered a major cross licensing deal that spans a great deal of technologies, especially user interface issues. And over the years, behind the scenes, they’ve expanded their cross licensing deals with an eye on making sure that they kept up with the changing technologies that were behind their original deal. Although the Nortel patents were a high profile case, many of these patents actually were very much in line with their quest to keep their original cross licensing deals up-to-date.

Ironically, Microsoft actually asked Google to bid with them and they refused.

I also found it interesting that Mr. Drummond was pleased that federal regulators are “ looking into” whether Microsoft and Apple acquired the Nortel patents for anti-competitive means.” Given what I stated above, Apple and Microsoft will just show them the history of their cross licensing deals and this point will be mute. By the way, if I were Google I would keep as far away from prodding federal regulators on any issue given the fact that they are also under major federal anti-trust scrutiny

Also if Google is so opposed to patents, then why did they shell out $100 million for patents from IBM? This seems contradictory to their view that patents are bogus. An interesting aside here is that none of these patents from IBM will help them ward off Apple. These IBM patents are mostly related to semiconductors and servers and Apple already has license to most of these from their original IBM/PPC partnership created during the mid 1990’s.

Now, I understand that Drummond’s is just doing his job. In fact, Google’s management has a fiduciary responsibility to defend Android just as Steve Jobs and team have a similar responsibility for defending their patents. However, I believe there is really more of an ideological issue in play and represents Google’s more Open Source approach to life that feels that all technology should be free for use by all. Versus Apple’s strong view that their IP is the result of serious investment and hard work and needs to be protected through the legal patent process to, as Steve Jobs has said, “keep people from stealing” their creative innovations.

I like what Daring Fireball’s John Gruber asks in his post on the subject:

“How is Google’s argument here different than simply demanding that Apple, Microsoft, Oracle, et al should simply sit back and let Google do whatever it wants with Android, regardless of the patents they hold?”

The other thing in play is that Google has always touted the fact that Android is free. But it is clear that if Oracle wins their suit against Google and Android’s use of Java , Oracle plans to charge each Android vendor $15.00 per license. And Microsoft has already gotten HTC to pony up at least $5.00 per HTC device that uses Android to cover Microsoft’s patents used in Android. In Apple’s case, if they win, they won’t even consider licensing that piece of the technology to anyone. So that part of Android that would be in violation of any of Apple’s patents would mean that Google and their licensee’s would have to find a work around and that could be costly to Google and every Android licensee.

And this takes a big bite out of Google’s argument that Android is free and would make any future licensee’s think hard about using Android if there are potentially sliding costs involved to cover any other patent claims that could pop up over time. No wonder they are bashing patents. They fear their impact on what has to be one of their big cash cows where Android is given out freely and they get the add revenues tied to it.

We have suggested to our clients that license Android from Google to begin factoring in at least $20.00 for a possible upcoming Android license fee in any future products. And we have warned them that if Oracle wins, they could try and collect that $15.00 for any Android device already shipped. This is obviously still a legal issue and we don’t know for sure how it will play out. But it would be foolish for any Android licensee not to be prepared for what they have to view as a worst case scenario if the legal battle goes in favor of Oracle and others challenging Androids use of their patents.

And don’t think that Apple, Oracle or Microsoft will back down on this issue. They know the stakes are high and will keep pressure on Google through the legal channels until it is resolved one way or another. It will be great theater watching these tech giants go after each other in the coming months.

The iPad Does What No Other Tablet Does

There actually may be a number of things that can be pointed out that truly differentiate the iPad. I however would like to focus on just one – battery life.

For the past week I have been camping in Lake Tahoe for vacation. All though i’m on vacation and not “working” I still like to check in from time to time as well as post new things on our site.

I brought a slew of electronics on this trip knowing that I would need multiple ways to get online and have very limited options and time to charge my gear.

So here it is Thursday and the only thing with juice left is my iPad. My Macbook Air, several other Android tablets, my iPhone, and several of the latest Android phones all dead. The only thing left standing is the iPad.

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There are many reasons why this is the case but the biggest reason I believe this is possible is because Apple made the hardware (including designing the processor) and the software. When you can “tune” all the elements of your hardware and software together you can accomplish optimal efficiency in the areas you purpose to. One of the many areas Apple had accomplished and continues to strive for in all their products is battery life.

This is not always easy and some devices like phones simply can’t have as large of batteries as others like computers and tablets. But it is still a goal.

It is of course the goal of the industry as well. I don’t believe companies launch products with poor battery life as a goal. Only there are so many factors for other vendors who don’t control the critical parts of the supply chain like software and hardware, so it becomes a greater challenge.

Battery life is still perhaps in my mind one of the biggest things the industry still needs to progress with. Several years ago I would have never thought that I would have a device that I could use to do work and a slew of other tasks with that would last well over a week on single charge. I’m blown away the iPad is still going.

It is Thursday and i’ve been using the iPad normally since Saturday and it sill has 34% battery life left. In fact i’ve been using the iPad more than any other piece of electronics I brought since Saturday and they all still died.

The Stage is Set for An iPhone Christmas

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

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

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

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

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

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

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

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

Why Apple Scares the Wintel Vendors

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

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

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

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

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

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

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

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

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

Apple and its Non-Acquisitions

Over at Technologizer, Harry McCracken has an excellent rundown on the long history of rumored acquisitions by Apple that never came to pass. Some of these hypothetical deals made at least superficial sense, most didn’t.

Here’s one test to apply to any talk of an Apple deal: Margin dilution. When financial analysts talk of dilution, they are referring to how the costs of an acquisition will reduce the equity of existing shareholders. Apple’s enormous market cap means that is rarely going to be a huge problem, but a company like Apple is going to be very wary of any acquisition that would seriously erode its very healthy profit margins.

That’s one overwhelming reason why Apple would be very unlikely to give more than about 10 second’s’ consideration to the rumored purchase of  Barnes & Noble. On the roughest sort of pro forma calculation, an Apple-Barnes & Noble merger would have reduced Apple’s profit margin in the most recent fiscal year from 23.5% to 21.9%. At most companies, a point and a half of margin is something to kill for. Since B&N offers no technology that Apple wants (strategic investments can be viewed through a different lens than purely financial ones) and  would saddle Apple with a great deal of real estate that it has no use for, the deal makes no sense on any level.

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

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

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

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

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

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

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

The Post PC Era Will Happen in Two Stages

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

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

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

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

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

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

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

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

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

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

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

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

My 5 Favorite New Features in OSX Lion

After spending some time working with Apple’s new operating system OSX Lion, I’ve landed on my top five favorite new features. Now granted, everyone uses computers differently. So for me and my computing habits these are the ones that lie at the heart of my upgraded experience.

Auto Correct

There are actually a number of very good new features for writing and typing. My personal favorite is a new and improved auto-correction feature that, like iOS, will fix a misspelled word or typo for you as you type.


Once a word is fixed a blue dotted line appears just under the corrected word to let you know it was fixed. This allows you to go back and edit the word if the in line edit was not what you wanted.

I type and write quite a bit and not having to backspace several times every sentence is extremely useful. Now that I have adjusted to the improved auto correction feature, I feel as though I can type more freely and clearly.

One other feature around text that I am coming to appreciate is the built in dictionary and contextual word search. You can highlight any word you see and right click with a mouse or triple tap on the trackpad to bring up a dictionary as well as contextual word search and wikipedia of the word.

Spotlight

I use spotlight for nearly everything. I do not have a very organized desktop nor do I organize my files very well so Spotlight saves me a huge amount of time. Primarily because although I don’t know where my files are most of the time I do remember the files name. I use Spotlight for more than just files but for programs as well.

The biggest edition to Spotlight that I absolutely love is called Quick Look Results. What this does is allow you to mouse over any of the Spotlight results and to the left of the Spotlight results drop down appears a quick view preview of the actual file. This way if you have multiple files similarly named or just want to make sure the result is the exact file you were looking for you can now see a quick preview before opening.

Another edition to Spotlight that i’m finding quite useful is the ability to drag and drop the file anywhere on your computer right from the Finder results.

Mail

I am a big Mail user and I have been for quite some time. I never could get used to Microsoft Entourage and even when they launched Outlook for Mac I still preferred Mail. Threaded messages, smart folders, integration with iCal and more were what had me hooked. So naturally I was quite pleased with many of the upgrades to Mail.

The upgrades to Mail’s search capabilities have to be my favorite new feature. Like my needs to search for files often with Spotlight, I also need to search for emails frequently. I don’t always remember the details of who a specific message is from, I only vaguely remember important things. The last upgrade Apple made to Mail helped be a good bit in this department but the latest upgrade to search has made it even faster and less work to find the email desired.

This is because of an advanced filtering process called search tokens. Search tokens let you filter your search down each step of the way and quickly narrows any and all search results until voila, you find exactly what you are looking for.

I’ve used the threaded messages options in Mail but the newest feature Conversations takes it to a whole new level. This has been fantastic because I tend to have very long conversations through email. By being able to see all the conversations organized and threaded in the same window pane has been a joy to use.

Mission Control

When Apple added Expose to OSX I became an Expose junkie. I keep many applications open frequently and I multi-task jumping between them all just as frequently. Expose drastically improved my work flow efficiency. Mission Control is the next step is multi-tasking efficiency and it certainly lives up to its name. I particularly like how Mission Control organizes all your applications and keep your desktop, dashboard and other workspaces at the top of the screen always accessible.

One of the more enhanced elements of Mission Control that is not possible with Expose is the laying of windows on top of applications. If you have multiple windows open from the same application, Mission Control layers the images on top of each other and allows you to select which you are trying to get to.

Auto Save and Application Resume

Most modern applications have some level of document recovery but Auto Save in OSX Lion makes the process standard. Not having to worry about whether or not a document is saved or work is going to get lost certainly eliminates some of the distraction to work efficiently.

Application resume is another great feature that is built into OSX Lion. This features lets you close an application and upon re-opening you are right where you left off. One of the areas where this is particularly useful is with Safari. I like to leave tabs open with some of my most frequented websites and being able to open Safari and have all my tabs re-open with my favorite websites or the last ones open has been extremely useful.

I’m sure as I use Lion more I will find more features that I love but for now those are my top 5. I’d be curious what those who have Lion think and what your top 5 new features are?

Why Apple Can’t Chase the Low End

In a post here earlier today, Ban Bajarin dismissed the frequent criticism of Apple for failing to serve the low end of the computer market. Ben focused on consumers’ willingness to perceive, and pay for, value in Apple’s relatively expensive products.

But in wondering why otherwise knowledgable people keep hammering Apple on this point, it’s worth considering just how the company’s business model is working. Everyone else in the PC business depends on selling enormous volumes of product at razor-thin margins. This has steadily driven the average selling price of PCs downward, though NPD data show that the average retail ASP in the U.S. has stabilized a bit at around $600. Apple has exactly one product close to that price point, the $599 bottom-of-the-line Mac mini. In a world of $500 to $700 notebooks, the entry point for a Mac is $999 and goes up quickly from there.

And what has the refusal to chase the mass market done to Apple? It absolutely owns the market for computers selling for more than $1,000. As a result, with about 10% of the U.S. market and less worldwide, it is grabbing the lion’s share of industry profits. Apple’s operating margin from all products in the most recent quarter was 32.8% compared to 5.7% for Hewlett-Packard’s Personal Systems Group. HP, with total revenues of $127 billion a year, has a market capitalization of $76 billion. Apple, with just over $100 billion in revenue, is valued by the market at $362 billion.

With numbers like that, it’s just silly to argue that Apple should be chasing the profitless low end of the market (or, for that matter, offering low-cost, lower-margin versions of the iPhone and iPad.) The history of the tech business is full of companies that won large market share by cutting margins to the bone, or sometimes further. Apple is in the sweetest of all possible spots, and it would be lunacy to change the business plan.

 

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

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

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


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

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

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

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

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

Apple Doesn’t Want To Sell Corollas

On Wednesday Apple announced that they were dropping the Macbook from their PC lineup and making the MacBook Air the new entry level Mac. To most this move made sense and personally I feel that now entry level Mac customers are getting a premium experience at an entry level price. I did however notice some in the analyst and media community who complained that the price was still too high and that Apple was pricing themselves out of the low end of the market.

This is a point that I just don’t understand. Apple has never tried to compete in the low end of the PC space so why would they start now? There is a market for the bottom end of the PC segment with products priced between $399 and $599 but Apple wants nothing to do with it and in my opinion they have no reason to.

Our research with consumers in the PC buying process indicate that a healthy percentage are looking for the value + quality segment and have a target price point of $799 to $999. These consumers are associating price with value and quality and the result is that they are willing to pay more. Although some specs of the MacBook Air go above $999 for the 11″ and 13″ consumer studies are continuing to show a high consideration for Macs. This is obviously why Apple continues to see Mac sales draw nearly half of purchasers being new to the Mac platform.

Apple is clearly in the value + quality segment of the market and they are perfectly happy there, as we see from their latest earnings. Those who claim Apple’s Mac products still need to get cheaper don’t realize that Apple doesn’t want to sell Corollas they have no intention to compete with those on the bottom of the market.

Three Numbers from Apple’s Earnings That Should Scare Competitors

By now you have probably heard that Apple had the best quarter of their existence in the previous earnings period. Ben has given the basic details in his post but I wanted to share with you three other numbers that came from the call with their COO, Tim Cook, after the earnings were released-numbers that should keep Apple’s competitors up at night.

The first is their cash horde. It now sits as $76.2 billion. In my PC Mag column this week I wrote in detail how Apple uses this cash to its advantage and I suggest you read it and see how Apple “invents” products of the future with this cash reserve, making it very hard for competitors to keep up with them. A reader pointed out that if you subtract current liabilities from this cash position, they actually have about $60 billion in free cash to work with. This is still a pretty big reserve to work with.

See: How Apple Uses its Cash Hoard to its Advantage

The second scary number is that Cook said that 86% of the Fortune 500 in the US are testing iPads and looking at deploying them within their enterprise solutions. We already know that SalesForce.com has bought iPads for their entire work force and are seeing major benefits from its use. And Cook also said that it is being tested in many US government organizations as well. If Apple gains a lot of traction with major US enterprises it could make it hard for any other tablet makers to make any serious inroads given Apple’s huge head start with the iPad.

But the third number should really cause the major PC companies with WW reach to be concerned. Tim Cook said that 49% of the Global 500 are testing iPads for use in global enterprise solutions. I am aware of at least two Global 500 companies that are in the final stages of their tests and could buy thousands of iPads for WW deployment by early next year. This kind of interest from Global IT bodes well for Apple and means that their large head start over competitors could serve the very well in this WW market for enterprise-based tablets.

Although the main audience that is driving iPad sales is clearly coming from consumer’s, this interest in iPads within corporate America and WW IT could possibly increase demand more for iPads by a third of what it already is today from consumers. While the big tablet vendors are also eyeing IT markets for their tablets, they better get a serious offering into their IT customers hands soon or they risk the possibility that Apple could “iPod” them in this market the same way Apple innovated around the iPod and pretty much wiped out any competitive threats along the way.

If I was an Apple competitor, I would be amazed at the monster earning numbers. But the three numbers I listed above should have me shaking in my boots.

Why Apple’s Earnings Reports Matter

Today Apple released their earnings report for the third quarter of 2011. As was expected there was much anticipation regarding the earnings, not only from Wall St but also from media outlets. Apple did not disappoint having their best non-holiday quarter ever as well as selling more iPads and iPhones than any other quarter. Outside of continually delivering reports that shock people there is a more significant point about Apple and their earnings progress that i’d like to highlight.

Namely that Apple’s earnings are one of the biggest indicators that not only show the healthy life of the technology economy but they should also give other companies hope. That hope is that if a company truly delivers value to the market place it will be rewarded. They should find hope that consumers aren’t just after the cheapest thing on the market but that consumers truly desire products that add value to their lives and they are willing to pay for it.

It’s not a race to the bottom its a race to provide value. Apple’s earnings continually re-enforce this point.

Below are the key points from the earnings.

Apple® today announced financial results for its fiscal 2011 third quarter ended June 25, 2011. The Company posted record quarterly revenue of $28.57 billion and record quarterly net profit of $7.31 billion, or $7.79 per diluted share. These results compare to revenue of $15.70 billion and net quarterly profit of $3.25 billion, or $3.51 per diluted share, in the year-ago quarter. Gross margin was 41.7 percent compared to 39.1 percent in the year-ago quarter. International sales accounted for 62 percent of the quarter’s revenue.

– The Company sold 20.34 million iPhones in the quarter, representing 142 percent unit growth over the year-ago quarter.
– Apple sold 9.25 million iPads during the quarter, a 183 percent unit increase over the year-ago quarter.
– The Company sold 3.95 million Macs during the quarter, a 14 percent unit increase over the year-ago quarter.
– Apple sold 7.54 million iPods, a 20 percent unit decline from the year-ago quarter.

Overall:
– Apple reported quarterly revenue of $28.57 billion, and profit of $7.31 billion, representing year-over-year growth of 82% and 125%, respectively
– We’ve now sold 222 million iOS devices to date
– International sales made up 62% of the quarter’s revenue, compared with 59% in FYQ2
– Gross margin was 41.7%, above our guidance for the quarter
– Apple closed the quarter with $76.2 billion in cash, compared with $65.8 billion at the end of the previous quarter
Mac:
– 3.95 million Macs were sold, a record for the June quarter
– Mac sales grew 14% year-over-year, four times the global PC market growth, according to IDC
– The Mac has outgrown the PC market for 21 straight quarters – more than five years
– International Mac sales continue to be strong, growing 57% year-over-year in Asia Pacific
– Peter Oppenheimer shared that Lion, the new version of OS X, will be available tomorrow
iPhone:
– Apple sold an all-time record of 20.3 million iPhones during the quarter, compared with 8.4 million in the year-ago quarter, 2X IDC’s growth estimate for the smartphone market
– iPhone is being deployed or piloted by more than 95% of Fortune 500 companies, and by 57% of the Global 500
– iPhone is now available in 105 countries through 228 carriers, and year-over-year sales quadrupled in Asia Pacific
iPad:
– Apple sold 9.2 million iPads in the quarter, up from 3.3 million in the year-ago quarter
– Supply improved and we’re still selling every iPad we can make – iPad is now available in 64 countries
– iPad is now being deployed or piloted in 86% of Fortune 500 companies and 47% of the Global 500
– There are more than 100,000 apps designed for iPad in the App Store
Music:
– Apple sold 7.54 million iPods, with iPod touch continuing to make-up over half of the iPods sold
– iPod maintained over 70% marketshare in the US, according to NPD, and is the top-selling MP3 player in most countries for which we have data
– iTunes Store revenue was up 36% year-over-year, reaching $1.4 billion
– We have paid over $2.5 billion out to developers, as the 425,000+ apps in the App Store have been downloaded more than 15 billion times
Retail:
– Apple plans to open 30 new stores this quarter, for a total of 40 new stores this fiscal year
– Mac sales in our retail stores totaled 768,000, up 13% from the year ago quarter, and 50% were to people new to the Mac
– Apple’s retail stores brought in $3.5 billion in the quarter, up from $2.6 billion in the year ago quarter