Tag: tablets

7 Inch Tablets Employ An Odd Definition of “Success”

TROY WOLVERTON at the San Jose Mercury News, talks 7 inch tablets:

Just two years ago, Apple’s late co-founder and CEO Steve Jobs mocked small-screened tablets as “tweeners” that were too little to compete with the larger iPad but too big to compete with smartphones.

But after the success that Amazon and Google have had with small-screen tablets…

Whoa, whoa, whoa! Stop right there.

Success? What success?

Success is defined as: “the accomplishment of an aim or purpose.”

— Research in Motion, Samsung and other manufacturers introduced tablets with seven inch screens that flopped.

— It’s been estimated that Amazon sold 4.7 million seven inch tablets over a 9 month span.

— It’s been estimated that Google sold 3 million Nexus 7, seven inch tablets over the last quarter.

That’s not a “success”. That’s anything but a “success”.

Notice that the numbers for Amazon and Google are estimates. Their respective companies have not released sales figures. There’s a reason for that.

Also note that the Amazon and Google products are subsidized, which means that they are being sold at cost. What product wouldn’t sell well if it was sold at cost? Apparently, 7 inch tablets.

By way of comparison, Apple sells more that 5 million 9.7 inch tablets every month – at full price – and Apple is conservatively expected to sell 25 million iPads this upcoming holiday quarter. Again, at full price.

I have no doubt that the 7 inch tablet category is viable and I’m guessing that – starting on October 23rd – Apple is going to prove that in a big way. However, we need to stop talking about “the success that Amazon and Google have had with small-screen tablets” or we need to get a new definition for the word “success”. I’m leaning towards the former.

The BIG Opportunity for the iPad Mini

Let me start this column off explaining why I was skeptical of a smaller iPad in Apple’s offering. I have been bullish on tablets from the beginning. From my first experience with the iPad I knew Apple was on to something. In my opinion the iPad in its current form has not reached its full potential as a personal mobile computer. Because I am convinced this is true, the scenario of a smaller iPad that would inevitably cannibalize and potentially delay the potential of the iPad in its current form seemed like a poor long term strategy. However, something I have been thinking about lately may be the key for these products to co-exist and fulfill fundamentally different needs of consumers.

I’ve convinced myself that for Apple to have two different sized iPads, they need to be positioned differently and poised to tackle different market needs. Unlike notebooks, where screen size is partially a matter of preference, but also a matter of primary tasks, tablets play a different role in the lives of consumers. I am a big believer that the iPad in its current form can suffice for many mass market consumers as a notebook replacement. I do not believe the same is true of of a smaller iPad. These two different sized iPads will also offer different software experiences. I do not believe that we will simply see scaled up iPhone apps or scaled down versions of current iPad apps on an iPad mini. This product will shine with custom applications and experiences built for the new screen size.

From Mine to Ours

The BIG opportunity I see for the iPad Mini is to cater to how families or communities use these devices as shared screens in a communal environment. I’ve articulated this before, the concept of a shared screen versus a personal screen, and I think the 7-8″ tablet may represent the perfect form factor for a shared device. Take for example what both Amazon and Barnes and Noble have done in this space.

The Amazon Kindle Fire HD tablet with its FreeTime feature is a solid step in the right direction toward family tablet computing. This solution offers parents the ability to set parental controls for their kids so as they enter FreeTime mode, children are presented with a kid-friendly user interface and access to only approved applications and abilities. Parents can also set limits on how many hours per day kids can play games or watch videos.

Barnes & Noble took Amazon’s important FreeTime concept even further by introducing profiles to the Nook HD. This allows consumers to set up a number of different profiles for each family member. This way, when a particular user logs in, they see only the books, magazines and applications that are of interest to them. Another well thought out part of profiles is that if two people are reading the same book in different profiles, the Nook HD will keep each person’s last read point for them so that they’re not constantly trying to find where they left off. User profiles deliver powerful features and are the best example to date of how a tablet can deliver on a shared family computing experience.

These are experiences that I think shine on a communal or shared screen. These experiences can exist of course on larger tablets but I have a hunch that the smaller tablet form factor will encourage the shift away from the sentiment that the device is mine to the device is ours.

This shift in sentiment from mine to ours could pave the way for entire new software experiences. Just looking at the previous examples I gave from Amazon and Barnes and Noble, show how they are thinking uniquely about this from a software standpoint. I would argue that Apple’s ecosystem is even stronger across the board when you incorporate others screens as well as iCloud to foster and embrace the shift of some devices being ours rather than mine.

What encourages me about this thinking is that it genuinely appeals to the way consumers are using these devices. Some products fit well as a personal product. My smartphone for example is mine and is tied to me in unique ways. The smartphone will also be mine and never ours. A notebook also follows very personal use cases and highly personalized to the individual. The tablet however may be owned by one person but still shared by many in family environments. It is something unique to the tablet form factor that it can comfortably be mine and ours simultaneously. But to my point above, I believe that the smaller tablets those in the 7-8 inch range fit this new paradigm nicely.

Now, I have no idea if the iPad Mini will launch catering to anything I’ve proposed in this column. My point is that whether or not Apple believes it, I believe this is the big opportunity for a smaller iPad. It would be uniquely positioned and create a strong loyalty and stickiness to Apple’s ecosystem for not just the individual but the family as a whole.

Truel: The Good, the Bad and the Ugly; The iPad, the Surface and the Nexus 7

The Plot

The Good, the Bad and the Ugly is a 1966 Italian epic Spaghetti western film directed by Sergio Leone, starring Clint Eastwood, Lee Van Cleef, and Eli Wallach in the title roles. ~ paraphrased from Wikipedia

Apple, Microsoft and Google are engaged in an epic tablet war starring the iPad, the Surface and the Nexus 7 in the title roles.

In the Good, the Bad and the Ugly, the plot revolves around three gunslingers competing to find a fortune in hidden Confederate gold.

In the tablet wars, the plot revolves around three tablet gunslingers competing to find a fortune in hidden tablet profits.

Clint Eastwood as “Blondie”: The Good. A subdued, cocksure, bounty hunter who both works with and works against Angel Eyes, and Tuco in shifting alliances to find the hidden gold.

Apple as “iPad”: The Goliath. An implacable, cocksure, bounty hunter who both works with and works against Microsoft and Google in shifting alliances to find the hidden profits.

Lee Van Cleef as “Angel Eyes”: The Bad. A ruthless, unfeeling and sociopathic mercenary who always finishes the job.

Microsoft as “Surface”: The Bad (ass). A ruthlessly efficient, relentlessly effective, money making machine who knows how to close.

Eli Wallach as “Tuco”: The Ugly. A comical, oafish fast talking bandit who proves to be a crafty and surprisingly dangerous opponent.

Google as “Nexus 7”: The Geeky. A nerdy, engineering and advertising company whose “don’t be evil” exterior masks a surprisingly powerful and unexpectedly ominous corporate bandit.

The Truel

In the movie’s climatic final scene, Blondie, Angel Eyes and Tuco face off against one another in a Truel.

In the climatic autumn of 2012, Apple, Microsoft and Google face off against one another in a truel.

A truel is: “a neologism for a duel among three opponents, in which players can fire at one another in an attempt to eliminate them while surviving themselves. ~ via Wikipedia

Each party jockeys for position, each itching to fire first, each wary of what the other two fighters will choose to do.

In tech, Apple, Microsoft and Google are involved in a great tablet truel. Each party jockeys for position, each itching to eliminate the other, each wary of what the other two competitors will choose to do.

The three stare each other down in the circular center of the cemetery, calculating alliances and dangers in a Mexican standoff.

The Apple iPad stands alone at the center of the tablet world. Then the Google Nexus 7 joins in the fray. And finally, on October 26, 2012, the Microsoft Surface steps into the ring. The three stare each other down, calculating alliances and dangers in a Mexican standoff.

The parties position themselves, the tension grows, the Ennio Morricone film score swells until suddenly, they draw and…

The Treasure

Remember the pundits who laughed off the tablet form factor and called them toys? No? Neither does anyone else. They were as wrong as wrong could be.

Tablets are the second coming of the personal computer. Apple knows it. Microsoft knew it long ago but they were unable to successfully seize the moment and capture the treasure for themselves. Google is only just now realizing the importance of tablets. The company or companies that win the tablet wars win the future of computing. The fight is only just begun but like a gunfight, the battle may soon – and very suddenly – be over.

The Gunfighters

Apple iPad

Apple is like Blondie. Confident. Cock-sure. Perhaps a bit too cock-sure. Apple insists on doing things their own way. Google is counting on Apple’s insistance on having a closed shop to be their undoing. Microsoft is counting on Apple’s unwavering insistance on seperating their touch and desktop devices to be their undoing.

However, Apple has an advantage. Like Blondie, they know where the gold (profits) is hidden. The key to unlocking the tablet treasure is tablet optimized Apps. And using our gunfight analogy, when it comes to tablet apps, if Google and Microsoft have six shooters, Apple has an Uzi. Or a bazooka. Or a tank…

Microsoft Surface

If Apple is the cocky newcomer – the up and coming gunslinger – Microsoft, like Angel Eyes, is the consummate professional – the grizzled vertern who has the experience, knows all the tricks in the book and is extremely confident in their ability to win in a shootout.

If Apple is cocky because they think they’re good, Microsoft is confident because they know they’re good. Microsoft has not only been through the wars, they’ve won the wars and they’ve won them convincingly.

However, Microsoft’s secret weapon in the PC wars was compatibility and familiarity. In gunfighter terms, it would be like shooting with the sun at your back. And getting in five shots before your opponent even drew their weapon. And shooting from behind a wall. It was that devastating an advantage.

When it comes to a gunfight – or a platform war – Microsoft is the best there ever was. But this isn’t yesterday and this is a whole new fight. In mobile, Microsoft’s monopoly advantage is no where to be found. If Microsoft is going to win this gunfight, they’re going to have to do it on merit.

And Microsoft is very, very late to the fight…

…and it’s never good for a gunfighter to be late.

Why is Microsoft’s Surface obsessed with Keyboards?

The Apple iPad Tablet vs. the Microsoft Surface Anti-Tablet

Battle Of The Tablet Business Models: Windows 8 And The Microsoft Surface

Google Nexus 7

Google, like Tuco, is in good position. Microsoft and Apple know that each is the greatest danger to the other. They will almost certainly fire all their weapons at one another leaving Google (Tuco) free to gain from the exchange.

Only Google, like Tuco, has a problem.

It was just last week that Google initiated a program to encourage the creation of tablet optimized apps for Android.

Last week.

Tuco doesn’t know it, but he doesn’t have any bullets. Google didn’t know it was important, so they don’t have many tablet optimized apps. And in a truel, being unarmed is a big, big problem to have.

Google Android Tablet Optimized Apps — Two Years Too Late

Battle Of The Tablet Business Models: Google Nexus 7

The Denouement

The gunfighters move into place. The eyes narrow, the hands twitch, the music swells, the tension mounts, the guns are drawn and then…

…a single shot is fired…

…Blondie shoots Angel Eyes. Tuco also tries to shoot, but discovers that his gun is unloaded.

The mobile wars are a fascinating watch. Apple dominates tablets. Microsoft dominates desktops. Google dominates smartphones. Each knows that the future – the elusive treasure – is in mobile. They can’t all win this truel. One, perhaps two, will be left for dead. Which will it be? Which will it be?

“You see, in this world there’s two kinds of people, my friend: Those with loaded guns and those who dig. You dig.” ~ Blondie (Clint Eastwood)

Unlike The Good, the Bad and the Ugly, no one has seen how this movie ends. Microsoft hopes that this will be a sequel: How Microsoft Won The PC Wars, Part II. Google thinks that this is an entirely new genre of film, the kind where open always outguns closed. Apple thinks that there are two kinds of personal computing companies: Those with platforms loaded with apps.. and those who don’t much matter.

Me? I think it’s advantage Apple. You don’t grow from nothing in tablets to a world shaker in two and a half years unless you got it right. The essence of tablets is touch. Not keyboards. Touch.

Microsoft is desperately hoping that Apple got it wrong. Microsoft NEEDS tablets to simultaneously run both touch and desktop operating systems and Microsoft needs both to run well together.

Google? When it comes to tablets, they’re still digging.

It’s clear to me that Apple’s iPad is going to remain on top. The rumored iPad mini only makes this more likely.

Normally, I’d say that – as in phones – Microsoft would have little chance of having their tablets jump past Google and into second place. But circumstances are far from normal. Despite Google’s overwhelming success in phones, they’ve done next to nothing in tablets. And I have little respect for their newly minted subsidized tablet business model and their ever shifting business strategies. And Microsoft has powerful advantages in their ability to leverage a large desktop customer base and utilize their extensive business connections. Microsoft could quite quickly vault Google in tablets and land in second place…

…and wouldn’t that be interesting. In phones it would be Google-Apple-Microsoft. In desktops it would be Microsoft-Apple-Google. In tablets it would be Apple-Microsoft-Google.

That can’t possibly last. This is about to get very real, very fast.

The world of personal computing is in flux. It’s a “truel” world and for some tablet maker – and possibly for several tablet makers – it’s about to go bad and get ugly.

Netbooks, Tablets, and Good Enough Computing

You may have caught my title and asked “aren’t Netbooks dead? Why are you bringing them up?” That is an excellent question and while Netbooks are mostly dead (they are finding a role in emerging markets) they taught us something very interesting that sheds light on the tablet phenomenon.

Since our firm tracks the computing industry extremely closely, we were doing quite a bit of analysis on the market for Netbooks. Although it was short lived, which we predicted, they taught us something that is fundamentally important to understand. Which is that there is a massive market for computing devices that are good enough.

An Important Evolution

When the Netbook began its rise as a category we started looking at what were the driving factors for their market success. From our consumer interviews we learned a number of interesting things.

First was that most buying a Netbook were not looking to replace a notebook, rather they were looking for a less expensive 2nd, 3rd, 4th, computer for their home and/or family member to be able to get online, do simple tasks, etc. What became clear was that not every member of the household had a personal computer in an average home and many consumers appreciated the low-cost and small size of many Netbooks to fill this void. These products represented a low-cost way to get multiple new PCs in the home for simple tasks and more importantly alternate screens for web browsing. Large numbers of consumers told us that the few PCs they had in the home were constantly being fought over, mainly for web browsing. Netbooks looked like an easy way to get everyone in the home a PC screen of some type. Many knocked the category at the time and believed Netbooks were just truncated PCs, however, they were good enough for the mass market.

But our interest in Netbooks went further into the experience consumers had with them. More often than not consumers mentioned how the capabilities of the Netbook were sufficient for most, and in many cases all, of their every day needs for a personal computer. This led to the good enough computing reality that has opened the eyes of many in the industry. As innovations become saturated and mature, at some point distinct elements of those innovations reach a point of good enough or diminishing returns. At this point, further innovations in the same areas become less apparent and obvious. This is particularly true of things like semiconductors, displays, broadband, etc. In all these instances there comes a point in time where the advancements become harder to distinguish.

An analogy I’ve used frequently when discussing good enough computing is one related to Intel. Back when Intel was pushing Moore’s law heavily and MHZ and then GHZ was a big deal, we could objectively see the speed and performance advancements by simply opening a program like Word or Excel. I recall at many IDF conferences, Intel opening an MS Office program and showing how much faster it opened on the latest generation over the previous. Today, no such example exists for the casual observer to notice the performance benefits of new generation silicon. CPUs have reached a point of good enough for the mass market. And Netbooks brought this realization to light.

Good Enough and Smart Enough

It was this realization and learnings around Netbooks that led us to believe that tablets would be as disruptive as they have been. Tablets, like Netbooks, have taken advantage of the good enough computing paradigm but done so by adding something Netbooks did not–touch. I’ve written extensively on the concept of touch computing and why I believe it is foundational to the future of computing so I won’t go into too much detail here. Touch and the tablet form factor made the good enough experience for consumers even that much more compelling, forcing them to evaluate if they need anything else as far as computers go. Some consumers may need more than a tablet, and some may not, the point is they will decide what works best for them.

The full realization in all of this, is simply that there is a massive section of the market that does not have extreme demands with technology. When we were doing market analysis around Netbooks, we asked consumers the tasks they did with PCs on a regular basis. From that research we learned that the vast majority of those we spoke with, who fell into the early and late majority, used less than five applications daily and none of them were CPU intensive (arguably playing Flash video is CPU intensive but that is a debate for another time).

The key takeaway to understand with good enough computing is that many of the key features and innovations that originally drove demand diminish (i.e CPU speed, memory, resolution, # of apps, etc.) This means that future product generations need to appeal to customers in new ways that go beyond the elements which are good enough. I believe that too often companies get stuck putting too much emphasis on the elements of their products which are already good enough for the mass market, thus those features get glossed over, when in reality they should shift their emphasis to what is new or unique. Quality product marketing, messaging, and positioning will be at a premium going forward.

What appealed to the mass market of computing the past few decades will not be what appealed to them now in a mature and post-mature personal computing landscape. Understanding good enough computing does not mean that you stop innovating. What it does mean, however, is that it will be absolutely critical to be careful not to pre-maturely bring key innovations to market and risk having the mass market not understand the value of them. The key, rather, is to carefully and strategically bring key innovations to market at precisely the right time in which the mass market will value them.

Tablets and Disabilities

Next week I am speaking at the California Educational Technology Professionals Association’s annual gathering. I will be giving several presentations to this technology community specifically about tablets and touch computing. My focus will be how this unique form factor and touch computing will advance computing forward in ways mouse and keyboard computing simply could not.

One of the most profound aspects of touch computing is how it brings new generations into the computing era but will also advance current generations forward. The ways many elderly, who mostly avoiding computing on a grand scale, or rarely got the most of their devices, are embracing tablets and jumping in head first to the personal computing era. Or how kids can instantly pick tablets up and intuitively start using this device to its absolute fullest from the start, all without the steep learning curve of a mouse and keyboard. These are prime examples of the distinct ways touch computing is empowering millions of people every day to get more out of their personal computers.

Touch Computing and Leaning Disabilities

During a recent conversation with a friend, I was inspired to add a new element to the our presentations on tablets in order to demonstrate the profound power of touch computing. I was talking with a friend whose daughter has been diagnosed with mild dyslexia. He was explaining to me some of the exercises and therapy his daughter was going through after school in order to properly train key elements of her brain. As always, my first thought for most problems is to look for ways technology can help solve them, so I proclaimed that there must be an app to help with learning disabilities and specifically dyslexia. There have been numerous reports about how the iPad and specific applications are doing wonders for kids with Autism but I was yet to hear much around other learning disabilities. Since he and his family have an iPad, I started looking for iPad apps for learning disabilities. Sure enough there are apps for that.

As I did some research, I came across and interesting company called Tactus Therapy who has developed a number of applications specifically designed for brain therapy. They have applications to address issues around language, reading, writing, spaced retrieval and visual attention. The application on spaced retrieval is designed for brain trauma patients as well as others suffering from memory issues, and can be used as a treatment for dementia. The visual attention application is the one I became most interested in for left-to-right brain training to address dyslexia.

I purchased several of these applications for my own kids to do, simply because they are extremely good foundational exercises for the brain muscle. However, I also wanted to see how the exercises were built uniquely for touch computing. As you go through the exercises it becomes clear that although it would be possible to use a mouse and keyboard, the best possible way to go through the exercises are to use your fingers. This is especially true as it relates to left-to-right pattern recognition exercises.

If you have ever been around children as they are being taught to read, you notice that they perform an exercise of putting their finger under the word being read. In a specific exercise with the visual attention application, the child is given a specific letter, number, symbol, etc., then asked to scan line by line and touch the target. It requires using your finger to scan each line then touch. This would be fairly tricky with a mouse but more importantly defeat the critical exercise of using your finger in a left to right motion to properly focus on each symbol looking to identify key targets. Touch computing taking on dyslexia.

At a high level, I am continually impressed with the quality of learning and education focused applications on the iPad. I am a parent of two girls, one in fourth grade and one in first grade. I am constantly looking for ways to enhance their education in both useful and fun ways and the iPad is yet to disappoint. When it comes to learning and education applications the quality of apps on iPad trounces every other platform. For parents, I would imagine that is a key point.

These are simply a few examples of many regarding the ways that the iPad and touch computing are changing the way we think about computers and how different groups of consumers use them. In fact if you have never done it, I encourage you to look at Apple’s specifics on accessibility features for iPad. What’s fascinating about this element of touch computing for those with disabilities is that it is an extremely small market yet Apple has built specific features and functions for those with disabilities right into iOS and OS X. Other platforms can cater to folks with disabilities but require third party apps.

As I dig deeper into these examples of the power of touch computers, the more I am convinced that tablets represent the computer for everyone.

Google Android Tablet Optimized Apps — Two Years Too Late

On Monday, (Google) published a “tablet app quality checklist” on its Android Developer website that urges developers to build tablet-optimized apps… ~ Wired

I’d like to applaud Google for this move, I really would. But let’s put this in context:

— Google should have done this when Samsung introduced the Samsung Tab some two years ago or, at the very latest, when they introduced the tablet-friendly Honeycomb Android operating system in February 2011.

— Google should have done this long BEFORE Microsoft introduced Windows 8 tablets. Microsoft gave Android tablets a two year head start…and Google frittered it away.

— Google should have done this BEFORE they changed strategies, introduced the Nexus 7, and made it nearly impossible for any other Android manufacturer to compete in the Android tablet space.

For the past two years, Google has, at the very least neglected, at the very most sabotaged, their Android tablet efforts. Now they’re asking developers to dedicate their time and their resources to creating tablet specific apps. It’s a great message delivered far too late.

HP’s Surprising Tablet Attack

I recently attended HP’s Securities Analyst Meeting (SAM) where HP made its case to Wall Street on why investors should believe in
the company and buy the stock. I will write about the conference later when I have thought through the content a bit more, as, unlike financial analysts, I need to think three to five years out. Thinking short term about HP doesn’t do anyone any good. What I do want to talk about are two of the products shown at SAM, a new impressive tablet lineup.

The tablet market right now is exhibiting all the traditional signs of any tech market. You have a lot of experimentation going on right now to see what consumers and business users really want. Apple, like the early days of the consumer PC, is punishing everyone who stands in its way in the tablet market. If you have any doubt on that, just ask Motorola, RIM, Samsung, and anyone attached to webOS. As experimentation progresses, the markets starts to settle into more of a predictable rhythm and then after that, massive segmentation and specialization will occur. This is classic product lifecycle behavior. HP, like Dell and Lenovo have learned a lot over the last 18 months, and HP, in particular, put the pedal to the metal with their latest tablets.

HP segmented its line into a consumer and large enterprise line. What about small business? Too early to know and quite frankly this will be the last market to adopt tablets, so I like this decision. Technologically, HP has opted to forgo ARM-based technology in its latest offering and instead has opted for the Intel CloverTrail solution. Only after we all see pricing and battery life will we know if this is a good decision. Let’s dive into the models.

HP ENVY x2 for the Consumer
The first time I saw the ENVY x2 at the Intel Developer Forum I was stunned, quite frankly, at how thin, light, and sexy the unit was. My latest Intel tablet experience was a thick and heavy Samsung tablet with a loud fan used for Windows 8 app development. The HP ENVY x2 wasn’t anything like this as it was thin, light, fan-less, and sexy industrial design made from machined aluminum. No, this didn’t feel like an iPad… it felt in some ways even better. This is a big thing for me to say given my primary tablets have been iPads… gen 1-2-3. It is very hard to describe good ID in words, but it just felt good, real good.

It was apparent to me that HP stepped up their game in design and after talking with Stacy Wolff, HP’s Global VP of design, they have amped up resources a lot. While most of Intel’s OEMs are focused on enterprise devices, this consumer device stands out. The only thing that could potentially derail the ENVY x2 is Microsoft with a lack of Metro applications or too high a price tag. Net-net I will need to see pricing and Windows 8 Metro launch apps before I can assess what this will do to iPad and even notebook sales.

HP ElitePad for Commercial Markets
Let’s face it, commercial devices run counter on many variables to what consumers want. The tablet market is no different. Enterprise IT wants security, durability, expandability, cheap and known deployment, training, software, and manageability. Consumers want sexy, cool, thin, light, easiest to use, and based on the amount of cracked iPad screens (mine included), durability is not that important. HP has somehow managed to cross the gap between beauty and brawn in a very unique way. When I first saw the ElitePad, I thought it was a consumer device. It even has beveled corners to make it easier to pick up off the conference table!  Like the ENVY x2, it also feels like machined aluminum.

The ElitePad, because it has at its core an Intel CloverTrail-based design, can run the newer Metro-based Windows 8 apps and legacy and new Windows 8 desktop apps.  IT likes to leverage their investments in software and training, and they will like that they can run full Office with Outlook as well as any corporately developed apps without any changes.  You don’t want to be running Photoshop on this as it is Atom-based, but lighter apps will run just fine.

IT “sees” the ElitePad as a PC. Unlike an iPad, it is deployed, managed and has security like a Windows PC. For expandability, durability and expanded battery life, HP has engineered a “jacket” system that easily snaps around the ElitePad, which felt to me like the HP TouchPad. The stock jacket provides extra battery life and a fully bevvy of IO including USB and even full-sized HDMI. If HP isn’t doing it already, they should be investing in special jacket designs for health care, retail, and manufacturing. Finally, there is serviceability. While I don’t want to debate if throwing away a device is better than servicing it, IT believes that servicing it is better than tossing it in the trash. For large customer serviceability needs, HP is even offering special fixtures to easily service the tablet by attaching suction cups to the surface and removing the display. Net-net, this is a very good enterprise alternative to any iPad enterprise rollout.

I am very pleased to see the care and time put into the planning and design of these devices. The three unknowns at this point are pricing, battery life and Windows 8 Metro acceptance and the number of tablet apps. If there are a lack of Metro apps at launch, the entire consumer category will be in jeopardy in Q4, but commercial is quite different as ecosystems can grow into their show size over time. I cannot give a final assessment until I have actually used the devices, but what I see from HP in Windows 8 tablets is exceptional.

Convince Me Not to Buy an iPad

We at Creative Strategies, as a part of our study of consumer markets, frequently interview consumers in order to get a pulse of the market needs, wants, and desires. To do this we have conversations with groups of consumers in a specific part of the adoption curve. I was having a conversation with some folks who would not fall into the early adopter or the early majority but more toward the late majority of consumers. This group, unlike the early majority, represents the largest part of the consumer buying segment and one of the more interesting and diverse. Early adopters are predictable; the early and late majority are not. Their needs wants and desires are often more realistic, practical and nuanced, or one may say more down to earth.

During a recent interview I had an interviewee say something that got me thinking. When I asked a woman how strongly she would consider competing tablets, she said she was willing to consider other tablets but she would need to be convinced not to buy an iPad.

Why Should I Buy This Over That?

What many companies making personal technology products struggle with is address why this over that question. Often times they assume that a single feature can sway a consumer their way. Or some believe price is the ultimate factor. But the reality is that most consumers do not walk into a retail store genuinely unconvinced of what they want or are interested in when walking in the door. Generally speaking, when a consumer walks into a tech retailer to buy a tablet, they don’t walk in uneducated and hope to use retail to make a decision. Right now, since the iPad is the market leader, consumers are walking into retail thinking “I’m very interested in an iPad.” They have their mind mostly made up. For a competitor to have any shot at swaying these consumers, they need to convince them to not buy an iPad.

From our study of the early and late majority and the things they value and find desirable, I am convinced it is still an uphill battle for iPad competitors. This doesn’t mean this will always be true; just that it is right now. Take the iPhone for example. It took just over six years for a single product from a competitor to outsell the iPhone for just one quarter. And with the iPad no single tablet is even close.

The bar the iPad has set is so high that tablet competitors have resolved to try and change the conversation rather than go head to head with the iPad. This is a wise move but the tradeoff is that you focus more on a segment of the market rather than the mass market as a whole. Apple is having success targeting the larger mass market but competitors are having trouble making ground in this market. Again, I’m not saying this will always be true; just that its the current market sentiment.

All Things Being Equal

The challenge for companies trying to gain the attention of consumers is to avoid trying to just make all things equal. The key for competitors is to focus on differentiators that matter to the early and late majority, the biggest part of the market. We can debate all day what those features are, but I remain convinced that software, and specifically apps, are key in appealing to the desires of the market. And it is not just quantity but quality. Consumers want to know they are getting a tablet that will help them make the most of this new form factor.

When it comes to both Android and Windows 8 tablets, their keys to success will reside in the ability to have showcase apps that can not be found elsewhere. The example I like to use is the original XBOX and the game Halo. Halo for Microsoft’s original XBOX was a platform driver. This game alone paired with XBOX Live for online multiplayer play was one of, if not the, primary reason for many who bought the first XBOX. Microsoft was then able to keep many of these consumers loyal but Halo was the gateway to Microsoft’s gaming ecosystem.

Both Android and Microsoft tablets need software that would be considered platform drivers. This would be a step in the right direction to address the why buy this over that question. Perhaps for Microsoft Office will play this role although I am not convinced at least a point.

Ultimately consumers make trade offs in their own personal preference value chain. If they value price, they must evaluate the tradeoffs in things like design quality and cutting edge features or specs for example. Understanding the tradeoffs and having key differentiators are fundamentals to product strategy.

Tablets are tricky and because we are in the maturing cycle where consumers are still figuring out their needs, wants, and desires with them. Because of that, I remain convinced competing with the iPad will be a challenge. The next year will define much of the tablet category. Those companies who have clear and distinct differentiators that clearly make the case for consumer to buy this product over that have a shot. This applies to hardware, software, and services.

Consumers are buying iPad in droves. And if Apple releases a smaller less expensive version of the iPad they will make it even more difficult for competitors. Many millions of consumers are not being convinced to buy other tablets over iPads and they are researching their options more than many assume.

So the key to tablet success? Convince consumers not to buy iPads. Seems simple, but its not.

Battle Of The Tablet Business Models: Lessons Learned And A Look Ahead

RECAP

We’ve been looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we wrap up the series by seeing what lessons we have learned and by asking ourselves what the various business models can tell us about the future of tablet computing.

Lessons Learned

Lesson #1: Subsidized tablet business models are a niche

The subsidized business models of the Amazon Kindle Fire and the Google Nexus 7 are very limiting. They can only be sold where their content is sold, they can only be sold to consumers who readily pay for content or consume relevant advertising and they will have little appeal to business, government or education. Even if they are fantastically successful within their confined market space, their markets will have little overlap with the tablets that focus primarily on the importance of apps.

Lesson #2: Subsidized tablet business models need to be measured differently and judged appropriately

We tend to judge all things tech by the number of units sold or by overall market share. We should, of course, be focusing on profit instead. Profit is the goal and profit is the standard by which tablet business models should be measured.

The subsidized tablets of the Amazon Kindle Fire and the Google Nexus 7 need to be judged, not by sales, not by market share, but by the profits generated by the sale of content and advertising. In a subsidized business model, nothing else matters.

Lesson #3: Conflicting business models are a sign of weakness

With the Nexus 7 and the Surface tablet, both Google and Microsoft have reversed their licensing models and embraced an integrated approach. There is nothing wrong with adjusting one’s business model to fit the times. There’s a lot wrong with having two conflicting business models.

Lesson #4: Platform Matters

Apple has the strongest tablet platform, by far, and it shows in their sales and in their profits.

Amazon seems to understand platform. However, subsidized business models seem geared more toward content than apps. The Kindle Fire is only a year old. We will have to wait and see how the Amazon platform develops.

Google doesn’t seem to get platform, even now. Their weak platform has not hurt them in phone sales (yet) but it’s crippled their tablet efforts. And with the introduction of the Google Nexus 7, Google has made it clear that they think that content, not apps, is what matters most.

Samsung almost certainly understands platform, but they have no control over the Android operating system nor do they control the way Android content and apps are sold. Their only choice is to suffer or get out.

Microsoft gets platform all too well but they are so very late to the game. The Windows Phone 7 platform went nowhere and Microsoft has to be terribly concerned that the Windows RT and Windows 8 tablets may share the same fate.

Lesson #5: Skate to where the puck is going to be

When the market is underserved, products move toward integration. When the market is over served, products move towards modularization. It seems to me that part of the problem with most of the current tablet business models is that their respective companies have misidentified where the market is over served and where it is underserved.

Apple: In my opinion, Apple is on the right path. Tablet hardware, software, and content distribution are becoming “good enough” and are in danger of being commoditized. Apps and ecosystem are still under serving the market and have a lot of room for growth. Apple is adding value and differentiating itself from its competitors by integrating hardware, software, content and apps into a single, cohesive ecosystem.

Apple’s problem is that they have traditionally not been very good at internet services. Look at MobileMe, Ping, Siri, Maps, etc. And internet services are the key to the future of mobile computing ecosystems.

Jonathan Ive is a genius who can design Apple’s hardware but he can’t design a database system that will work with iCloud. Tim Cook’s supply chain prowess turned Apple from a very good company into a great company. What Apple may need to thrive in the future is a Tim Cook for internet services.

Amazon and Google: I think that both the Amazon and Google subsidized strategies are fundamentally flawed. They are creating an integrated hardware and software product designed to add value via the sale of content. But content distribution has already been commoditized. It makes no sense to subsidize hardware sales in order to enhance content sales if the margins on content are de minimis.

Samsung: The problem with the current Samsung tablet model is two-fold. First, their hardware is only one part of the value chain. They do not control the software, content, apps or overall ecosystem. Second, the area where they add value – hardware – is rapidly moving towards “good enough” and commoditization.

Microsoft: In my opinion, Microsoft’s business model is focused on the wrong part of the value chain or stack. Windows RT and Windows 8 is all about creating a superior operating system. But the operating systems currently available from Google’s Android and Apple’s iOS are already more than good enough for most consumers. Microsoft is pouring all of its efforts into an area where consumers are already satisfied or over served. Windows 8 may or may not be a better mobile operating system than either Android or iOS but it is not so much better that it will compel the bulk of consumers to switch to it.

The Future

We obsess over tiny diferences between the hardware and operating systems of the various competitors but it is business models that dictate success or failure. Until those business models change, Apple has, and will retain, the lead in tablets. Both Amazon and Google have chosen to ghettoize their tablets. Their inability to generate substantial profits will be obscured by irrelevant sales numbers. Samsung tablets are nowhere and they have nowhere to go.

Microsoft is trickier. It first has to overcome the hurdle of creating a virtuous platform cycle. If developers can’t attract customers – if customers can’t attract developers – then nothing else matters because the platform will go nowhere. However, if Microsoft can overcome this initial, all-important hurdle, then they have a chance to be relevant. We should be able to gauge just how relevant they’ll be by this time next year.

Conclusion

The future of tablets will be determined by their respective business models. Yet most of the current business models are not even directed towards that future.

Battle Of The Tablet Business Models: Windows 8 And The Microsoft Surface

RECAP

We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on Windows 8 and the Microsoft Surface.

5.0 Windows 8 And The Microsoft Surface

5.1 WHERE DOES WINDOWS 8 AND THE MICROSOFT SURFACE MAKE ITS MONEY?

When introducing the new Amazon tablets, Jeff Bezos said:

“We want to make money when people use our devices, not when they buy our devices.”

Microsoft now has TWO tablet business models. They license their software to Original Equipment Manufacturers (OEMs) and make their money from licensing fees. AND they sell their brand spanking new Surface tablet directly to end users and make their money from the sale of the hardware.

In neither model does Microsoft make (much of) its money from the sale of content or apps.

It’s important to note that in the licensing model, the OEM is the customer and in the hardware model, the end user is the customer. The different models require entirely different – and possibly conflicting – corporate cultures, philosophies and strategies along with different supply, production, marketing, sales, and distribution structures.

5.2 WHERE DOES THE WINDOWS FOR THE DESKTOP BUSINESS MODEL PROVIDE VALUE?

Before we look forward at Microsoft’s tablet business model, let’s look back at Microsoft’s desktop (and notebook) business model.

Microsoft’s traditional desktop business model brought value to their customers in a wide variety of ways. However, it is vitally important to note that Microsoft’s customers were not end users. They were:

— The manufacturers who made hardware;
— The developers who made third-party software; and
— The business IT departments who authorized the large scale purchases of the hardware running Microsoft’s Windows operating system and the software compatible with the Windows operating system.

  • Licensing Business Model

    • Microsoft licenses their Windows operating system software to all comers. This allows a multitude of companies to create a wide array of hardware offerings with different shapes, sizes, types, prices, etc. The strength of licensing lies in its variety at the hardware level. The software is monolithic. The hardware is diverse.

    Licensing is often considered to be THE reason why Microsoft won the PC wars in the ninties. Licensing allowed for the rapid proliferation of hardware running the Windows operating system. As the number of Windows powered computing units increased, the network effect kicked in and Microsoft’s platform became more and more powerful. Suddenly Microsoft Windows was not a choice, it was the ONLY choice. When one was buying a desktop computer or desktop software in the nineties and the two thousands, the first question asked was whether that hardware or that software was compatible with Windows.

  • Operating System

    • Microsoft’s excellent, high quality Windows operating system software provides their cutomers with great value.

  • Platform

    • Microsoft maintains the platform for software developers to build upon. The importance of Microsoft’s role in adding value by building and supporting their platform cannot be underestimated.

    People mock Microsoft CEO Steve Balmer for his sweaty “developers, developers, developers” chant but he had it exactly right. Ballmer knew that so long as Microsoft took care of their developers, their developers would continue to add ever more value to the Windows platorm and that the more valuable the Windows platform became, the more valuable – and the less vulnerable to competition – the Windows operating system software would be.

    As an aside, compare Microsoft’s stewardship of Windows with how Google has treated Android. Google has created a world class operating system in Android but they have done their hardware licensees a disservice when it comes to platform. Their software updates are severely fragmented, their store is difficult to navigate and lacks content and their app store is clogged with clones, pirates and viruses. As a result, Android owners buy less content and apps and Android app developers make far, far less money than do the developers for competing platforms.

  • Office Suite

    • Microsoft’s Office Suite is THE standard for business software and THE bedrock upon which most businesses operate. If your hardware or your software doesn’t run the Office Suite, it probably doesn’t run in a business enviornment.

  • Business Symbiosis

    • It has already been mentioned that business owners and IT departments, not end users, are one of Microsoft’s prime customers. However, the bond created by Microsoft between their Windows operating system and Business IT departments cannot be overstated. Microsoft catered to IT’s every need and IT reciprocated by making Windows the one and only allowable computing operating system at most small, mid and large business organizations the world around.

  • Monopoly Superpower

    • At its height, with as much as 95% market share, Microsoft was, and still remains, THE de facto standard for desktop computing. The benefits derived from this monopoly position are too many to enumerate. The easiest way to sum it up is to say that Microsoft basically had no competition whatsoever and Windows hardware manufacturers and Windows developers only competed among themselves. They had virtually no external competition at all.

    5.3 HOW DOES THE WINDOWS 8 AND THE MICROSOFT SURFACE BUSINESS MODEL DIFFER FROM THE WINDOWS DESKTOP BUSINESS MODEL?

    It is difficult to project what is going to happen with Microsoft’s tablet business model for at least two reasons.

    First, Microsoft’s new, Windows 8 and Surface tablets don’t go on sale until October 26, 2012. Without hard data to guide us, everything is speculation.

    Second, I think that, for many, the analysis of Microsoft’s future is clouded by beliefs engendered from Microsoft’s past. Many pundits aren’t so much hoping that Microsoft will advance to a glorious future in mobile computing as they are hankering for Microsoft to return to their glorious past. The glow from Microsoft’s past successes is so bright that it is blinding them to the fact that today’s mobile computing markets are very, very different from yesterday’s desktop computing markets. We need to be certain that we are applying today’s reality to Microsoft’s tablet efforts, rather than being swayed by echos from Microsoft’s fabled past.

  • The licensing business model is not the same

    • Microsoft made its name and its fortune from licensing its Windows operating system software to desktop and notebook manufacturers. To say that Microsoft’s licensing model was a success would be one of the biggest understatements in the history of business. However, because Microsoft won the PC wars so convincingly, many industry observers mistakenly concluded that licensing was the one and only viable business model for creating a computer platform. Nothing could be further from the truth.

    A business model is merely a strategy, not a guarantor of success. There is no one right business model. Business models have to be adapted to the existing circumstances. What worked yesterday is no guarantee of success. In fact, doing what worked yesterday may very well guarantee failure.

    Today’s mobile markets are very different from yesterday’s PC market. The question before us isn’t whether licensing works – it does. The question is whether Microsoft’s current licensing strategy has a place in today’s tablet markets under today’s circumstances.

  • The licensing fees are not the same

    • It has been estimated that licensing fees for mobile devices will be lower, and perhaps much lower, than those that Microsoft has been able to command from desktop manufacturers. Microsoft needs to charge less in order to keep their mobile devices from being priced out of the market but they also need to be cognizant of the fact that every reduction in licensing fees is a reduction in their overall revenues.

    The good news is that mobile is where all the growth is and if Microsoft can successfully break into the tablet market, they might ultimately make up in volume what they lose on a per device basis. However, while the Apple Mac – with its premium, integrated software and hardware business model – was able to survive and thrive with only a tiny share of the desktop market, licensing models do not do well as niche players. Since licensing business models only receive a small portion of each product’s total revenue stream, they need to be high volume players in order to generate significant income.

  • Hardware diversity is not necessarily an asset

    • As previously noted, one of the stregnths of the licensing business model is hardware diversity. But hardware diversity can also lead to customer confusion. And confusion is the enemy of sales.

    Microsoft isn’t entering the tablet space with a single tablet entrant. Most of Microsoft’s partners are jumping into the Windows 8 tablet space all at once with a wide and wild assortment of products. Endless choice is nice in theory but real world marketing experts know that too much choice leads to paralysis by analysis, buyer indecision and no sale.

    Another concern is the lack of software optimization. With such a wide variety of screen sizes and types, all coming onto the market at once along with the new Windows 8 operating system, it will be virtually impossible for developers to optimize their programs for the numerous hardware form factors. For more on this, I highly reccomentd Ben Bajarin’s artle on this topic entitled: Windows 8 Tablet Fragmentation and the App Dilemma.

  • Selling hardware is not the same as licensing software

    • With the introduction of the Surface tablet, Microsoft has entered into an entirely new (for them) business model. Breaking from their traditional model of only licensing their software, Microsoft will, in addtion to licensing their tablet software, be selling tablet hardware as well.

    Microsoft has some experience with the creation of hardware (Zune, Xbox) but it can’t be considered a core competency. And their unwillingness to reveal details about the pricing and specifications of the Microsoft Surface, plus their almost paranoid refusal to let anyone outside of their inner circle play with or even touch the unit, has to raise doubts about the devices readiness.

    With regard to the quality of the Surface hardware, I’ll give Microsoft the benefit of the doubt. But until we finally get units in the hands of independent reviewers, the doubt will still remain.

  • Desktop applications are not the same

    • Desktop applications running on Windows 8 tablets is a huge differentiator for Microsoft. But does it truly bring value to their users?

    Ten long years of bad experiences with Microsoft tablets have taught us that desktop applications do not work well on tablets. Yet Microsoft perseveres in their belief that desktop applications DO have a vital role to play on the tablet form factor. We’re about to have an epiphany or Microsoft is about to re-learn a very expensive lesson.

  • Tablet apps are not the same

    • Microsoft wants to bring value to their users with tablet apps the same way that they brought value to their desktop users with desktop applications. They know, better than anyone, that a modern software ecosystem needs a large number of apps to be successful. It’s the very reason that their Windows platform dominated computing for the past twenty years.

    However, Microsoft is very, very late to the tablet game. Modern touch tablets may only be two and a half years old but tablets have been adopted faster than any technology in history. Studies show that 25% of Americans own a tablet. Further, while tablets may only be two and a half years old, the modern day app platform started four and a half years ago, in April 2008, with the iPhone. While Windows 8 is entering the market with between 2,000 and 10,000 apps, the Android and iOS platforms boast 700,000 and 750,000 apps each. And iOS has some 250,000 apps specifically optimized for use on their tablet products.

    The low number of apps is a catch-22 for Microsoft. Developers don’t want to develop until a platform has enough users, while users don’t want to buy your tablets until you have enough apps. Users of iOS and Android devices won’t have much patience with Windows 8 either. Why should they wait for a barren Windows 8 store to fill with product when they can buy from the fully stocked Android and iOS app stores today?

    Microsoft is the master of creating developer relationships but, shockingly, they have failed to successfully woo developers to the Windows 8 platform. Microsoft has actually resorted to PAYING developers to develop for the platform. This is very telling.

    With platform, developers are the canaries in the coal mine. We can gauge how well the platform is doing by measuring how well the platform’s developers are doing. And right now, developers are telling us, in no uncertain terms, that they have no confidence in the platform. They are waiting to see if the platform will be successful before they commit. And with platform, a “wait and see” attitude is the kiss of death. The longer they wait, the less likely it is that the platform will succeed.

    It’s still too soon to definitively say that Windows 8 won’t attract developers. But the time needed for Microsoft to build a successful platform is running out and it’s running out fast.

  • The Office Suite is not the same

    • On the desktop, Microsoft’s Office Suite is THE standard for business software and THE bedrock upon which most businesses operate. Many believe that it will be Microsoft’s killer app for tablets too.

    The problem with that theory is that it totally ignores the divide between the touch input demanded by tablets and pixel specific mouse input demanded by the vertical screens used by notebook and desktop computers. Windows Office is optimized for desktops. The more Microsoft tries to make it work on tablets, the less like Windows Office for the desktop it will become. Windows Office will not be the killer app for the tablet because by the time it works properly on the tablet, it will have morphed into a entirely different program.

    Even worse, from Microsoft’s perspective, is that Microsoft Office has lost its cachet among smartphone and tablet users. The past year alone has taught 650 million smartphone users and 100 million tablet users that they can get by just fine without the need to use Microsoft’s Office Suite.

  • Microsoft’s symbiosis with businesses is not the same

    • Many pundits are expecting IT to embrace the Microsoft tablet in the same way that IT embraced Microsoft Windows for the desktop. The problem with that theory is two-fold.

    First, times have changed. In the ninties, businesses standardized on the Windows operating system and then consumers followed suit. Today, consumers are making many of the critical buying decisions. Consumerization and Bring Your Own Device (BYOD) to work are trends, not fads.

    Second, Windows tablets aren’t attempting to replace an unpopular product. The Apple iPad, for example, has user satisfaction ratings in the high nineties. And in only two and a half years, many businesses are already finding the iPad indispensible.

    When it comes to business, Apple’s popular iPad tablet is viewed as a critical tool…

    “No one doubts the device’s popularity, but what’s really eye-opening about these statistics is just how inextricable the iPad has become from (business) users’ everyday lives. ~ Brainshark

    Windows 8 tablets may or may not do well in business and the Enterprise but we’re never returning to the days when Microsoft dominated IT and IT dominated all the computer purchase decision-making.

  • Microsoft’s monopoly is not the same

    • Microsoft Windows and the Microsoft Office Suite may or may not be the best software in their respective fields but users are familiar with them. No one likes to relearn how to use a software program or a user interface. Users benefit from the consistency in Microsoft’s products and Microsoft benefits from the fact that end users are comfortable using their products. This is one of the reasons why Microsoft has been able to maintain its massive market share among desktop users.

    But that was yesterday.

    A Q4 2011 Forrester survey of 9,900 employees around the world found the average employee used two and a half devices for work. Thanks to gains by Apple and Google, only 63% of respondents reported using a Microsoft OS on one of their work devices.

    That is some startling information. Let’s break it down for further examination:

    — The average employee uses two and a half devices for work. Wow. And since Microsoft is found mostly on desktops and noteboks and found almost not at all on smartphones or tablets, that means that almost all emploees are now spending some of their time on a non-Microsoft device.

    — If 63% of respondents report that they ARE using at least one Microsoft device that means that 37% of employees ARE NOT using ANY Microsoft device AT ALL.

    Microsoft still dominates desktops but it’s no longer a computing monopoly. Not by a long shot.

    Today’s computing world is filled with not just desktops but with smartphones and tablets too. Phones and tablets are touch devices that have wholly different user interfaces than do desktop devices. If you’re going to have to learn an unfamiliar user interface anyway, you look to learn the best. Without its monopoly power, Microsoft’s products have to compete on the merits. And no matter how good Microsoft’s products are, competing on the merits is a very different – and far more difficult – proposition than being the default choice or the only choice.

    5.4 WINDOWS TABLET BUSINESS MODEL – A HOUSE DIVIDED AGAINST ITSELF

  • Too Many Agendas

    • A company’s business model often dictates the end user’s experience.

    — Apple wants to provide its end users with the best user experience possible because they want to sell as many tablets as possible.

    — Amazon Kindle Fire and the Google Nexus 7 are willing to sacrifice some the end user’s experience by including advertisments and focusing their tablets soley on their stores, but they hope to make up for it with the lower prices of their tablets.

    — Microsoft’s traditional business model was aimed at IT departments, not end users. IT departments wanted control and features designed specifically for their use and they got it. This sometimes led to a less than optimal end user experience. Microsoft was happy to provide end users with the best experience possible but not if it meant offending their real customers, the IT departments, who made the large scale purchasing decisions.

    Microsoft’s current tablet business model is dictating a compromised end user experience. The problem with Windows 8 on tablets is that it isn’t a platform, it’s an agenda.

    Mobile is the future of computing. Microsoft needs to get in the tablet game or they are going to be shut out of mobile and shut out of the future of computing. Today, Microsof has virtually no presence in mobile computing. What they do have is a massive presence in desktop computing. Windows 8 is all about leveraging Microsoft’s massive desktop market share in order to gain a foothold in mobile computing. This might be good for business but it is not necessarily good for the end user. Microsoft’s business model is not aligned with the welfare of the end user. And in the long run, that’s bad business.

  • Too Many Business Models

    • Microsoft is employing two incompatable business models to sell their tablets. They are licensing their software to manufacturers and they are competing with those same manufacturers by selling their own Microsoft branded Surface tablet. This is similar to what Google is doing with the Nexus 7.

    First, Microsoft is competing with its own partners. That’s never a good thing. Even Microsfoft acknowledged the problem in an SEC filing:

    “…our Surface devices will compete with products made by our OEM partners, which may affect their commitment to our platform.”

    Second, licensing to manufacturers and selling directly to end users requires two entirely different, and oft-times redundant, business structures. Supply, production, distribution, marketing, advertising and sales are all totally different. Just to illustrate the point, Microsoft’s retail stores make perfect sense for selling their hardware to consumers but they serve no purpose at all for licensing their software to manufacturers. Compare this to Apple whose retail store sells virtually every product that Apple makes.

    Third, conflicing business philosophies, strategies and cultures do not bode well for Microsoft. One of the reasons that mergers and acquisitions so often fail is because it impossible for the two companies to align their corporate values and culture. One of Microsoft’s greatest strengths was that they knew who they were and what they stood for. Who and what are they now?

    Fourth, and perhaps most importantly, Microsoft’s dual strategies show a lack of focus, a lack of direction. They’re improvising.

    The purpose of a business model is to direct and guide one’s actions – to be able to foretell a possible future and to act in order to make it so. Multiple, conflicting business models accomplish just the opposite. They are not the embodiment of a strategy, they are the abandonment of strategy.

    Summation

    I’ve spent an awful lot of this article talking about what can go wrong with Microsoft’s tablet business model. Now let me tell you what might go terriblly right. Microsoft might succeed with tablets DESPITE the flaws in their business model because there is no one standing in their way.

    Oh sure, Apple is the 900 pound gorilla in tablets. But they’re not going to acquire 95% market share the way Microsoft did with desktops. Amazon and Google’s business models seem directed at content, not apps. Their subsidized, ad supported models have inherent limitations and are not going to appeal to government, business or education entities. If you want a tablet for serious computing, and you want an alternative to Apple, Microsoft might be your go to guy.

    If you want to know whether Microsoft’s tablet strategy will or will not succeed, forget everything else and focus on developers. If developers start to make significant money, if developers start to develop apps for Windows 8 first or even second, if the Windows store starts to fill up with high quality apps that are equal or superior to those of their rivals – then Windows 8 is going to do just fine.

    Microsoft’s greatest fear should be that Windows 8 for tablets becomes another Windows Phone 7 – a platform with high quality hardware, excellent software, few developers and even fewer users.

    Next

    We’ve now looked at the Apple, Amazon, Google, Samsung and Microsoft tablet business models. Tomorrow, we wrap up the series by seeing what the various business models can tell us about the future of tablet computing.

    Battle Of The Tablet Business Models: Samsung Galaxy Tab

    RECAP

    We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Samsung Galaxy Tab.

    4.0 Samsung Galaxy Tab

    4.1 WHERE DOES THE SAMSUNG GALAXY TAB MAKE ITS MONEY?

    When introducing the new Amazon tablets, Jeff Bezos said:

    “We want to make money when people use our devices, not when they buy our devices.”

    Samsung licenses its software for free from Google and, like Apple, they make their money when people buy their tablets. Unlike Amazon and Google, Samsung makes little or no money from the sale of content or apps. Unlike Microsoft, Samsung makes no money from the licensing of an operating system.

    4.2 WHERE DOES THE SAMSUNG GALAXY TAB PROVIDE VALUE?

    Samsung tablets provide value in (at least) three ways.

    First, their hardware is generally very good. It may or may not be of the quality of Apple but it is certainly more than good enough.

    Second, since Samsung gets their operating system software from Google for free, and since Samsung is an extremely efficient manufacturer, they can often offer their tablets for lower or comparable prices.

    The above advantages are somewhat mitigated by the fact that Samsung has to pay Microsoft a licensing fee for the use of Android. Also, Apple’s supply chain prowess has allowed Apple to order supplies in such great quantities that they’ve been able to keep their prices quite low. Still, on the whole, Samsung tablets are almost always available at equal or lower prices than that of the competition.

    Third, Samsung has excellent distribution. This should not be underestimated. The greatest device in the world is of no value to the consumer if it’s not sold in their country or if it’s priced out of their financial reach.

    Samsung’s tablets provide value because they are well made, inexpensive (but not cheap) and available most everytwhere.

    4.3 SAMSUNG GALAXY TAB BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

    Despite Samsung’s many strengths, their business model for tablets is a disaster and it must frustrate the life out of them. Samsung’s hardware, prices and distribution are excellent but it just doesn’t matter.

    First, Samsung gets their Android operating system software from Google for free, and while Android has proven to be an excellent smartphone operating system it is not optimal for tablets. There is a fundamental difference between an app designed for a smaller (3.5 to 5 inch) screen and an app designed for a larger (9.5 to 11 inch) tablet screen. Google’s stubborn refusal to optimize their software in order take advantage of the tablet’s larger screen size has crippled the larger screened Android tablets. For more on this, please see my article entitled: “With Apps, Size Matters.”

    Second, while Apple, Amazon and Google make money from the sale of content and apps, Samsung does not.

    Third, since Google supplies the Android operating system to Samsung, Samsung has no control over the store and no control over the platform. Samsung can do nothing to make the store more attractive for their customers or make the platform more attractive for developers. Samsung is wholly reliant upon, and wholly at the mercy of, Google. This is even more unfortunate for Samsung because Google has proven to be an indifferent steward of the Android store and platform.

    Fourth and finally, with the introduction of the Google Nexus 7, Google – the licensor of the Android operating system software – is now a direct competitor to Samsung. And since Google has decided to subsidize the price of their product, they’ve completly undercut Samsung’s tablet business model. Unlike Google, Samsung can’t make up lost sales revenues with the subsequent sales of content and apps. With Google selling the Nexus 7 for $200, Google has made it all but impossible for Samsung to sell their $400 to $500 tablets.

    Summation

    Samsung is a proud and powerful company but I don’t know how much longer they can continue to compete in the tablet market. They are being attacked from above by Apple, below by Amazon and Google and soon Microsoft will be entering the fray. And Samsung has no competitive advantages. They can compete against Apple on hardware and software but not on ecosystem. They can compete against Amazon and Google on hardware and software but not on price. And the things that Samsung needs to change in order to be competitive – content, apps, ecosystem – are entirely out of their control.

    Samsung is simply in a no-win situation.

    NEXT

    We’ve now looked at the Apple, Amazon, Google and Samsung tablet business models. Next week, we look at Microsoft’s Surface tablet and wrap up the series.

    Battle Of The Tablet Business Models: Google Nexus 7

    RECAP

    We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Google Nexus 7.

    3.0 Google Nexus 7

    3.1 WHERE DOES THE GOOGLE NEXUS 7 MAKE ITS MONEY?

    When introducing the new Amazon tablets, Jeff Bezos said:

    “We want to make money when people use our devices, not when they buy our devices.”

    Interestingly, the Google Nexus 7 has the very same business model as do the new Amazon tablets. Google gives away the Nexus 7 hardware at cost and then seeks to make its money by selling content and advertising.

    3.2 WHERE DOES THE GOOGLE NEXUS 7 PROVIDE VALUE?

    The Google Nexus 7 has excellent hardware and it sports one the world’s premiere mobile operating systems in Android’s Jelly Bean. But where Google really brings value to their tablet customers is in the Nexus 7’s low tablet price.

    Google is able to keep their tablet prices low because they don’t intend to make any (or much) money on the initial sale of their devices. They can give their customers more tablet for less because they are making it up in content and advertisement sales. Google wants to lure you into their store with their tablet and then have you buy content there.

    Do the above two paragraphs sound familiar? If you read yesterday’s article on the Amazon Kindle Fire, they should because they are almost word for word the same. (Battle Of The Tablet Business Models: Amazon Kindle Fire, section 2.2.)

    The Google Nexus 7 and the new Amazon tablet share the very same business model so they will naturally compete head-to-head with one another. Which one is likely to prevail over the other? Understanding their similarities and their differences should give us the answer to that question.

    3.3 GOOGLE NEXUS 7 BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

    The Google Nexus 7 has received many fine reviews for both its hardware and its software but I think the reviewers are missing the larger picture. When I look at the Nexus 7 business model, there is little there to like. The Nexus 7 business model has all the downsides of the Amazon tablet business model and few of the upsides. Despite the almost universal praise the Nexus 7 has received from analysts and pundits, I predict that the Nexus 7 will fail to have any long lasting impact on the tablet markets other than to eliminate other Android manufacturers from contention.

    The Google Nexus 7 and the Amazon Kindle Fire business models share many of the same issues:

    — It’s hard to make a significant profit solely from the sale of low margin content and mobile advertising.

    — Devices can only be sold in countries where content can be made available via the Google Play store. Sales of devices outside of those countries are counter-productive.

    — Tablet sales must be carefully targeted at only those customers who voraciously consume (and are willing to pay for) content or who positively respond to advertising. Tablets sold to non-consumers are a waste of time, money and effort.

    — Subsidized tablets draw exactly the wrong type of customer. Bargain hunters are less likely than others to consume content and respond well to advertising.

    — A subsidy business model thrives on low cost hardware and long refresh cycles. However, we live in a world where Apple, Samsung and Microsoft are rapidly iterating their tablet hardware offerings and pushing the barriers of what it is technologically possible for a tablet to do. It will be difficult, if not impossible, to pursue the contradictory goals of spending as little as possible on the tablet hardware while still remaining competitive with the tablet offerings of competitors.

    — A content focused, ad driven tablet will have little or no appeal to government, business or educational entities.

    — Online only distribution will be difficult and other methods of distribution are sparse and immature.

    (For a further discussion of the difficulties inherent in pursuing a subsidized tablet business model, please refer to section 2.3 of my earlier article: Battle Of The Tablet Business Models: Amazon Kindle Fire.)

    In addition to the issues it shares with the Amazon tablets, the Nexus 7 has problems all its own:

    — The business model relies upon making a profit from content sales and content sales are not Google’s core strength. When it comes to online stores, Google Play is a distant third to Amazon and Apple.

    — Open business models are good for many things, but the maintenance of a store is not one of them. While closed companies like Amazon and Apple run their stores with an iron fist, Google runs its store with abandon.

    — Google is not known for its customer service. Its current customers are advertisers, carriers and manufacturers, not end users. The one time Google did sell directly to consumers with the Nexus, their efforts failed. Customer support is hard, Google has little experience in it and it would be a radical shift in their business model. There’s plenty of doubt about whether they can pull it off and until they prove otherwise, they don’t get the benefit of that doubt.

  • Google Nexus 7 v. Amazon Kindle Fire:

    • A head-to-head battle between the Nexus 7 and the Kindle Fire will not end well for the Nexus 7. The Nexus 7 probably has better hardware and software (although I know that Amazon would dispute that) and it also has a very strong and loyal user base. But the subsidy game is all about content and in content, Amazon shines.

    The Google Nexus 7 business model is like a coach taking a great athlete and playing them out of position – like taking a superior skater and having them play baseball instead of hockey, or taking a great baseball hitter and having them play soccer instead of baseball. Amazon is playing to their strengths. Google is playing to their weakness. In the long run, Google’s putative superiority in hardware and software will come to naught. In the battle of the business models, when Amazon and Google go head-to-head in the sale of content, Amazon will win every single time.

  • Content v. Apps:

    • I think Google pursued the wrong strategy. They have focused on the sale of content when, in my opinion, they should have focused on apps and the creation of a stronger app platform. I wrote about their abandonment of tablet optimized apps in my article entitled: “With Apps, Size Matters.”

    However, it’s too late to turn back now. Google’s failure to focus on tablet apps has all but doomed their already faltering tablet efforts.

  • Reversing The Business Model: Open v. Closed:

    • With the Nexus 7, Google abandoned their open business model and adopted a closed business model instead. Now they have none of the advantages of the open model yet they’ve gained few of the advantages of the closed model. Open allowed Google to focus solely on the operating system and to license that operating system to all comers which, in turn, led to the proliferation a wide variety of low cost, inexpensive hardware options. The Google Nexus 7 has none of those advantages. It is made by one manufacturer so its production numbers are limited. It is a single form factor. All of the things that make an open business model great – cost, choice, variety, distribution, ubiquity, etc. – are lost.

    And what is gained in its stead? Not much.

    — The original Android concept was to get Android everywhere in order to capture eyeballs in order to sell mobile advertising. As discussed above, a subsidized model LIMITS production to only those who are willing to buy content.

    — The closed Nexus 7 business model will gut the tablet efforts of the remaining Android manufacturers. How are they supposed to compete with a for-cost Google tablet when they do not share in the profits that Google garners from the sale of content or advertising?

    The change from an open model to the closed Nexus 7 business model will have dramatic long-term negative consequences for Google’s tablet efforts. For the reasons described above, the Nexus 7 will not sell well enough to garner large scale content and advertising profits but it will sell well enough to eviscerate the efforts of all other Android tablet manufacturers. For Google, it’s the worst of both worlds.

    Summation

    The Google Nexus 7 does not represent a coherent business strategy. It represents the abandonment of strategy. While others are singing the praises of the Google Nexus 7, I am singing a dirge.

    I predict that we’ll continue to hear a lot about Android tablet activations but we’ll continue to hear little about content and advertising profits, which is all that matters in a subsidized business model.

    I predict that the already moribund tablet efforts of the other Android manufacturers will simply give up the ghost altogether. (Caveat: I am not counting Amazon as an Android manufacturer since their operating system is so radically forked from Google’s version of Android.)

    I predict that – unless Google makes a dramatic change – the Nexus 7 will all but fade from sight.

    Bold predictions, I know. But they’re dictated, not be me but, by Google’s own flawed business model.

    Next

    We’ve now looked at the Apple, Amazon and Google tablet business models. Tomorrow, we look at Samsung and the Galaxy Tab.

    Battle Of The Tablet Business Models: Amazon Kindle Fire

    RECAP

    We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Amazon Kindle Fire.

    2.0 Amazon Kindle Fire

    2.1 WHERE DOES THE AMAZON KINDLE MAKE ITS MONEY?

    When introducing the new Amazon tablets, Jeff Bezos said:

    “We want to make money when people use our devices, not when they buy our devices.”

    Bezos’s description of the Amazon tablet business model would have been slightly more accurate if he had said:

    “We want to make money when people BUY OUR CONTENT OR ACCESS OUR ADVERTISING, not when they buy our devices.”

    Not as catchy, perhaps, but a tad more honest.

    Bezos also said that he doesn’t believe in the razor/razor blade business model but I don’t know why because that is exactly the business model that the Amazon tablets are using. Amazon is selling their tablets (the razor) at or near cost and they are hoping to make their money from the sale of content and/or advertising (the razor blades).

    Of all the tablet makers, Amazon is uniquely situated to make such a strategy work. While tablet makers like Apple, Google and Microsoft are interested in selling tablet owners tablets along with content such as music, books, television shows, movies and apps, Amazon is interested in selling their potential tablet customers EVERYTHING. Amazon has THE largest and most successful online retail store in the world. If Amazon can get you into their store and get you to buy things from their store, they win. To Amazon, the Kindle Fire isn’t so much a tablet as it is a vehicle designed take you to the Amazon store, keep you there and encourage you to spend your money there. It is just another form of advertising, marketing or promotion for the Amazon online store.

    One of the brilliant “twists” to the Amazon strategy is that Amazon is saving money on software development by legally “poaching” their Amazon Kindle Fire operating system from Google’s open source Android. Google does all the work to create Android and then Amazon’s software engineers lift it whole and modify it to fit their specific needs. By the time Amazon’s software engineers are done modifying Android, their product barely resembles Android at all. In addition, they strip out all of Google’s money making properties and replace them with their own.

    It must be particularly galling for Google to know that as they toil to make the Android operating system better and better, they are also toiling make Amazon’s competing tablet efforts better and better too.

    2.2 WHERE DOES THE AMAZON KINDLE PROVIDE VALUE?

    Amazon’s tablet hardware and software is much improved from last year’s offerings but where Amazon really brings value to their tablet customers is in the one-two combo of low tablet prices and an unsurpassed online shopping experience.

    Amazon is able to keep their tablet prices low because they don’t intend to make any (or much) money on the initial sale of their devices. They can give their customers more tablet for less because they are making it up in content and advertisement sales. Amazon wants to lure you into their store with their tablet and then keep you there with their service and overall shopping experience.

    And while it’s true that Amazon is making money off of you when you shop in their online store, people LIKE to shop at Amazon. Amazon’s selection is world class. Their prices are rock bottom. And their Amazon store software provides customers with one of the finest online shopping experiences anywhere.

    A couple of quick analogies to drive home how the Amazon tablet business model works.

    — If Amazon were a movie theatre, they would sell the tickets to the movies for cost and make their money on the sale of popcorn, soda and candy.
    — If Amazon were in the game console business, they would sell their consoles at cost and make their money on the sale of the games.
    — If Amazon were in the clothing business, they would sell T-shirts at cost, but they would put them in the back of their store in the hope that you would buy more of their other merchandise as you went to and fro in their establishment.

    2.3 AMAZON KINDLE FIRE BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

    The advantage of the Amazon tablet business model is that their tablet prices are very attractive to a very large portion of the population. Further, Amazon doesn’t have to provide their customers with the latest or greatest hardware or software operating system in order to be competitive. Customers will overlook the Kindle Fire’s rough edges because they know that they are acquiring the tablet at bargain basement prices.

    However, the Amazon tablet business model has some serious questions and some serious limitations too.

  • Business Model:

    • Does Amazon’s proposed business model even work?

    As we said above, Amazon is using the give away the razor (at cost) and make your money on the sale of razor blades business model. But that model presupposes that the razor blades are being sold at a PREMIUM.

    Famously, Amazon’s margins are razor thin (no pun intended) – as low as four percent. What good does it do Amazon to give away tablets for cost if they’re only making 4% profits on the sale of their content? It makes little sense. Yes, 4% is better than nothing and yes, they’ll make it up in volume but, as we’ll see, giving away tablets at cost is hardly risk free.

  • Who, Where, How and What:

    • WHO

    “The logic of selling a product which has a profit model unrelated to the cost of goods sold is tricky. The incentives are different. The risk is not selling too few but selling too many.” ~ Horace Dedeiu

    Apple, Samsung and Microsoft don’t give a damn about WHO they sell their tablets to. They make their money up front, at the time of the sale. But Amazon has to be terribly careful WHO they sell their tablets to, WHERE their potential customers live, HOW their customers use their tablets and WHAT kind of demographic that potential tablet owner hails from.

    WHERE

    The Amazon store is currently only available in the United States, France, Germany, Italy, Spain, and the U.K. This means that few people outside of those countries would have any interest in purchasing an Amazon Kindle Fire. More importantly, Amazon has no interest at all in selling an Amazon Kindle to customers who don’t reside in those countries. In fact, they have a strong interest in NOT selling their tablets to those who cannot buy their content.

    Remember, the Amazon tablets only make money from the sale of content or advertising. Contrary to the business models of Apple, Samsung and Microsoft, tablet sales numbers do not directly affect Amazon’s bottom line in any way.

    And don’t expect Amazon to suddenly expand their services into other countries any time soon The Apple App Store opened in 2008 and Apple currently sells Apps in some 150 countries. But after a decade of expansion, iTunes still only sells content in 62 countries. Content distribution is hard. If it weren’t, Amazon would already be selling their content in far more countries than they currently are.

    Simply put, Amazon’s geographically limited content distribution means that Amazon tablets can only compete with Apple, Google, Samsung and Microsoft in the United States and France, Germany, Italy, Spain, and the U.K. For those who are predicting that Amazon’s business model will destroy or put a serious dent in the business models of Apple and others, this should serve as a severe reality check. Even if Amazon does well in the geographic areas that they serve, Amazon tablets will do little to damage the overall sales numbers of their competitiors.

    HOW

    What Amazon tries to do with the brand is ensure that the Fire is in the hands of its most ravenous consumers. ~ Horace Dediu

    Amazon is also interested in HOW their customers use their devices. It you buy an Apple, Samsung or Microsoft tablet and throw it in a drawer and never use it, those companies still make their money. If you take an Amazon tablet and throw it in a drawer, Amazon makes no money. So it’s not enough for Amazon to get their tablets into the hands of consumers, they have to get their tablets into the hands of consumers who will continue to use their tablets and continue to buy Amazon’s other goods and services.

    This is analogous to the newspaper business. Newspapers could have dramatically increased their distribution by giving away their papers for free instead of charging for them. After all, newspapers made their money from the included advertisements and classified ads, not from the sale price of the newspaper. However, if newspapers were free, people who were not really interested in reading the newspaper would acquire them and use them for all sorts of unintended purposes such as lining bird cages or burning them for fuel.

    Newspapers had to charge enough to drive away those who weren’t going to read the newspaper but not charge so much that they drove away their target audience. The Kindle Fire has the same dilemma. It needs to be priced high enough to scare off the cheapskates but low enough to attract the bargain hunters. That’s a very tough, very tricky balancing act.

    WHAT

    Finally, the Amazon model of giving away hardware cheap does not attract the most desirable customers. It does Amazon no good to attract lots of customers if they are money-grubbing, coupon-clippers who refuse to later purchase Amazon’s products or respond to Amazon’s ads. It’s not enough for Amazon to sell their tablets. They have to sell their tablets to people who have money and who are willing to spend that money in the Amazon store.

  • Upgrade Treadmill:

    • During the Amazon Kindle Fire introduction, Bezos also said:

    “We don’t need you to be on the upgrade treadmill. If we made our money when people bought the device, we’d be rolling out programs left and right to try to get you to upgrade. In fact, we’re happy that people are still using Kindle Ones that are five years old.”

    Well, OF COURSE Amazon is happy that people are still using old Amazon Kindles. That’s their business model.

    Amazon makes no money from the sale of their hardware so they’re thrilled to have you continue to use their old hardware. They would like nothing more than for people to use their old hardware for as long as possible so that they don’t have to incur the expense of making and distributing newer hardware. However, this approach has some serious drawbacks and some serious risks.

    First, tablets are a fairly new device category. Tablets based upon Apple’s touch metaphor are only two-and a half years old. Accordingly, the hardware is still rapidly improving.

    While Amazon would like nothing more than to sell you a tablet and have you use it for 7 years — the same way that Microsoft, Sony and Nintendo sold their patrons game consoles and hoped that they would use them for 7 years — Apple, Samsung and Microsoft are following the exact opposite approach. They are iterating their hardware just as fast as they can.

    With tablets, as in smartphones, consumers have shown a willingness to rapidly upgrade their hardware and then sell or pass down their legacy devices to others. Bezos speaks of the “Upgrade Treadmill” as a negative but no one is forcing consumers to buy new tablets. They WANT to buy new tablets in order to take advantage of the latest and greatest hardware and software advances. Although it is in Amazon’s best financial interest to slow down the upgrade cycle, I doubt that consumers are going to stand for that. At this stage in the tablet’s evolution, upgrading is a boon, not a curse.

    Second, while a five year old device may be great for Amazon’s business model it’s terrible for Amazon’s platform efforts. Developers want to develop for a platform using a single operating system. (They never get that wish, but that’s what they want.) They want to provide their customers and potential customers with cutting edge software and they can’t do that if they’re forced to support 5 year old legacy devices. Amazon’s platform efforts are already far, far behind those of their tablet competitors and their business model makes it very unlikely that they will ever be able to catch up.

  • Apps:

    • Amazon may have more content that its rivals, but when it comes to Apps, they are woefully behind. Amazon is upgrading their App portfolio as fast as they can but the total number of apps available to Kindle Fire patrons is still relatively low.

    Further, Amazon has few large screen tablet optimized apps. Smartphone apps may be stretched to work on a 7 inch tablet but as tablet size increases, the need for tablet optimized apps increases too.

    Creating a thriving platform is hard. Ask Amiga in the eighties. Ask Windows Phone 7 now. Developers want to make money and they’re not going to make money if their platform is attracting penny-pinching scrooges who don’t want to buy content but do want to hold on to their tablet hardware for 5 years or more.

  • Limited Appeal:

    • The proposed Amazon tablets will be appealing to many consumers but it will also be unappealing to many more conservative groups. No government, business or scholastic organization is going to want to buy tablets that depend on advertising and which direct their constituents to the Amazon online store. Imagine, for example, legislators, or lawyers or students being given an Amazon tablet. It would be totally inappropriate for their purposes.

    Amazon’s business model lowers the price of its tablets and broadens its appeal to the masses. But Amazon’s business model also precludes it from ever being adopted by organizations. This is a significant limitation that seriously crimps Amazon’s potential overall market penetration.

  • Distribution:

    • Amazon’s distribution channels are extremely limited. Most of their sales comes from their existing online Amazon customers. While this is a large pool, it’s a finite pool and it makes it difficult for Amazon to reach out to new, potential customers.

    Further, Amazon’s distribution opportunities are actually becoming even more limited. Companies like Target and Walmart have recently stopped carrying Kindle devices because of perceived unfair competition.

    Many, many people will buy a tablet unseen, untouched, and online. But the vast majority of people will not. Amazon’s unique distribution channel might be viewed as both a blessing and a curse. But mostly, it’s an impediment to the growth of their tablet sales.

    Summation

    Jeff Bezos has made it clear that he’s all in with tablets. I admire him as much as anyone in tech and if anyone can make Amazon’s strategy work, he’s the man who can do it. But, as we’ve seen, Amazon’s business model holds more questions than it provides answers. Pundits will gauge Amazon’s efforts by the number of tablets sold but the number of tablets sold is meaningless. The only thing that matters to Amazon is how much content and advertising revenue those tablets generate. And since Amazon is notoriously stingy with its revenue and profit numbers, it may be a long, long time before we know whether the Kindle Fire’s business model was brilliant or just bizarre.

    We’ve now looked at the Apple and Amazon tablet business models. Tomorrow, we look at Google and the Nexus 7.

    Battle Of The Tablet Business Models: Apple iPad

    Introduction

    Today there are 5 titans battling to win the tablet wars: Apple, Amazon, Google, Samsung and Microsoft. When it comes to evaluating tablets, we often focus on the differences between the competing companies’ various tablet offerings in the hope that we will detect the little things that make a big difference. However, sometimes it’s best to step back and look at the big things that seemingly make all the difference. A company’s business model is one of those big things.

    A tablet business model can be quite intricate but, in essence, it can be broken down into three parts:
    — Where does the tablet make its money?
    — Where does the tablet provide value to its potential customers? (Why is the customer willing, even anxious, to pay for a company’s particular tablet product or services? What makes a tablet unique? Why does a potential customer choose one company’s tablet over that of another?)
    — How well does a company’s business model work overall? How well does it work in comparison to the competition’s business models?

    With the above in mind, over the next few days let’s take a look at the tablet business models for Apple, Amazon, Google, Samsung and Microsoft in order to see if we can find the patterns that will help us predict which tablet business models are going to be the winners and which tablet business models are destined to be the losers in the upcoming tablet wars.

    1.0 Apple iPad

    1.1 WHERE DOES THE APPLE IPAD MAKE ITS MONEY?

    When introducing the new Amazon tablets, Jeff Bezos said:

    “We want to make money when people use our devices, not when they buy our devices.”

    Bezos was purposely contrasting Amazon’s tablet business model to that of Apple’s. But was his characterization of Apple’s tablet business model accurate?

    Pretty much. But Bezos’ description of Apple’s tablet business model, while accurate, doesn’t quite tell the whole tale.

    Apple makes their money when people buy their iPads. Many think that Apple also makes a great deal of money from the sale of content and by taking commissions from the sales of apps, but this is a misnomer. True, Apple makes literally billions from those sales but that still only represents a tiny fraction of the revenues made from the sale of the iPad itself.

    Apple facilitates the sale of content and apps in order to make their iPads even more valuable and even more attractive in order to sell even more iPads in order to make even more money. Content and App sales are crucial to Apple but Apple makes its money from the sale of the iPad, not from the sale of content and apps.

    1.2 WHERE DOES THE APPLE IPAD PROVIDE VALUE?

    The Apple iPad provides good value in both its hardware and its software. Apple’s store is also excellent but it cannot match the prowess of the Amazon store which has far more content selection at equal or better prices.

    The iPad’s real strength lies in its apps and its app ecosystem. No competitor can touch the iPad there. The iPad has more than 250,000 (and counting) tablet optimized apps. More importantly, the iPad has a thriving app platform. Developers develop for the iPad first, developers are well paid for their services and customers see more value in the available iPad apps and readily buy more apps and pay more for them.

    However, in my opinion, an even greater strength of the iPad is how Apple makes all of the various elements — hardware, software, content, apps,iCloud, retail support, etc. — work together as one. Customers get (and are willing pay for) value from the seamless experience rather than from any one particular aspect of the iPad.

    1.3 APPLE IPAD BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

    The Apple tablet business model is coherent and aligned. (Which is not the same as saying that their tablet business model is the only available business model or that it is always perfectly executed.) Their tablet hardware is the “ticket” that their customer’s buy in order to gain access to “Apple World”. Once customers enter Apple’s walled garden, they seldom want to leave.

    Apple’s primary mission is not to provide their customers with the best of any one thing but, instead, to provide them with the best overall user experience. This gives Apple a tremendous advantage. They don’t always have to be number one in hardware, software, content, apps, etc. So long as their overall user experience is excellent, that is enough, and more than enough, to keep their customer’s satisfied.

    This often baffles industry watchers, pundits and analysts alike. They look at the individual parts of Apple’s tablet offering, find them wanting, then wonder how Apple can continue to compete so very well against other devices that seem to offer more and better features.

    What they fail to understand is that Apple shouldn’t even be trying to add a hardware or software feature to their tablets unless those features perfectly integrate with, and add to, the whole. In a seeming paradox, Apple is not trying to make the best iPad, the best operating system or the best content and app store. Instead, Apple is trying to integrate all the pieces into one coherent whole and provide their customers with the best overall user experience. In this – as reflected by the iPad’s superb customer satisfaction numbers – they have been entirely successful.

    Summation

    Apple’s tablet business model is a very good. The results speak for themselves. However, it’s not the perfect tablet business model and it’s not the only tablet business model. It is now being assaulted from all sides by the entirely different business models of Amazon, Google, Samsung and Microsoft. How does the Apple tablet business model compare and contrast with those competing business models? We’ll see as the week progresses.

    Tomorrow we look at Amazon and the Kindle Fire business model.

    With Apps, Size Matters

    Ben Bajarin has written an important article entitled: “Windows 8 Tablet Fragmentation and the App Dilemma“. I highly encourage you to follow the link and read. it.

    His main thesis is so important that I’m re-stating it here in the hope that it will draw even more attention to his article and even more attention to this vital issue.

    “(Apps) are specifically designed for the current … screen size. (E)verything is placed where it is for a reason.” ~ Ben Bajarin

    There is a FUNDAMENTAL DIFFERENCE between an app designed for a smaller (3.5 to 7 inch) screen and an app designed for a 9.7 inch or larger tablet. The pundits don’t get this. Google doesn’t get this. Amazon may not get this. And Microsoft may be ignoring this fundamental truth because they simply have to. Let me explain.

    The Pundits Don’t Get It

    “And this size (7 inches) is useless unless you include sandpaper so users can sand their fingers down to a quarter of their size.” ~ Steve Jobs

    This Steve Jobs quote baffles many tech observers. There are literally hundreds of thousands of useful apps availabe for our phones and our phones are much smaller than a 7 inch tablet. Why then would Steve Jobs say that apps on a 7 inch tablet are useless when apps on the much smaller phone are perfectly usable?

    Steve Jobs wasn’t talking about EXPANDING 3.5 inch phone applications up to fit on a 7 inch screen. He was talking about SHRINKING 9.7 inch tablet applications down to fit on a 7 inch screen.

    You can blow up a phone app and make it run adequately on a 7 inch screen but if you take an iPad app running on a 9.7 inch screen and shrink it down to run on a 7 inch screen (which is only 45% the area of a 9.7 inch screen) it will be virtually unusable. As Steve Jobs said, you would need to sandpaper your fingers down in order to make them thin enough to interact with the app’s interface.

    Google Doesn’t Get It

    “Nonsense,” the critics cry. “Phone apps work perfectly well on tablets. Even Google’s Andy Rubin says so.”

    It’s true that he does say that. When the Nexus 7 was introduced, Andy Rubin made a point of saying that he was sticking with Google’s strategy of encouraging developers to write a single app for both phones and tablets. This same philosophy was reflected in one of his earlier quotes on the subject:

    “I don’t think there should be apps specific to a tablet…if someone makes an ICS app it’s going to run on phones and it’s going to run on tablets.” ~ Andy Rubin

    And there, ladies and gentlemen, is the exact reason why Android’s 10 inch tablet strategy lies in tatters and its partners tablet sales lie moribund. Google doesn’t get it.

    Optimized apps matter.

    iPad Developers Get It

    There are 700,000 apps in the iOS App Store. 250,000 of them – one quarter of a million – are specifically tailored to run on the iPad.

    Developers don’t develop tablet apps for their health and consumers don’t buy tablet apps for no reason. Some phone apps run adequately when blown up to fit on the iPad’s increased screen real estate. However, most phone apps are less than optimal. Some are virtually unusable.

    If you want an optimal phone or tablet experience, you have to tailor the app to the device’s specific screen size.

    Where Does This Leave Android?

    Until Google changes its philosophy on tablet apps, its tablets will merely run oversized phone apps and they will never have any success with the larger screen sizes and they will never seriously compete with any platform that has tablet optimized apps.

    Where Does This Leave Amazon?

    Amazon just introduced larger sized tablets. As smart as Jeff Bezos is, I think that he’s about to find out that there is a huge difference between a 7 inch tablet that can run stretched out phone apps and a larger tablet that demands apps optimized for the increased screen size(s). Without knowing a thing about the new, larger, Kindle Fire devices, I will predict that the larger form sizes will fall flat because they don’t add much in the way of content viewing over that of a 7 inch tablet and their lack of apps devoted to their form factor means that apps won’t add much to their value either.

    Where Does This Leave Microsoft?

    “In essence (developers) are not simply shrinking or expanding their apps to work on smaller or larger screens, they are in essence creating new app experiences for those screen sizes.

    …..

    Windows 8 touch based hardware will be so fragmented in screen size that we will see touch based Windows 8 hardware ranging from 10” all the way up to 27. If developers feel the need to optimize their software for a screen that is anywhere from a half-inch and even a 2” difference, what will they do when they have 4, 5, or 6 different screen sizes to target in the Windows 8 touch hardware ecosystem?” ~ Ben Bajarin

    Do you want to know the future of Microsoft’s tablet efforts? Then ask yourself: “How many apps are optimized for each of the various Windows RT and Windows 8 tablet form factors? If the answer is “a few” or “not many”, then that form factor is going to struggle.

    And while Windows 8 tablets run both Metro and desktop apps, what is the point of owning a tablet if the tablet apps are missing in action and it only ends up only serving as a lessor substitute for a notebook? You’d be better off buying a notebook instead.

    Conclusion

    Apple’s iOS has 250,000 9.7 inch optimized apps.

    — How many apps are optimized for the various Android large screen tablets?
    — How many apps are optimized for the large screen Amazon Kindle Fire tablets?
    — How many apps are optimized for the various Windows RT and 8 large screen tablets?

    Do you want to know the future of tablets? One of the keys is optimized apps. If you don’t got ’em, you don’t got no future.

    Read Ben’s article and enjoy. Understanding his article is essential if you want to fathom the future of tablets.

    Windows 8 Tablet Fragmentation and the App Dilemma

    I was having a discussion with an iPad software developer recently and we were discussing the iPad mini. Interestingly he was still a skeptic about the iPad mini and I thought his reason was interesting. He noted that the apps they develop, and primarily the user interface, are specifically designed for the current iPad screen size. He said that everything is placed where it is for a reason.

    His skepticism about the iPad mini was based on his conclusion that if a 7-8 inch iPad was to come out his current app would not work. His point was that 2 or so inches may not seem like a big difference but for many apps that have menu’s and touch based navigation interfaces, 2 inches is a lot of screen real estate to loose. Basically he had concluded that for many applications developers would target each tablet screen size independently.

    His points got me thinking. First of all I agree with him. If we have learned anything about Apple’s developers is that they are willing to take the time to make sure their app experience is ideal no matter what the screen size. The iPhone 5’s larger screen and app developers already starting to take advantage and optimize their apps for the new 4” screen. Interestingly Apple, during this transition, is faced with having apps with two different looks and feel in their app store for both 3.5” and 4” iPhones. So as developers look to tweak their UI for the iPhone 5 which app UI will we see in the app store? Apple is solving this elegantly but only showing consumers the new app UI for 4” apps only if they have an iPhone 5. That way consumers who don’t have the iPhone 5 will still see app preview screenshots of the 3.5” UI.

    Now with all of that in mind let’s turn our thoughts toward Windows 8. In all the above examples I mentioned we were talking about screen size differences ranging from .5 to 2 inches of difference. And within that extremely small range we should expect to see developers uniquely tweak their app experience and UI. In essence they are not simply shrinking or expanding their apps to work on smaller or larger screens, they are in essence creating new app experiences for those screen sizes. Windows 8 touch based hardware will be so fragmented in screen size that we will see touch based Windows 8 hardware ranging from 10” all the way up to 27.” If developers feel the need to optimize their software for a screen that is anywhere from a half-inch and even a 2” difference, what will they do when they have 4, 5, or 6 different screen sizes to target in the Windows 8 touch hardware ecosystem? And more importantly will they feel that their energy and resources will be worth the investment and hard work?

    Microsoft needs developers to be writing touch based applications but my concern with the touch based hardware fragmentation is that it will may cause them to target only specific screen sizes and not others. This would mean that the touch based software experience will be better on some Windows 8 hardware but not others. I can tell you right now that an application that is built for 10” Windows 8 hardware is not going to be a pleasant experience on a 27” all-in-one running Windows 8 with a touch screen.

    Some categories, like games for example, may work fine within this fragmentation. However, it would seem logical that even developers of many of the popular games may want to make tweaks for larger vs. smaller screens that may run their apps.

    The bottom line is that I expect developers who are looking to sell software to the masses to want their software to be the ideal experience on any screen size. To do that they will inevitably need to write software and create user interfaces that are specifically made for certain screen sizes. This is where I feel developers may feel the need to pause and truly evaluate the effort they put into Windows 8 touch based software.

    You can make the point that the screen size fragmentation I mention has existed for decades in the Windows ecosystem. This is true but I fundamentally believe that when it comes to mouse and keyboard software and UI this fragmentation is not an issue. Because of the unique way touch based software UIs are made, I believe fragmentation becomes an issue when it comes to touch computing in a way it never was with mouse and keyboard computing.

    I believe touch computing is the future, and so does Microsoft with the emphasis they are putting on touch. Microsoft’s challenge over the next twelve months is to convince developers who also believe in touch based computing that their platform is the one worth investing in.

    The Terrible Tablet Tsunami Two

    On June 18, 2012, I wrote about the changeover from PCs (desktop and notebooks personal computers) to tablets in an article entitled “The Terrible Tablet Tsunami and the Future of Computing“. Today the trend toward tablets continues — only more so. OnlineClasses.org, has been kind enough to consolidate several tablet bullet points, with sources, into an infographic that can be viewed here. Let’s take a look at a few of their key findings.

    In The Beginning

    In April 2010, the tablet category was reborn with the launch of Apple’s iPad. People who compare the iPad to previous iterations of the tablet are comparing apples to oranges (all puns intended). The iPad had many features that made it successful but its true genius lay in the twin combination of an entirely touch user input combined with an entirely new, built-from-the-ground-up, operating system designed to take advantage of that touch input. As successful as the iPad has already been, we still don’t seem to fully grasp how quickly it has changed the face of computing and how rapidly the pace of that change is accelerating.

    Within 18 months, tablet penetration among U.S. households hit 11%. No other technology – not electricity, telephones, computers, mobile phones, internet or smartphones – has penetrated society so quickly.

    Fastest adopted technology EVER. Step back, take a moment and think about that for a second.

    Tsunami.

    Tablet sales are expected to edge out PC sales by 2016.

    The personal computer was introduced in the mid-seventies – some 35 years ago. The iPad was introduced in April 2010 – some 30 months ago. It will only take the tablet 6 to 7 years in order to match the annual sales of the 35 year old PC.

    Tsunami.

    77% of tablet users report that their desktop and laptop usage decreased after getting a tablet.

    In my article: “The iPad Put A Fork In Personal Computing“, I compared the PC to a knife and the tablet to a fork. I attempted to point out that the fork does not replace the knife – but it does decrease one’s use of, and reliance upon, the knife. The exact same thing is now happening with tablets and computers. The evidence is indisputable – but it’s being disputed anyway. (See “Beneath Contempt”, below).

    1 in 4 owners say their tablet is now their primary computer.

    One. In. Four.

    How many times have we heard – and will we have to hear – naysayers declare that the tablet cannot replace the PC as one’s primary computer? Here’s a clue for the naysayers: Not only CAN the tablet replace the PC for some computer users, it’s happening and it’s happening right now.

    And not only is it happening, it’s happening FAST. In my article: “The PC is the Titanic and the Tablet is the Iceberg.“, I focused on the the fact that the bulk of the tasks that the tablet excels at lies beneath the PC’s areas of expertise and competence. The tablet isn’t becoming the primary computer for many DESPITE its less sophisticated, simpler nature – it’s becoming the primary computer for many BECAUSE of its less complex and simpler nature.

    3 in 4 American enterprises have adopted the tablet in some way.

    The Enterprise is notoriously conservative and slow to adopt new technologies. You can always count on the Enterprise to adopt the newest technology – after they’ve tried everything else. The fact that three-quarters of American enterprises have already moved to adopt the tablet in its first two and a half years of existence is truly astonishing.

    Tsunami.

    Beneath Contempt

    “The next big thing is always beneath contempt.” ~Clayton Christensen

    Many of us are in denial about the rapid ascendency of tablets. Even as the shadow of the onrushing Tidal Wave blots out our sun, we insist that the PC will always be the center of the computing world.

    Analysis isn’t about proving who is right, it is about discovering what is right. It is not our job to have the facts on our side. It is our job to be on side with the facts.

    Most importantly, we need to stop the insults and the contempt for others. We should not assume that others are ignorant just because we don’t understand them. When we don’t understand others, we should assume that is is we who lack understanding.

    The Tablet Tsunami

    The tablet tsunami isn’t coming, it’s here. We can ride the wave…or we can wave goodbye any chance of understanding the future of computing.

    How 7-Inch Tablets Could Help Notebooks Make a Comeback

    If you follow much of what I write you may be familiar with the solutions based thinking approach I frequently mention. The fundamental aspect of a solutions based approach to personal computing understands that multiple screens working seamlessly in conjunction together will equal personal computing. Personal computing does not mean a single personal computer any longer. In the post-PC era it means many personal computers working together in a whole.

    I have used this philosophy when outlining how different screens in conjunction together pair well and equal a computing whole. For example when I wrote about the combination of desktops paired with tablets as a solution. I’ve even wrote about this with regards to 7″ tablets and their role with traditional notebooks–which is the focus of this column.

    There is ample data surfacing from different parts of the industry to support the claim that the iPad has been disrupting traditional PC sales. This is true and it is happening for reasons which I outline here in my column on why I believe tablets are the future.

    Yet there are segments of the market that still need and require a traditional notebook. To be entirely honest I am not sure which camp I am in yet, whether the tablet + desktop is the solution for me or 7″ tablet + notebook is the solution for me. Until I fully experience the latter the jury will be out.

    This brings up a key point and it relates to how product segments mature. Traditional PCs are mature and consumers are so familiar with their needs, wants, and desires with traditional PCs that when they buy them do so extremely intentionally to meet the needs, wants, and desires they have established for themselves.

    Tablets on the other hand are not a mature category yet with regards to the mass market and are therefore still maturing as a product segment. It will most likely take customers at least two generations of owning a tablet to fully establish their needs, wants, and desires for a tablet PC. This is where the 10″ v. 7″ tablet form factor will come into question.

    If you are like me, upon using the iPad I began using my notebook less. Due to its size, convenience, battery life, robust and simple interface, etc., I found and still find the iPad to be extremely efficient in both my work flow and my non-work based personal computing tasks. Like fellow TIME columnist Harry McCracken, I reserve my notebook for specific tasks and use my iPad for everything else.

    However, Harry and I, along with many others who find this solution suitable, may only represent one segment of the market. We are served with this solution but perhaps others will not be. This is where 7″ tablets will make the discussion that much more interesting.

    Upon getting the Nexus 7, I set my iPad aside and committed to using it as my primary tablet. Upon doing so, I found that I pulled my notebook out quite a bit more than when I used my iPad as my primary tablet. This was not a surprise for me since I had already had an assumption that 7″ tablets were not general purpose computing devices like 10″ tablets but instead are better suited for media and entertainment only. I still believe this is the case and will remain the case. If you have experienced the Kindle Fire or Fire HD you will probably feel similar. None of the products I just mentioned took much time away from my notebook like the iPad does. But this did re-enforce a point that I feel is important. Which is that 7″ tablets will help to rejuvenate the notebook market. At least in terms of notebook upgrades.

    Part of the reason tablets have been disrupting PC sales is because for many segments of the market there are more questions than answers around tablets. They are not sure yet how far a tablet can take them in terms of personal computing. Consumers need to experience tablets to fully come to a conclusion as to whether they can replace some or all of their computing needs and what other products they may need as a part of a solution. Some may conclude they still need a traditional PC some may not. But the question around tablets and the fact that we have heard from many notebook intenders that they are delaying the purchase of a notebook because they want a tablet only re-enforces this point.

    Many consumers are in the market for a tablet but are not quite out of the market for notebooks. As the tablet market matures and consumers come to conclusions about a tablet and the role a touch based computer will play in their personal computing ecosystem, it will allow them to make more informed decisions on the solutions they require. For many of those who have put off buying a new notebook perhaps once they realize they want a 7″ tablet but still need a notebook, they will then decide to upgrade. That being said, Notebook refresh cycles will no longer be the same with tablets and smartphones taking over the 2 year average life cycle.

    Although, I expect the next few years to be rough waters for Windows PC makers, I feel it is key that those who desire to continue making notebooks, develop a strategy for 7″ tablets.

    Microsoft’s Surface Tablet for $199 –Think Again

    There were various reports about Microsoft pricing their Surface Tablet for $199 this week and it caused a lot of media and even consumers to hyperventilate about this possibility. Sure, many with wishful thinking would like it if the Surface is priced this low, but the chances that this will happen are slim to none.

    I spoke with my contacts in Taipei and they pointed out that the bill of material cost of the Surface is at least $250 and could be as high as $300 depending on the configuration. For Microsoft to sell this at $199 they would have to take a serious loss on this product, something that in all my years of covering Microsoft, they have never done.

    Indeed, their pricing goes in the opposite direction, especially in software where their mark-up could be as high as 70-80% depending on the product. And while the margins on the XBOX are much lower, the idea that they would sell this game console under cost is ridiculous.

    The only companies that can afford to sell hardware under cost are Amazon and Google. In these cases, the hardware is almost a loss leader so that they can offer products and services through the device. In Amazon’s case, they amortize anything that is bought through the Kindle tablet for a period of time so that in the end, they actually book a small profit. However, the real goal is for consumers to continue to buy eBooks, music, movies and products through this portable tablet that is at people’s fingertips and makes buying these products very easy.

    And Google’s model is similar although we believe they sell their Nexus 7 close to cost and then amortize money made through advertising related searches as well as Google Play to bring in any profit tied to their tablet itself.

    But Microsoft does not really have enough successful services that they can count on to bring sufficient additional revenue to the Surface if they price it at $199 in order to make up the actual BOM cost as well as make any profit on the device itself.

    The pricing of Surface will most likely start at $499 for the 16 gig model and move up from there based on additional memory or accessories. And these prices are more in line with business products like the Surface anyway.

    Now I heard one theory that circulated that Microsoft is so far behind in tablets that they might price it at $199 just to buy into the market for tablets and gain a foothold through aggressive pricing. While that is a possibility, Microsoft’s history does not suggest that they do these types of things just to buy market share.

    While this first version is coming from Microsoft, their hardware partners have been reaming them for doing this and have been lobbying hard to get licenses from Microsoft to do their own versions of Surface as well. We believe Microsoft may consider this at some point but if they priced it at $199 and well under cost, this would set the pricing for future models from partners and none of these partners are in a place to sell any hardware at a loss.

    The most likely scenario that will play out is that the first generation of their Surface tablet will be around $499-$599 and if they have problems moving big numbers, they can always reduce pricing to move them. But if they priced it at $199, it would be impossible for them to up the price at anytime in the future since pricing a product higher then when it came out most often spells the death of that product.

    While Microsoft’s Surface tablet does seem to have potential and serious interest at least from business customers, I highly doubt that Microsoft will enter this market just to lose money. That is why the idea of selling this way below cost does not make a lot of sense.

    The iPad Put A Fork In Personal Computing

     
    When Steve Jobs introduced the iPad in January 2010, he wondered aloud whether there was room between the smartphone and the notebook for a third category of tablet device like the iPad.

    Everybody uses a laptop and a smartphone. And a question has arisen lately: is there room for a third category of device in the middle? Something that’s between a laptop and a smartphone. And of course we’ve pondered this question for years as well. The bar’s pretty high. In order to really create a new category of devices, those devices are going to have to be far better at doing some key tasks. Better than a laptop. Better than a smartphone.

    Hard though it may be to believe, Western Civilization once had to collectively ask itself a similar question regarding a then radical new form of technology…a fork.

    Before the fork was introduced, Westerners were reliant on the spoon and knife as the only eating utensils. Thus, people would largely eat food with their hands, calling for a common spoon when required. Members of the aristocracy would sometimes be accustomed to manners considered more proper and hold two knives at meals and use them both to cut and transfer food to the mouth, using the spoon for soups and broth.-Wikipedia


    A FORK IS A CATEGORY ALL ITS OWN

    A spoon, a fork and a knife are three different categories of cutlery. A smartphone, a tablet and a notebook are three different categories of computer.

    A fork is its own category because it is far better at doing some key tasks. Better than a spoon. Better than a knife.

    A tablet is its own category because it is far better at doing some key tasks. Better than a smartphone. Better than a notebook.


    A FORK DOES NOT REPLACE A KNIFE

    When I eat, I have a choice between using a spoon, a fork and a knife. A fork does not replace a knife. But its presence means that I use a knife less often.

    When I compute, I have a choice between using a smartphone, a tablet and a notebook. A tablet does not replace a notebook. But its presence means that I use a notebook less often.


    A FORK DOES NOT COMPETE WITH A KNIFE

    Sometimes a fork complements a knife. Sometimes a fork is used on its own. But always a fork is used when it is most useful.

    Sometimes a tablet complements a notebook. Sometimes a tablet is used on its own. But always a tablet is used when it is most useful.


    A FORK IS NOT DEFINED BY HOW IT IS LABELED BUT BY WHAT IT DOES BEST

    When I eat, I use the utensil that best serves my needs.

    I do not ask silly questions, like whether a spoon is a liquid consumption device and a fork is a solids consumption device. I do not ask whether a knife does “real” work just because it does not, ordinarily, convey food to my mouth. I do not obsess on the exceptionally rare times when I may use my spoon as a fork, my fork as a knife or my knife as a fork. Instead, I simply use the right tool at the right time.

    When I compute, I use the device that best serves my needs.

    I do not ask silly questions, like whether a tablet is a consumption device. I do not ask whether a phone or a tablet does “real” work. I do not obsess on the exceptionally rare times when I may use my phone as a tablet, my tablet as a notebook or my notebook as a tablet. Instead, I simply use the right tool at the right time.


    A FORK DOES NOT ASPIRE TO BE A KNIFE

    Each utensil should be employed to do what it does best.

    A fork does not aspire to be a knife. A knife does not aspire to be a fork. And most especially, a fork and a knife do not aspire to be one and the same thing.

    Each device should be employed to do what it does best.

    A tablet should not aspire to be a notebook. A notebook should not aspire to be a tablet. And most especially, a tablet and a notebook should not aspire to be one and the same thing.


    A SPORK, A SPIFE, A KNORK AND A SPORF

    A spork is a hybrid form of cutlery taking the form of a spoon-like shallow scoop with three or four fork tines.

    A spife is a tool where the blade of a knife is used as the handle of the spoon.

    A knork is a hybrid form of cutlery which combines the cutting capability of a knife and the spearing capability of a fork into a single utensil.

    A sporf is a single eating utensil combining the properties of a spoon, fork, and knife. One popular brand is the Splayd.


    MANY USES, FEW USERS

    What does a spork, a spife, a knork and a sporf have in common?

    Few have ever heard of them. Even fewer have any use for them.

    What does a Surface Tablet, a Windows 8 Tablet and a Windows 8 desktop have in common with a spork, a spife, a knork and a sporf?

    Everything.

    They compromise on everything and excel at nothing. They provide far more features but far fewer benefits. They do many things but they don’t do any things better or even as well.

    They’re not category defining because they’re not far better at doing any key tasks than are the already existing categories.


    ONE MORE THING

    Who are those most interested in using combination cutlery like the spork, spife, knork and sporf?

    Specialists, with special needs, like campers, backpackers, fast food restaurants, schools, prisons, the military, plus special tasks like cutting kiwi fruit (spife) and special circumstances like those with only one hand (knork).

    Who are those most interested in using combination devices like the Surface running Windows 8?

    Specialists, like reporters, road warriors, gadget freaks, technological gunslingers, plus those with specialized tasks and special needs. In other words, the kinds of people who regularly read and even comment on tech blogs like this one. But not ordinary folk.

    Just as the spork, spife, knork and sporf are extremely useful to the extremely few, so will the Surface and Windows 8 on tablets be extremely useful. But if you dare dream that any of these will go mainstream and earn a regular place at the table…you can stick a fork in it.

    The PC is the Titanic and the Tablet is the Iceberg. Any Questions?

    Most tech pundits are confused about the Tablet computer. They compare the abilities of the PC (traditional notebook and desktop computers) to those of the Tablet and find the Tablet wanting. They can’t understand how the Tablet can be so dog gone popular when it makes for such a terrible PC.

    What they don’t understand is that the tablet isn’t trying to be a PC (unless it’s the Microsoft Surface). Tablet sales are exploding because the Tablet is competing against…nothing. The Tablet is going where the PC is weak and where the PC is absent. There’s virtually nothing standing in the tablet’s way.

    Comparing the PC to the tablet is like comparing the Titanic to the iceberg that sank it. It wasn’t the one-ninth of the iceberg protruding above the waterline that sank the Titanic. It was the eight-ninths of the iceberg that lurked beneath the surface of the waters. Similarly, it isn’t the few overlapping tasks that the PC and the Tablet can both do well that matters most. It is the tasks that the Tablet excels at – and which the PC does poorly or not at all – that will ultimately reduce the PC to niche status and turn the Tablet into the preeminent computing device of our time.

    ABOVE THE WATERLINE
    The PC and the Tablet – like the Titanic and the tip of that fateful iceberg – do compete on rare occasions. Companies like SAP and IBM have ordered tens of thousands of Tablets and some of those Tablets have replaced traditional PCs, especially in those instance where the PC was overkill for the task it was originally assigned to do.

    But let’s be real. The PC is a better PC than the tablet is, or ever will be. The number of Tablets that will directly replace PCs will never amount to great numbers. Accordingly, we should no more fear the Tablet replacing the PC than the lookouts on the Titantic should have feared the the damage that could have been caused by protruding tip of the Iceberg. They knew, and we should know, that that’s not where the real danger lies.

    AT THE WATERLINE
    There are millions upon millions of Tablets that are supplementing, rather than replacing, the PC. These Tablets are being used by Lawyers and Financiers, by CEOs and Presenters, by Presidents and Prime Ministers, by Queens and by Parliaments. The Tablet frees the owner from the constraints of their PCs. They can use the PC when they are at their desks and use the tablet to take their data with them wherever they may go.

    These tablets will not sink the PC because they complement the PC. However, they may well extend the life of the PC, thus slowing the PC’s upgrade – and sales – cycles.

    BELOW THE WATERLINE
    The bulk of the iceberg that destroyed the Titanic lay beneath the surface of the waters, beneath the vision of the lookouts, beneath the ship’s waterline. Similarly, the bulk of the tasks that the Tablet excels at, lies beneath the PC’s level of awareness, beneath the PC’s contemptuous gaze, beneath the PC’s areas of expertise and far, far below it’s area of competence. The PC will not lose in a fair fight, anymore than the Titanic lost in a fair fight. Instead, the Tablet will hit the PC where the PC is weakest – below it’s metaphorical “waterline”.

    • STANDING:

    Tablets excel at working while you are standing. Tasks done by matre d’s, inventory takers, tour guides, concierges, face-to-face service providers and order takers of every kind, benefit from the use of the tablet.

    Can the PC adequately compete with the tablet as a stand-while-you-work device? No, it cannot.

    • ROOM TO ROOM, DOOR TO DOOR AND REMOTE LOCATIONS:

    Tablets excel at working when one has to move and stop and move yet again. Car Dealerships, like Mercedes Benz, are giving tablets to their salespeople. European doctors are rapidly taking to the tablet. Service Technicians at Siemens Energy are using tablets while servicing power installations. Scientists are using tablets during field research. Nurses, Realtors, Journalists, Park Rangers, Medical Technicians…the list of users and uses is nearly endless.

    Can the PC adequately compete with the tablet as a work-and-move, and work-and-move-aagin, device? No, it cannot.

    • SALES:

    If you’re in Sales, you’re into Tablets. Whether you’re traveling or standing or presenting or taking an order and acquiring a signature – Tablets are a salesperson’s best friend.

    Salesforce purchased 1,300 tablets and Boston Scientific purchased 4,500 tablet for their respective sales forces. And just this week, NBA Star, Deron Williams, signed a $98 million dollar contract…on a tablet.

    Can the PC adequately compete with the tablet as a sales computing assistant? No, it cannot.

    • KIOSKS:

    While the PC makes for a terrible Kiosk, the tablet is almost ideally suited to the task. Tablets as Kiosks are making their presence known in places as diverse as malls, taxi cabs, hospitals, the Louisiana Department of Motor Vehicles, and the FastPass lanes at Disney World.

    In the coming years there will be millions of Kiosks converted to Tablets and millions more in new Kiosks created from Tablets.

    Can the PC adequately compete with the Tablet as a Kiosk? No, it cannot.

    • POINT OF SALE:

    Today there are millions upon millions of antiquated PCs being used as some form of cash register or point of sale device. Let me put this as diplomatically as I can – they suck.

    They’re going to be replaced by Tablets, almost overnight. And tens of millions of new Tablets are going to be used as cash registers and point of sale devices in all sorts of new and unexpected places.

    Can the PC adequately compete with the tablet as a Cash Register? No it cannot.

    • PAPER REPLACERS:

    I’ve been hearing about the “paperless office” since the 1970’s. Yet every year, the PC generates ever more, not less, paper. But that was yesterday. Today the Tablet may finally be able to fulfill the promise that the PC so carelessly made – and broke – those many years ago.

    Airlines such as United and Alaska are replacing their in-flight maps with Tablets. The United States Air Force is replacing their manuals with Tablets.

    Construction companies are replacing their on-site blueprints with Tablets.

    Governmental bodies of every shape and size are reducing paperwork through the use of Tablets. City councils and municipalities have jumped on the bandwagon. The Polish Parliament and the Dutch Senate have substituted Tablets for paper printouts of the documents read by their members. The British Parliament just replaced 650 of their computers with Tablets. And the President of the United States and the Queen and Prime Minister of England have all used Tablets in their briefings.

    Twelve NFL teams, including the Denver Broncos, Miami Dolphins and Baltimore Ravens have replaced their paper playbooks with tablets. In Major League Baseball, the Cincinatti Reds have done the same. And at Ohio State, all the athletic programs are replacing their playbooks with tablets. Can there be any doubt that this trend will extend ever outward and ever downward to every professional team, every college team, every high school team and even, eventually, perhaps to amateur sports teams?

    Can the PC adequately compete with the tablet as a paper replacement? No it cannot.

    • LOANERS:

    Tablets are starting to show up as “loaners” that are lent out as entertainment devices. They’re being purchased by libraries. Airplanes run by Singapore Airlines and Qantas use them as in-flight entertainment devices. Airports like New York’s LaGuardia, Minneapolis-St. Paul International and Toronto Pearson International, lend them out to waiting passengers. The Tablet is ideally suited for the task. It is light, it is portable, it is versatile, it displays content beautifully and it is sublimely easy to use.

    Can the PC adequately compete with the tablet as a Loaner? No, it cannot.

    • EDUCATION:

    PCs in schools are mostly relegated to teachers and computer labs. Tablets live in the classroom and they reside in the hands of the students. No one wants to learn HOW to use computers anymore. Students simply want to use computers to help them learn.

    The Tablet is starting to take educational institutions by storm. It acts as an electronic blackboard, as a digital textbook and as an interactive textbook.

    It’s at the K-12 level (the San Diego School district just ordered 26,000) and at the Universities (Adams Center for Teaching and Learning at Abilene Christian University, George Fox University, North Carolina State University in Raleigh). Tablets are even finding their way into the top-tier high schools in China.

    Some schools have even reported a 10% improvement in the exam scores of students who use Tablets in lieu or paper books.

    Can the PC adequately compete with the tablet in education? No, it cannot.

    • NEW USERS:

    The tablet excels at creating new computer users. This might seem a bit controversial, but it shouldn’t be. Just think of anyone who says that they hate computers – they’re a candidate for a Tablet. Just think of anyone who is too young or too old or too infirm or too disabled to use a PC – someone like a 3 year old or a 93 year old or a recovering cancer patient or an autistic child or someone with learning disabilities. They’re all perfect candidates for the Tablet. The tablet will create a whole new class of computer users – people who have never used a computer before.

    Can the PC adequately compete with the tablet as no-fuss, no-muss computing device? No it cannot.

    • NEW USES:

    What makes the Tablet so very exciting is that we haven’t even begun to touch on it’s full potential yet. With desktops, we were desk bound. With notebooks, we were surface bound. The Tablet allows us to do new tasks in new places and in new ways.

    And it’s virtually impossible to say what these tasks will be. We’re limited by our experience and the scope of our imaginations. Tablets are going to be used in ways that we haven’t even begun to think of yet.

    SUMMING UP

    Can the PC compete with the Tablet while standing, while moving, in sales, as Kiosks, as Point of Sale devices, as paper replacers, as loaners, in education, with wholly new users in wholly new uses? No, it cannot.

    It is in these areas – the areas that are below the PC’s level of competence, below the PC’s level of contempt – that the Tablet will establish its empire. And there is simply nothing that the PC can do to stop it.

    Like Captain Edward Smith of the Titanic, the Captains of Dell, HP, Google, Microsoft and many other computing companies, have failed to adequately grasp the true significance of the danger they are facing. They looked at the Tablet and thought: “What the hey, I can avoid that dinky little tablet floating there on top of the waters. It’s no bigger than an ice cube! It’s no threat to me and my business at all!” But what they forgot, is that most of the tablet’s strength lies hidden beneath the optimal level of the PC, i.e., beneath the PC’s “water line”. THAT is where the real danger to the PC lies.

    LESSONS LEARNED AND LESSONS YET TO BE LEARNED

    So, what should all of this be telling us?

    Is the PC really the Titanic?

    Sure, why not. The PC may sink beneath the waves like the Titanic did…but it will leave hundreds of very large “life boats” in it wake. Anywhere that the PC is weak and the Tablet is strong, the PC will cease to exist. And that’s a LOT of places. But the PC will continue to exist – just in a much diminished state.

    It is not so much that the PC market will grow smaller (which it will) that matters. It’s much more a matter of the Tablet market growing larger. Much, much larger. Soon the ships that are the PC will be floating atop a sea of Tablets. And what was once a “Titanic” PC industry, will merely be just one component of a much larger, and much more diversified, personal computing industry.

    Is the Tablet Really an Iceberg?

    Sure, let’s go with that. The important thing to note is that the portion of the Tablet market that everyone is focused on – the portion directly challenging the PC – that portion is, by far, the smallest and the least dangerous portion of the Tablet market.

    Tablets will not so much reduce the number of PCs we use as they will simply outgrow the total number of PCs in use. Tablets are additive. They will replace a few PCs but mostly they will replace millions upon millions of tasks that never before were done with the assistance of computers. While everyone is bemoaning the fact that PC sales are flat or diminishing, the reality is that the actual sales of personal computers are currently exploding. True, the PC market is shrinking. But mostly, the Tablet market is growing, and it is growing so fast that it will soon overtake the PC market.

    Like the iceberg, it is the rest of the Tablet market – the part that has not yet been fully discovered – that will overwhelm the PC. There will be far more Tablets than PCs simply because there are far more tasks that the Tablet can do, and do well, than tasks that the PC can do, and do well.

    This is a novel concept for most. We tend to think of computing only in terms of the tasks that the PC is capable of doing today. We define those tasks that computers are currently doing as the only tasks that could possibly require a computer.

    But the number of tasks being done WITHOUT the assistance of a computer dwarfs those that are currently being done WITH the assistance of a computer. And while the PC has pretty much maxed out the number of tasks that it can do, the limits to the number of tasks that the Tablet can do are undefined – and nearly endless.

    Why I am Convinced Tablets are the Future

    During the course of many conversations I have been having lately with industry insiders there is still a drastic underestimation of the importance of tablets. There are some I talk to who get it but I still feel that largely the sentiment around tablets and the iPad in particular is that it is a toy and not a personal computer. So in this column I am hoping to articulate my view on this subject.

    More Consumption and Light Production Than Heavy Lifting

    I know thinking objectively from other peoples vantage points is a challenge for many people. I am close friends with many of these people. However considering many different views and specifically trying to get inside peoples heads and see things from their perspective is something I greatly enjoy. That probably explains why I love anthropology and ethnographic research. The key point is that just because one consumer can not replace their laptop with a tablet does not mean that another consumer can not. Consumer preferences and usage models are not universal.

    My conviction, which stems from my observational research with consumers, which we conducted at Creative Strategies, is that a large amount of consumers do not do complex things with their computers. I recall some research we did four years ago trying to gauge the importance and perceived demand of increased CPU performance by mass market consumers. In this research consumers shared with us how they use their PCs. What we observed was that the majority of consumers we interviewed used less than five primary applications on a daily basis and none of those applications were CPU intensive.

    To further highlight this observation I want to share a chart containing some research from Alpha Wise and Morgan Stanley. In a large survey with mainstream consumers, their research findings came back very similar to our observational research. Specifically that roughly 75% of the time consumers were not using their PCs to do things we would consider “heavy lifting.” Although I am not sure that term applies to the mass market consumer.

    Now the question I have after looking at that chart is: Which of the above tasks can not be done on an iPad? The answer is none.

    Now if you are like me and you have large numbers of friends, family, social acquaintances, people who come up to me when they see me using my iPad with a keyboard at Starbucks, etc., then you probably give advice on what types of technology to buy. So when I ask them what they use their computers for, the answer almost always comes back the same. Not much they say, I mainly browse the internet, check email, watch videos, and occasionally need to make a spreadsheet or use a word processor.

    Interestingly the overwhelming majority of conversations I have had around this topic, the person asking me the question is already leaning toward an iPad because they recognize it can do most of what they need it to the large majority of the time. So the question generally centers around whether or not they need a new notebook or whether they should just get an iPad and keep using their old notebook.

    The long and short of it is that unless the person asking the question is a power user, creative professional, etc., it is very hard to not recommend them getting an iPad and just keep using the notebook they have for the less than 15% of the time they may possibly need it. You can probably guess what my advice generally is and I know many happy consumers who have taken this path.

    Things We Hold We Love

    Now I want to make one last point. The fascinating thing about tablets besides the points I made above, is that we don’t just touch them when we use them, we hold them. I am convinced there is something psychological about this that makes the tablet more personal than a notebook. With a notebook we touch (the keyboard and mouse / trackpad) but we don’t hold it while using it. The notebook form factor is not conducive to this usage model because it must be sitting on a flat surface, like a desk, table, or lap to be used.

    We also hold tablets much closer to our person while we use them the majority of the time. Whereas with notebooks, we keep them at arms length. This fundamental difference in closeness is another reason I believe there is a deeper psychological attachment and lure to tablets than with notebooks.

    If I was to rank emotional attachment to devices of a personal nature I would say the smartphone comes first, then the tablet, then the notebook. Smartphones and tablets we touch to use and hold to use, while the notebook we just touch, and I use the word touch loosely with the notebook form factor because it is not a touch computer like the smartphone and tablet–and I am not convinced it ever will be.

    The fundamental truth is that there is a distinctly different relationship consumers are beginning to form with tablets that they never developed with notebooks. We continually hear in consumer interviews how much people love their iPads and can not live without it. Had this attachment developed with notebooks they wouldn’t have delegated them to the back room. And think about the millions (and growing) of kids who are developing this relationship with tablets in their formative years. I am confident my kids will have no use for a notebook in the future. Desktop maybe, or perhaps central home server, but notebook– not so much.

    Following my logic, it should not be tough to see why we are so bullish on tablets. There are the above reasons, along with many more than I have time to get into (but will in our upcoming tablet report, shameless plug), which are all transforming and reshaping this industry before our eyes. The challenge is not everyone sees it.

    The Opinion Cast: Is there a 7-Inch Tablet Market?

    In this episode of our opinion cast Steve Wildstrom, John Kirk and myself discuss the potential for a 7″ tablet market.

    We explore Amazon’s strategy, Apple’s potential entry with an iPad mini, and Google’s Nexus 7″. Business model issues were a key part of the conversation as well as whether or not Apple needs to make a 7″ tablet.

    You can also subscribe to our opinion cast in iTunes here.

    PC Growth isn’t Flat, Windows Is

    We are living in fascinating times as the personal computing industry is undergoing its biggest transformation since its inception. Tablet computing is leading the charge and forcing nearly everyone in the industry to relearn what they knew about personal computing and its future.

    There is no doubt that personal computing is evolving and transforming. With my role as an industry analyst, I believe it is important to present information to the industry which reflects what is accurately happening in the market at any given time. It is for this reason that I believe that not including tablets in industry wide PC sales numbers and forecasts is disingenuous and does not accurately reflect market conditions.

    Recent quarter estimates from IDC and Gartner made headlines as they point out that PC growth is remaining relatively flat. There are more theories surrounding this point than I have time to get into but the bottom line is that there is simply no growth happening right now with desktops and clamshell notebooks.

    So what is happening in the market and what can we learn about the current conditions within consumer markets? A series of interesting data points lead to an important observation. That observation is that PCs aren’t flat or in decline, demand for the Windows platform is.

    Horace Dediu at Asymco created a fascinating chart and series of data points where he broke down the Windows platform advantage and how it is eroding. In the following chart he created he points out how in 2004 the Windows platform peaked in its multiple of Windows products shipped per single Mac shipped. After 2004 multiples began to decrease and starting in 2007 with the release of the iPhone, there is a steady and rapid decline of the Windows platform advantage.

    This chart can be summed up with the following significant point Horace makes in his article:

    “If we consider all the devices Apple sells, the whittling becomes even more significant and the multiple drops to below 2. Seen this way, Post-PC devices wiped out of leverage faster than it was originally built. They not only reversed the advantage but cancelled it altogether.”

    Now turning to the flat notebook and desktop growth trend. My conviction is that tablet computers (defined as tablets with screen sizes larger than 9.7 inches) is an evolution of the computing form factor but still a personal computer. This is why I agree with Canalys who includes tablets as PCs in their market data.

    I shared my opinion about tablets and the new era of personal computing in this column.

    If we were to include tablets into the data for personal computers we would see that the market is not in decline but actually a steep incline. In fact if we were to include tablets into personal computer shipment forecasts for 2012 we would see over 100% year over year growth.

    By choosing to not include tablets we will be lucky if we see 20% growth in this calendar year. But as I stated at the beginning of this column, to not include tablets in PC shipments would not be an accurate reflection of what is happening in the market.

    We can debate semantics all day as to whether or not tablets should be considered PCs. All the while our interviews with consumers are consistently proving that they are using their iPads as computers to do many, and in some cases all, of the regular tasks they used to do with their notebooks. Given the ways we see consumers using iPads there is simply no denying that the iPad is a personal computer. Some people will have their personal computing needs met by a tablet, others by notebooks, and others by desktops, or even perhaps some combination of the three.

    The iPad, and tablets in general, simply represent an evolution of the form and function of a personal computer. Therefore we should count them as PCs but breakout their specific shipment growth amidst other computing form factors like we do already with desktops and notebooks.

    Now obviously if we did this we would show that most if not all of the PC growth belongs to Apple. But as I said at the beginning I am interested in accurately presenting what is happening in the industry and most of the growth does in fact belong to Apple.

    So now the question remains as to whether or not Windows 8 will be the great equalizer and inject growth into PCs, both clamshell and tablet, for non Apple vendors. That is a question I will let linger until a later time.

    However, this fact remains and needs to be continually emphasized. If we step back and look at what is happening holistically in the personal computer market, it is clear that we are not in a phase of flat or declining growth, rather we are at the beginning of a rapid and exciting growth phase.

    The Case for 7-inch Tablets

    Last week the rumor mills and tech blogs were bustling last week about the possibility of a 7-inch iPad, potentially called the iPad Mini. Rather than focus this entire column on why it makes sense for Apple to make a smaller version of the iPad, I figured I would point out why I think there is a market for 7″ tablets and how such a product may fit in Apple’s and others portfolio.

    The Evolution of Portable Entertainment

    In my view the 7″ tablet represents the evolution of portable entertainment. In many of the same ways that the iPad itself represents the evolution of portable computing, so would a smaller iPad represent the evolution of portable entertainment. I spoke about this and was quoted on the subject last week with many press, and my overall point was that the right way to think about a smaller iPad is that it represents more the evolution of the iPod than the evolution of the iPad.

    7″ tablets may very well be the ideal size for an ultra-portable entertainment focused tablet. The form factor itself makes it highly portable. It can fit in purses, coat pockets, and many other places easily. The screen size is more enjoyable for entertainment than the most pocketable computer (the smart phone) but still small enough to be more portable than a 9.7-10.1 inch tablet.

    The larger tablets like the iPad are more mobile than notebooks but still capable of being used for productivity. In my view the iPad is a general purpose tablet where a 7″ tablet is more specialized and its value will be centered around entertainment.

    For the iPad customer I don’t see the value of owning an iPad and an iPad mini. The iPad in my opinion is capable of fulfilling the task of personal computing for the vast majority of mass market, non power user consumers. In our talks with this specific group of consumers were are finding that their iPads are slowly replacing their traditional PCs and we expect this trend to continue.

    However, there will still be plenty of consumers who still desire, want, need, a new notebook. This market may very well benefit from a more portable media companion like a 7″ tablet. The notebook plus a 7″ tablet combo will be an ideal solution for a certain segment of the market. And the sufficiency of the iPad as a portable media companion and personal computer will meet the needs of other segments of the market.

    An iPad mini strengthens Apple’s ecosystem plain and simple.

    For Google, and Amazon, a 7″ tablet is not an ecosystem strengthener it is an ecosystem extender. Amazon’s strategy is to drive commerce and they desire their screen to be consumers personal window to spend money in the Amazon commerce engine and consume Amazon services.

    Google’s desire is to extend all of the Google services to a market broader than smart phones. The Nexus 7 is the first solid step in this direction and has all of Google’s services tightly integrated.

    For all the above companies a pure media tablet play makes sense. All the above companies have more ways to make money on these devices than just the hardware. So where does that leave everyone else?

    There was no MP3 Market

    I recall the saying that there was not an MP3 market there was only an iPod market. The same case can be made for the iPad to date. The question in my mind is whether or not this 7-inch tablet market is sustainable for many or just a few. More specifically can anyone but Apple, Google, and Amazon make any money from this form factor?

    I use the MP3 market illustration because I am willing to bet that the fundamentals of the 7″ tablet market will function very similar to the iPod market. Namely because the 7″ form factor represents the evolution of portable entertainment, which the iPod was an evolution of as well. These devices will also likely not see subsidization from a carrier any time soon or heavily discounted from a retailer. They are also highly dependent on a rich media ecosystem of services like music stores, video and TV show stores, digital books and magazines, etc. In many ways these devices represent to consumers a larger version of what they knew and loved about the iPod.

    The devices being positioned primarily as entertainment devices, and their subsequent dependence of rich media services, only strengthens the case that this market favors the few over the many. I am in no way saying others can’t compete only that it will be very difficult and they may need to turn over new stones in order to find partners who own all or parts of a rich media ecosystems.

    Where is Microsoft?

    This discussion about the 7-inch tablet segment begs a fascinating question. Can Microsoft play in it? Microsoft has fundamentally built their next generation operating systems as the purest blend between a full desktop and full tablet software platform. This philosophy is not going to work on a segment that is focused purely on media. Metro may all by itself but not Windows 8. So is the answer Windows Phone? Is Windows Phone the solution Microsoft can offer any potential customers looking at the 7″ segment? Microsoft has Nook assets at their disposal but the Nook platform was built on Android. Do they need to revamp Windows Phone or create something new around Nook assets? Or does Microsoft let Android have the 7″ market as the platform of choice for any company not named Apple?

    Microsoft is on the eve of simply trying to gain a foothold in tablet computing at large, while on that same eve a new category is dawning that I don’t believe the are even remotely prepared for. Microsoft’s reaction to the 7″ tablet market will be one of the more interesting story lines to watch.

    All in all the tablet category is still the fastest growing segment in personal computing. Even though 7″ tablets will be focused on entertainment and media they will continue to ignite this new growth phase of personal computing. I think we can again confidently predict that tablets will be hot again this holiday.