PC

Gartner explicitly explained so in its press release: "Gartner's PC group does not track media tablet sales in this PC shipment data, so iPad sales are not included in these results

via Is Apple the real U.S. PC market share leader -- or soon will be? | Betanews.

The reluctance of  industry analysts to measure the iPad as a computer is a fascinating and vivid symptom of how analysts conspire with their customers to smother visibility of impending failure.

Before we dive into the motivation to ignore iPads, we need to understand how analysts in general and companies in particular group products into comparable piles. This process of grouping is called categorization. It should be distinguished from segmentation which groups buyers in a market. Categorization is essential for competitive analysis and measurement of the performance of a product (relative to other products).

Categorization is a challenging problem for most companies. To illustrate why, consider four possible methods for categorizing products:

1. By product attributes. The assumption here is that products with similar attributes compete in the same market. As an example hard disk drives might be categorized by dimensions of the cases and sub-categorized by capacity and perhaps transfer speeds.
2. By user attributes. This method is similar to segmentation where products are grouped by the type of buyer. Magazine titles might be properly categorized by the age and gender of the readers. This can also cover geographic data.
3. By user behavior. This method, sometimes called psychographics is a more advanced method than demographics where user personality, values, attitudes, interests or lifestyles are measured. You might have seen examples where users are defined with a "prototype" person and the products are attached to this prototype. This is a common way to categorize mobile phones (Nokia is a known leader in this method).
4. By modes of consumption. Determine what products are hired to do the same job. In this case you have to have real insight into what people actually do with their products and try to look broadly at what they substitute. The classic example of this is to understand that a power drill competes with products what make holes in walls not just with other drills.

When reading this list, it's easy to see that it's ranked in order of difficulty. The easiest thing to do is group according to things you can measure easily. Products are easier to measure than demographics which are easer to measure than psychographics and that's easier to capture than observed behavior.

Consider how you would structure a study to capture this data.

1. In the first case, you need an analyst to collect products (or just their descriptions) and record values in a spreadsheet.
2. In the second case, users need to be surveyed for basic data. This is hard because you have to find users and then you have to get a statistically significant unbiased sample.
3. In the psychographic study you need to ask a lot more questions about lifestyle in your survey and hope that the subject answers honestly. You still need a large sample.
4. In the case of consumption analysis you need to observe a subject use a product for a prolonged period of time in the usual context where the product is used and be able to interject questions when certain behavior is encountered. The observation of one person can take one research person-day per subject. To get statistically significant data requires literally man-years of work.

Now it should be clear why an analyst will only categorize according to product attributes. It's not only economically and temporally expensive to perform research on methods 2 to 4 but it also requires interpretation and insight into study development.

A few companies go beyond buying analyst market data and do their own research. As far as I know user studies are more commonly done by consumer products companies. But it's extremely rare to see this research done by low-margin technology companies. They don't have the budgets or skill sets to do any research.

However, in my experience, nobody performs the fourth, most difficult, form of categorization.

The result is that good, smart managers trained to always base their decisions on hard facts, pick up these lowest-deonominator analyst reports to help decide which products to develop. And it should be obvious why they are surprised when products that did not show up on any market study suddenly take all their profits away.

Thanks Gartner.

The research and development budget used to be 9 percent of revenue, Mr. House told me; now it was closer to 2 percent. “In the personal computer group, it is seven-tenths of 1 percent,” he added. “That’s why H.P. had no response to the iPad.”

via Talking Business - The Real Reason for Ousting H.P.’s Chief - NYTimes.com.

HP, by sales, the largest technology company in the world, can't be bothered to spend money on R&D for its PC division. This is a surprise?  Since when does any PC company spend any money on R&D? Put another way, even if they did spend the money, what would they be researching and developing? PCs are commodity products where any improvements would neither be valued nor used.  On the measures of performance that everyone has for the PC, the product has been more than good enough for a decade.

They did not have a response to the iPad because they did not think anybody needed an iPad.  And that is mostly because Microsoft did not think anybody needed an iPad.

None of this has anything to do with Mr. Hurd. His peer group all agree on these fundamentals.

"That market is falling off a cliff," said Ashok Kumar, an analyst with Rodman & Remshaw, of the netbook sector. "It cannibalized notebooks and simultaneously all it has done is accelerate a price decline."

Saripella agreed. Sales of netbooks, he said, the brightest light of the PC market during the recession of 2009, tumbled 30% in the second quarter. "The market for netbooks is cratering."

The PC industry is at the beginning of the end.

8:50 am: Walt circles back, notes that Ballmer uses the term PC to include things that most people don’t think of as PCs. Is the iPad a PC?

Ballmer: Of course it is. What do you do on it? Answer email….A guy tried to take notes on it at a meeting I was at yesterday–that was interesting [chuckles from the audience]. He suggests that the positioning of devices like the iPad as something beyond the PC is just a marketing tactic.

via Steve Ballmer and Ray Ozzie at D8 Conference: on Competitors, Tablets, Future of Computing and much more | Microsoft | ithinkdifferent.

If only the analysts would add the 2+ million iPads shipped this quarter to Apple's Mac units and declare that Apple's market share doubled(*).  If only things were so simple.

At least on this I agree with Ballmer.

(*) The iPad is already outselling the Mac on a weekly run-rate.

Giving Android the green light:

In addition, for the time being, Microsoft will not offer new Windows versions to support non-Intel architectures that are targeting tablet PC development, noted Guggenheimer.

The formation of a market segment for a new product category necessitates the existence of a supporting ecosystem made up of a complete industry supply chain, Guggenheimer emphasized. He cited the netbook market as an example; units were selling well initially and people believed that the market was going to be established as a new segment, but recently market growth has slowed down considerably, Guggenheimer pointed out.

via Whether tablet PCs can become market segment is still uncertain, says Microsoft VP.

I remember when Microsoft used to be paranoid.

As Apple overtook Microsoft in market cap and as Steve Jobs reminisced about some recent history, I thought I'd reflect on some of the decisions that brought Apple to the pinnacle of technology companies.  The criteria I used to select these is how improbable and hence courageous they were when taken and how much impact they have had on the industry. Since the impact of these decisions could not be felt for a long time, the courage required to act early is all the more remarkable.

At the time they were made, none of these decisions did anything to move the stock price or cause great rejoicing. In fact, in many cases the decisions were ridiculed by those who should know better. Yet each one became a massive pillar of the foundation of Apple as it is today.  As you read through, think of the decisions that Apple competitors made or did not make in the same time frame.

Top 10 Apple technology decisions of the 2000 decade in reverse order:

• 10. HTML 5 (canvas). It was initially introduced by Apple for use inside their own Mac OS X WebKit component, powering applications like Dashboard widgets and the Safari browser. Still in its infancy, the canvas element is an Apple technology that promises to finally offer a credible Flash equivalent.  Remember that Flash is now over 10 years old and was incubated at a time when the Web was barely 1.0.  HTML canvas finally brings vector graphics to the modern era.

• 9. H.264. The decision to support a standard video codec at a time when the industry was mostly arguing over whether Blu-ray or HD-DVD would win signaled a foresight that physical media was not long for this world.  The consequences are still being weighed as YouTube and other media sources are shifting their inventory to this format.

• 8. iTunes. iTunes started as a personal music database, grew into a music and media store-front, a payment processing engine, device synchronization and updating center, and finally an application store.  It was forked into both a PC and a mobile version.  Without iTunes the iPod would have been just another MP3 player.

• 7. WiFi. Implemented in Airport before the spec was finished, WiFi gave the laptop wings.  Think back to when you still had to plug a wire into a computer to have it communicate. PC's did not catch up in being wireless for years.  WiFi was even a rare feature on mobile phones when the iPhone shipped in 2007 with some operators (Verizon) banning it from their phones even in 2009.

• 6. FireWire. Along with iTunes brought iPod to life.  Launched at a time when external drives required screwdrivers and a circuit board to install, FireWire made opening your computer case to expand it as common as opening the hood of your car to fix it.

• 5. iLife. Did to user-generated media what word processors did to words and spreadsheets did to numbers. A singularly great reason to get a Mac.

• 4. Portability. OSX migrated across three different CPU architectures in less than 10 years. Apple revealed that they built it from day one to be portable to different CPUs.  That took amazing foresight in the late 90s.

• 3. WebKit. Speed and flexibility.  The biggest reason why we can surf on a phone today.

• 2. Multi-Touch UI. Seven years in development and still sublime.  Starting down this road in 2003 must have seemed science fiction.  But, unlike other companies, Apple took this science experiment and went to market.  Steve Jobs said how he wanted a screen keyboard and how scrolling opened his eyes to making a phone. That took vision.

• 1. OSX/Cocoa. The company's backbone.  Everything above hangs off OSX. Remarkably scaleable, portable, robust and reliable.  With roots going back decades, it's the canonical OS. Somebody should build a monument to it.

Best Steve Jobs quote from D8

7:06 p.m. PDT: Is tablet eventually going to replace laptop, Walt asks.

7:07 p.m. PDT: Jobs: "When we were an agrarian nation, all cars were trucks because that's what you needed on the farms." Cars became more popular as cities rose, and things like power steering and automatic transmission became popular.

7:07 p.m. PDT: "PCs are going to be like trucks"

7:07 p.m. PDT: "They are still going to be around...they are going to be one out of x people."

via: CNET

iPad is a product competing along a new basis; that of convenience and simplicity.  The PC vendors are motivated to serve their most demanding customers who expect loads of features and the highest specs. Most people who write about technology for a living will also side with the "truck drivers" because they "know more about transportation than anyone else".

When you hear someone say that the iPad is just a toy or that it's only for consumption and not creation, think about that professional truck driver's bitterness at seeing cheap consumer vehicles cluttering up the roads, doing nothing but serving the unproductive whims of an uneducated population.

Continuing from Will Apple rule the iPad market? | Asymco.

The first claim is that

it is unclear if [Apple] will end up dominating the market the way it has come to rule the digital music player market with the iPod.

After hearing a thousand voices cry out that the iPad is nothing more than a bigger iPod touch (which, plainly, it is) it's amusing to read that its similarity with a sibling ends when it comes to market performance.

Let me make one claim up-front: the iPad is more of an iPod than the iPod.

The original iPod was successful because it had a significant integrated value chain bolted on. Apple disrupted music with a value chain, not a product. It changed the way music is bought, consumed and even how it is produced. It changed the economics from retail down to songwriting.

This is why it came to dominate its market. Every competitor that took a run at it did so with a partial solution to the value chain. Often it was nothing more than a music player, and in some cases (e.g. Zune) it was bundled with some other pieces of technology, but poorly executed and too late.

The iPad comes with an even bigger value chain bolted on: the App Store. Apple is flogging not just an "app player" but also a new way to develop and distribute software. If you cut "music" and paste "apps" you see the immediate parallel between iPod and iPad. The app ecosystem will quickly grow to be larger than the music ecosystem with the mobile software business already eclipsing the music business.

A competitor launching a tablet device will have to somehow overcome the momentum of billions of downloads fed by hundreds of thousands of apps built by tens of thousands of developers for hundreds of millions of users.

The iPod juggernaut pales in comparison to the iPad supernova. The iPod had no apps or dedicated developers. Its ecosystem consisted of a handful of music companies. The only thing that made it "sticky" was the tie-in with one type of content.

The iPad on the other hand has a thousand other jobs to do for its users. It has a rich tapestry of functionality and a multi-dimensional (literally) user experience.  It's a platform. It's even powerful enough to impose new standards on the web itself and to suggest that search is a bygone activity.

So to suggest that Asus or Dell will somehow build "iPad killers" sounds asinine. These competitors don't even grasp what the product is and what it's for.  Sony said they don't see a market for it. Microsoft, trapped in the innovator's dilemma and overshooting the market by miles, said they don't understand what the point is because users want full PCs.  Google asked what's the value of a big iPod. I could go on, but there was not a single company in the industry who recognized what they were looking at in January. Apple keeps a tight lid on new products so that competitors don't get a head-start on copying, but in the case of the iPad, advance knowledge would not have had any impact. Competitors look at the iPad and see nothing.  They'll only react once the market explodes and they start to feel belated pain.

If, and it's a big if, they do recognize what an iPad is, their response cycle is going to be measured in years. On hardware, they were blown away with a product that had twice the power, half the bulk, twice the battery life with half the price of what they had on the shelf. They may catch up on hardware in a year or two and launch some sort of iPad-like assembly of components, but that is like making the first iPod killer in 2002.

Then there is software. Their software supplier (Microsoft of Google) will have to build a platform that works. That will take years. Years during which the iPad will penetrate every geography, demographic and vertical market.

Google might move more rapidly than Microsoft, but they will produce an open source poster child of a platform. Fragmented and rough around the edges to the point of looking like a hobby project. Their flea market store will also have the smell of fresh glue about it. Microsoft is so far behind the curve that I don't even think they will try to move the tiller.  Their view of the market was betrayed by the recently knifed Courier demoware. To suggest a challenge to the PC/Windows model inside Microsoft is a career-limiting move so don't expect their brightest to be lining up to propose new platforms to management.

What about HP? Assuming they overcome the pitfall of NIH that kills 80% of integration efforts, they will still need to perform an enormous amount of heavy lifting to get WebOS to be a competitive experience on a tablet. Most opinions were that Palm came pretty close with a smartphone, but that was nowhere near enough to stay alive, never mind challenge iPhone.

Then there is the ecosystem. Building it is just not something I can even begin to roadmap. What about developer tools, SDKs, frameworks and evangelism? With a Palm division, HP is the best positioned of the PC vendors but it has a chance at being a player as much as Creative did vs. the iPod, or needless to say, Palm vs. the iPhone.

So the iPad challengers face five daunting obstacles:

1. Recognition of a threat from a seemingly benign product
2. Execution on hardware against the best integrator on the planet
3. Execution on software against a new UI metaphor fortress surrounded by a patent moat
4. Integration of hardware and software to a sublime whole
5. Re-building a value chain for which they have no handle vs. a broad and deep existing universe of app/content creation distribution and consumption enjoying logarithmic network effect value.

That does not even touch the logistics, sourcing, margin and pricing challenges of world-wide distribution of the whole value chain. Nor does it cover the lock-in of advertisers to new tools for creatives or the billions of daily views from a platform that is blindingly dazzling.

To put it in the language of disruption, by the time the competitors launch symmetric attacks on the iPad, Apple will be the incumbent. And we all know that symmetric attacks never work against entrenched incumbents who have all the levers of power at hand to deploy in a withering counter-attack.

The results all but confirmed a sudden slowdown in netbook sales in the early part of the year and suggested the business may actually be on the decline. Intel didn't directly explain the shift, but an ongoing recovery from the recession and a more mature market are likely to give more buying power and greater interest in faster notebooks, especially following the addition of mobile Core i3, i5 and i7 chips.

The trend away from netbooks is likely to continue as Intel raised its profit margin estimates for the whole year from a range of 58 to 64 percent earlier to between 62 and 66 cents.

Source: Electronista

A tip of the hat to John Gruber for compiling this list:

Daring Fireball: Apple Netbook Claim Chowder.

14 October 2008, Doug Aamoth at CrunchGear: “Five Reasons Why an Apple Netbook Is a No-Brainer”:

When asked today about the possibility of an Apple netbook, Steve Jobs said something to the effect of, “The market is just getting started — we’ll see how it goes.”

Huh? Here’s how the netbook market’s going, Steve: pretty much every major computer company has a netbook but you. Apple’s a prime candidate for a netbook, too.

20 January 2009, Brian Caulfield at Forbes: “Apple’s Real Problem: Netbooks:"

The real problem is how Apple’s portfolio of expensive gear — particularly notebooks — will fare as the recession starts to bite.

21 January 2009, Brian X. Chen at Wired Gadget Lab: “Apple Still Oblivious to Netbook Opportunity”.

18 March 2009, Shane O’Neill at PC World: “Recession Breathes Life Into Windows PCs as Apple Gasps for Air”:

At this point, I’m going to stop asking when Apple will acknowledge these dark days we live in because I think the answer is never. Maybe Apple should just be a bull market company. When times are lean, it should pack up like a traveling carnival or disappear like a baseball team in winter and not come back until everybody’s rich and happy again.

24 March 2009, Scott Moritz at TheStreet.com: “Apple’s Netbook Foray Will Flop”

Nonetheless, design hubris and slumping sales will cause Apple to tap a hot segment of computer market.

19 August 2009, Charles Moore at The Apple Blog: “Lack of Netbook, Price Hurting Apple in This Year’s Back-to-School Market”.

iPad Death Watch : AAPLinvestors

You can't go wrong betting against this bunch.

(link above reproduced below due to bandwidth issues with their servers.)

“Any tablet computer, including Apple’s eagerly anticipated iPad, will face serious problems in generating big sales. Tablets look cool, but the reality is they don’t do anything new.” Michael Comeau, Minyanville, 5 March 2010

Dvorak:”I’m telling you, look at this product coming out of India called the Adam.” Curry: “A-D-A-M?” Dvorak: “Yeah.” Curry: “And it’s a what it’s a pad?” Dvorak: “It’s an iPad Killer. And I hate to use that term since the iPad is probably dead anyway.” No Agenda Podcast, Adam Curry & John C. Dvorak, 25 February 2010

“Fewer capabilities (than a netbook) but a similar size? Not a good start.”Lee Gomes, Forbes Asia Magazine, 5 March 2010

“We of course build plastic mock-ups that we show (to customers)…we had a slate form factor. The feedback was that for (our) customers it will not work because of the need to have (a physical) keyboard. These were 14-year-old kids, who, I thought, would be most willing to try a virtual keyboard but they said no, we want the physical keyboard.” Mika Majapuro, Worldwide Sr. Product Marketing Manager, Lenovo, 22 February 2010

“The Apple iPad is not going to be the company’s next runaway best seller.” John Dvorak, MarketWatch, 12 February 2010

“It’s a nice reader, but there’s nothing on the iPad I look at and say, ‘Oh, I wish Microsoft had done it.’” Bill Gates, Microsoft, 10 February 2010

“The rally has been especially kind to seemingly racy stocks such as Apple and Google. Both have pole-vaulted to market-surpassing gains over the past 12 months, despite the fact that the former’s hamster-wheel of innovation (to borrow an apt phrase from my Fool colleague Joe Magyer) may have hit a snag with the iPad. ” Shannon Zimmerman, The Motley Fool, 10 February 2010

“It’s not a tablet, it’s an extension of the iPod Touch. It has some new kinks, but generally speaking it’s using the iPhone OS. It’s more like a smart phone than a personal computer. It’s the Newton reborn. What’s missing most is the communications aspect.” Andreas Haas (former Apple executive), CEO, Axiotron (Modbook), 7 February 2010

Before Jan 20th, 49 percent of people said they didn’t think they needed an Apple Tablet. That number jumped to 61 percent after the announcement. Fifty-nine percent of buyers wouldn’t pay extra for 3G coverage. Whether this device becomes a big hit is anyone’s guess but based on this study it sure looks doubtful.” Retrevo, 5 February 2010

“Yet it’s hard to see how the iPad, in the form unveiled last month, will come close to transforming daily life as much as the iPod or iPhone. The challenge with the iPad will be less about improving an established market than building a new one.” Arik Hesseldahl, BusinessWeek, 5 February 2010

“I added it up and … like 800 people are going to buy the iPad. . . . It’s not that the iPad is a failure. It’s just a product ahead of its time. No one should actually buy this iPad — between its inevitable first-generation bugs, fulfillment problems, and buyer’s remorse over added features and price drops, it’s heartbreak waiting to happen.” Molly Wood, CNet, 31 January 2010

“It was a bigger iPod Touch. I question whether those features would be enough to get people to buy new machines.” Satoru Iwata, President, Nintendo, 29 January 2010

“The company once notorious for its ability to upend convention and revolutionize markets may no longer have what it takes, worry some technology journalists. Call it the iPad or the iPlod, but the message seems clear: Apple may have lost its mojo.” Jeremy A. Kaplan, FOXNews.com, 28 January 2010

“What’s the single most worrisome thing about the iPad? It’s Apple’s monopoly on distribution of applications. ” Harry McCracken, Tecnologizer.com, 29 January 2010

“The tablet market has only succeeded as a niche market over the years and it was hoped Apple would dream up some new paradigm to change all that. From what I’ve seen and heard, this won’t be it.” John Dvorak, MarketWatch, 29 January 2010

“It is a humorous world in how Microsoft is much more open than Apple,” Frank Shaw, Microsoft, Corporate VP, Corporate Communications, 29 January 2010

“When Steve Jobs first demonstrated the Apple Mac, he used the words “insanely great” to demonstrate the full graphical display of the computer. It’s a tag that has stuck around to this day among Apple fans. But, today’s comments from Jobs that the iPad is a “magical, revolutionary” device ring hollow.”Dan Wayne, apc mag, 28 January 2010

“All the people (including me) who felt underwhelmed by the iPad initially might have missed its true potential. Put another way: the iPad is all about software. Forget the sleek form factor – that’s just a prerequisite. Ironically, it’s the software and services that Microsoft never ‘got’, that Apple totally does get.” Dan Wayne, apc mag, 12 February 2010

“Nothing from the iPad specs that I’ve seen really shows any great cause for celebration. Unless Apple has also developed some new type of power source, such as nuclear cells or magical hamsters on tiny spinning wheels for the iPad, don’t expect the claims about battery life to hold true. ” John Breeden II, Government Computer News, 28 January 2010

“Ultimately, the iPad is a large iPod touch: a great device to draw your inspiration from, but perhaps not the seismic shift in technology that we were expecting.” Claudine Beaumont, The Telegraph, 28 January 2010

“Behold: The Apple iFlop Neither “truly magical” nor “revolutionary,” the cluelessly named Apple iPad tablet device has dropped like a shiny wedge into the gadget game, dividing tech watchers in to opposing views — the critical and the adoring.” Scott Moritz, TheStreet.com, 28 January 2010

“9 Worst Things About The Apple Tablet: 1. No Flash 2. Its screen 3. Its price 4. Closed App Store 5. Its name 6. No multitasking 7. No camera 8. No USB 9. AT&T deal Bianca Bosker, Huffington Post, 29 January 2010

“What do the new Apple iPad and Google’s Nexus One have in common? Both were DOA: Disappointing On Arrival. Why is the iPad a disappointment? Because it doesn’t allow us to do anything we couldn’t do before. Sure, it is a neat form factor, but it comes with significant trade-offs, too. No 16:9 widescreen, for example.” David Coursey, PC World, 28 January 2010

“E-readers will outsell iPads because of the simple economics of the consumer device market. It’s triple the weight and 30% thicker than an e-reader. You need two hands to hold it. It’s got a backlit screen, and it’s too expensive to give one to everyone in your house.” Russ Wilcox, CEO E-Ink (makers of Amazon’s Kindle), 28 January 2010

“It seems like a high priced, unnecessary trinket to me.” Paul Thurrott, SuperSite for Windows, 27 January 2010

“Apple iPad - failure, joke or fiasco? Pick one” Linen DeFiller, MillionFace.com, 27 January 2010

“The press weren’t cheering and whooping. I didn’t see anybody pee their pants … Not one! The only people I saw cheering were the people who work at Apple down in the front two rows … Al Gore was going crazy. I wanted to see more. It’s a big iPod. What is there to do there? Play a video game on a bigger screen? I thought it [iPad] was ‘paving the cow path’ (enshrining a makeshift solution).” Dan Lyons aka Fake Steve Jobs, 27 January 2010

“Let’s face it, the Internet was designed for the PC. The Internet is not designed for the iPhone. That’s why they’ve got 75,000 applications — they’re all trying to make the Internet look decent on the iPhone.” Steve Ballmer, Microsoft, 21 October 2009

Apple’s profit of $3.38 billion for CQ4 was slightly more than 10 times bigger than Dell’s $334 million on nearly equal Revenues of 15.7 billion and 14.9 billion.

In other words, Apple kept about 20% of its income while Dell kept 2%. Also worth noting is that Dell’s gross margin onconsumer PCs was 0.2% while Apple’s Mac margin (mostly sold to consumers) was around 28%. So on consumer PCs Apple’s margin was 140 times higher.

It should not be a surprise then that Apple is worth 6.5 times Dell.

To recover some of its margins Dell is rumored to be readying its iPad competitor.

I can’t wait.