tablet

Steve Ballmer stated and Andy Lees confirmed that Microsoft views iPad and other tablets as "just PCs". From a market measurement point of view Canalys agrees. IDC and Gartner don't, calling the new devices "media tablets."

Before deciding whether tablets belong with PCs in market metrics, it would be interesting to look at what the data shows. When seen as a combined market, the focus should be on platforms. The following chart shows the four main PC+tablet platform volumes since late 2008 [1].

The second chart shows the same data as share of total market:

This comparison allows for some fresh observations:

1. Excluding iPads, Apple is very close to being 5th largest global PC vendor. Global share likely to be above 5%. Including iPads, Apple would be 2nd.
2. Platform year-on-year growth was Windows: +1.3%, OS X: +26%, iOS: +170%. Android growth cannot yet be measured since Android tablets have not been on the market for more than 1 year.
3. In Q2 2011 one million more Windows PCs were sold than in Q2 2010. In same time, 903k more OS X PCs and 5.5 million more iPads.
4. Excluding tablets, nearly 50% of the global PC growth was due to the Mac. Including iPad, Apple was responsible for ~70% of the growth in the PC market in Q2.

The picture that emerges is that while Windows continues to be dominant with 84% of units sold in the last quarter, the growth belongs to tablets which captured about 90% of it. If Windows remains marginal on tablets, the "PC market" will likely tip away from Microsoft in two years (depending on how quickly Apple can build iPads.)

Microsoft is making the commitment to move Windows to a tablet form factor but they are doing it while retaining the user interaction model of a desktop. This may or may not work but they are also conceding that a separate experience is also necessary. By rejecting the notion that a mobile OS alone can do the job, they are essentially building a "hybrid" tablet/laptop/desktop product which may be challenging to use but preserve their presence in the form factor.

Whether Microsoft succeeds or not will depend on whether the new form factor is disruptive in more than user experience. In other words whether this is just a "new PC" or a "post-PC". The argument comes down to business model changes. For example the new model comes with different cycle time of product development (deep, integrated, yearly changes), different ecosystem (apps), different cost structures (high R&D in hardware), vast scale (device economics, components, ramps), and potentially new distribution (operators in the channel mix.)

Summed up, the real challenge for Microsoft is whether they can keep their business model (selling OS licenses to hardware vendors) as PCs become more device-like. Not only is iOS setting the benchmark for performance but Android is potentially ready to take share if the market turns slightly more modular. Microsoft's differentiation looks to be primarily its legacy of PC software.

It may also seem that much remains to be discovered in this market but I think the main bets have already been made. The PC market as we know it is in the end game.

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Notes:

1. I used Gartner data for overall world-wide PC market and merged it with Mac and iPad data from Apple. Android data is estimated.

Andrian Georgiev, a reporter from the Bulgarian business newspaper "Capital weekly" wrote an article for which he asked me some questions. My answers are below. The article is available here (Bulgarian).
Q: How many tablets will be sold worldwide this year and in 2012?
A: We can only guess the answer. The total will be constrained by parts shortages for 2011, but my estimate [through the end of 2012] is over 100 million. Perhaps even 120 million is possible.

Q: Do you think Amazon is working on a tablet? Could it be a game-changer?
A: If Amazon (or Facebook or Baidu) were to build a tablet the greatest innovation will be in their business models. In other words how they make money. I suspect Amazon's hardware will be free or nearly free but users will be incentivized to buy content or other goods from Amazon. Similarly for other businesses that will take a hardware product and make it an accessory to their core business. In that regard the "game will change" because hardware will conform to "the application" above it. In other words, that the device will be an accessory to the service, not the other way around.

Q: Why is it so hard for manufacturers to create a tablet that rivals iPad?
A: The iPad is a collection of components. Some are easy to duplicate or to source. This includes memory, microprocessors, communications components. Other components are harder to find and may be expensive once found. This includes the right kind of batteries and the screen. Yet other components are impossible to find or duplicate. That includes software.

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Some additional thoughts:

The changing of the game may not happen for some time. "Feature tablets" (analogous to feature phones) will however be viable as niche businesses quite soon. I believe "conforming" operating systems will be more popular with tablet makers than with phone makers.

The following interview was conducted by Bruno Ferrari a writer about technology for EPOCA, the weekly magazine of Organizações GLOBO, the largest Brazilian media company on March 30 2011. The article (published in Portuguese here) is an edited subset of the following exchange.

Q: In your analyses, you mention tablets as part of a new era, the “Post PC era”. Why do you think the PCs will be replaced by tablets?

This is not quite correct. Post PC does not mean the end of the microcomputer. The way to think about it is this: The stone age did not end because we stopped using stones. Same with the iron age and the industrial era. The era of jet travel did not end automobile or even ship travel (though that changed to recreation rather than transportation for passengers.) Each phase of technology does not fully replace its predecessor. It offers a new set of solutions and perhaps a slightly different way of solving old problems. We'll still have PCs but we will use a new type of computer, an even more personal computer. The world still uses the microcomputer's technological ancestors.

In terms of what new jobs will we hire the tablets to solve, they will vary greatly from what we used PCs for. Just like we used microcomputers for different things than we used time-shared minicomputers and mainframe computers. I expect social interaction, media consumption and entertainment will move from a PC to a tablet. New uses will emerge from the vast experiment that is the app phenomenon.

Q: What are the new ways to interact with machines? With gestures? How will this change the market?

Each major disruption of computing came from a new generation of input and/or output methods. Terminals (vs. punch cards) enabled minicomputers. The GUI enabled the rise of the microcomputer and touch is enabling the rise of the tablet. Perhaps this era will last decades perhaps only years, but there will be new input and output methods available. The world's research laboratories are filled with ideas from projection screens (from high brightness LEDs) to motion sensing (as implemented partly by Kinect) and even novel voice control methods. I believe that each major innovation will create a new wave of growth and, if coupled with a new business model, a new set of companies and platforms.

Q: What are the main differences between PC and Post PC era?

The main difference will be in the context in which the product will be used. Tablets and smartphones allow "computing" to be done in previously non-consuming contexts: while standing, while in the active company of others, while commuting or while lying back and relaxing. It will also allow more individual use. Like the transistor radio allowed teenagers to listen to rock-and-roll out of hearing range of their parents who had control over the family stereo, a truly personal computer will allow people to "escape" into a world of more intimate consumption and communication.

Q: Do you think physical keyboards and mouse will be extinct?

Even physical keyboards have been evolving dramatically. If you look back to the earliest IBM PC keyboards, they were mechanically complex and had a rich feel. Modern laptop keyboards are flimsy things with barely any feedback. Early PC keyboards were patterned after the needs of professional typists (aka secretaries). Current keyboards are designed around space constraints. Same with mice. They went from two to three to one to no buttons. With laptops we ended up with track balls,  little knobs in the middle of the keyboard or with trackpads. Users adjusted over time.

What changed with tablets is the removal of an on-screen pointer. The pointer was there because the mouse/touchpad was one layer of abstraction for controlling what was on screen. Without a pointer you have direct manipulation. I'm sure many people who never used a mouse would find the direct method more intuitive and in a generation people will wonder how we put up with mice. Conversely, those who are used to a mouse will find it uncomfortable at first. Remember that in the 80s many keyboard experts found mice something that slowed them down.

So I believe that people will adjust to a world without mouse pointers. I suspect children born today will grow up without ever using a mouse (or a phone with a wire permanently attached to the bottom).

Q:  Apple has more than 90% of tablet market worldwide. Do you think Apple will be the leader of technology market in the next few years?

The challenge for Apple is that they cannot serve the whole world. They can only grow so fast. On one hand we have their inability to meet demand and on the other we have alternative products which can. Market leadership may not be sustainable just because the market is so big and no single company can supply it. I do believe that Apple is not sitting on its hands however. Their culture promotes pushing forward.

Q: At smartphone market, do you believe on a risk of a new duopoly, Apple-Google? Some analysis says that they’ll control the channel sales of software, content and hardware. The conclusion is companies like RIM, Nokia and HP (Palm) will not be able to keep up.

Analysts differ in their opinions. IDC just released a forecast that shows Microsoft growing beyond iOS in four years. I don't try to make this type of prediction. At least not to a high degree of precision. I do believe that there will be more than two platforms. This is because the market is so large and so diverse and there are so many ways to reach customers (through operators, through retail stores, through online).

Q: Can we compare the beginning of the tablets with PCs? Apple developed the interface and made ​​the first computers nice and easy to use. But Windows has allowed hardware manufacturers to invade the market, popularizing it. This will be repeated with Android? Or with other systems?

Innovations are always copied. Even when protected by all sorts of laws or patents. What makes a company successful with innovation long term is to always keep innovating. Often coming up with the next big thing means damaging the old thing. That's hard to do for many companies so they don't do it and somebody else does. This is why great companies end up as formerly-great companies. As I pointed out above in the discussion about input methods, innovations are always bubbling up. As long as Apple takes these ideas and polishes them and brings them to market, they'll do all right.

Q; How about Microsoft? Do you think the company will lose the podium in Post PC era?

Microsoft already has lost its position as leader in personal technology. The end actually came in about 2000. Once Windows became "good enough" and did not crash so much, they have had a hard time finding something to improve. If you go back and watch every CES keynote that Microsoft presented since then it's been a litany of dead end ideas.

Every major innovation since 2000 has been in consumer technology and that's never been an attractive business for Microsoft (with the exception of XBox which was really aimed at Sony and Nintendo without the intention of creating a new market.) Microsoft struggles not because they lack talent (engineering or management) but rather because their business model is relatively rigid. They make money through software licensing. You can see how that's a hard thing to sell to consumers ("I'm buying what?") Consumers tend to pay Microsoft through the purchase of another product. If the market demands hardware/software integration (like in a phone or tablet) or making money by giving software away (like Google), they struggle. This business model rigidity is present in almost all companies, so Microsoft is not uniquely troubled.

Q: Most of the tablets will use mobile networks to connect to the internet. Do you think the world is ready with an infrastructure that supports this growth in access via mobile networks?

This is a good question because the growth of mobile broadband is a major enabler (or constraint) on growth. Fortunately, the roll-out of mobile broadband is fairly predictable and it looks good. There are some challenges for operators long term in paying for the infrastructure, but they don't lack for financing today and the business case for more infrastructure seems to be very attractive. It will take time and it won't be even globally, but the incentives are clearly there. A lot of value is being created with mobile computing and much of that value will end up paying for the bandwidth.

Q: How about the App Market. You posted recently a chart showing how fast developers are buying thickets for both Google and Apple developer events. You said that it is one signal of the Post PC Era. What will be the importance of apps on the next years. Do you think Apps market will be more important than hardware, content and OS market?

Developers are one more sign that something big is happening. It's not the only sign and may not be the cause of the change, but it's yet another signal. But apps are a phenomenon that will result in something bigger than we can imagine. The way to think about apps is as a new medium, similar to the emergence of radio, television, cinema and even books. The app is a new art form as well as something that provides functional value. We don't know whether the app phenomenon will be tied to one platform or will evolve to something like HTML5, a common standard. But the value of having an app for everything is plainly evident. The economics, creative energy and dynamism of apps cannot be overestimated. I will write more about this subject as I think it's one of the most important consequences of the post-PC era.

Q: What’s the destiny of the PC? Are they on their last years?

Again, it's not so much that PCs will disappear any more than mainframes or servers have disappeared. What is more likely is that they will be used for isolated, focused jobs. The "end of an era" is the end of growth, not the end of existence. The PC has arguably reached end of growth in most developed markets. There is still strong growth in emerging economies but even there, much of that growth will probably be replaced with smart devices growth.

Q: We had the Mainframe Era, the Terminal Era, the MiniPC Era, The PC Era and now we starting the PostPC Era. Do you imagine what Era we'll se after the tablets? When do you think is it going to happen?

I don't try to be a futurist who can see with clarity technological change. I try to see the patterns of markets through the motivation of companies. With that in mind, my answer will be that large companies will acquire promising new technologies from start-up companies and implement products with global distribution. To see the future you therefore need to look at what small companies are doing today. I note that there is a lot of innovation in new communication methods (social media) and new input methods around gestures and display technology. I am skeptical about the power of voice controls.

I'm most confident that there will be a re-definition of television, a "socialization" of almost all media. So I'll abstain from answering directly what happens after the Tablet Era. Perhaps something more personal and more of a companion than a tool.

Charles Arthur of The Guardian writes that PC sales "may have passed their peak".  That's a powerful, concise statement. It's backed up by a quote from Gartner's Mikako Kitagawa:

"This was the third consecutive quarter of mobile PC shipment declines in the US"

IDC even lays part of the blame to something called "media tablets"[1]:

"While it's tempting to blame [PC] decline completely on the growth of media tablets we believe other factors [...] played equally significant roles."

But there are several problems with both IDC and Gartner's analysis of the market. It's hard to make out causality from their data. There is separation by vendor but not by operating system and there is exclusion of devices hired to do the same jobs as PCs.

For this reason, I need to do my own analysis. I retrieved Gartner's public statements on the overall market and layered actual Mac and iPad units sold. I also added my estimates for the Q1 2011 quarter just ended to complete the picture.

We can now get an understanding of how the industry behaves with and without various platforms. The chart at the left gives the various growth rates of the market with platforms isolated from each other. I apologize for the shape of the chart but the scale does not permit a concise visual.

Including the iPad, the total PC growth is shown by the blue line. It shows that the market peaked during the recovery but is now slowing considerably.

The green line shows the PC industry excluding both the Mac and the iPad. Although it might include Linux or computers sold without an OS, the label "Windows PC" is a fairly close approximation. It shows that the market excluding Apple entered contraction this quarter and is out of sync with overall economic recovery and growth.

The red line shows the behavior of the Mac franchise. It's well ahead of the overall market with 2x to 3x the growth. This has been a pattern for over 18 quarters.  I had some thoughts on this in a November 2010 hypothesis.

But the most telling line is the orange line which includes both the Mac and the iPad. In an industry where growth is usually measured in single digits, the iPad business brings growth in three digits.

This near tripling of unit sales is symptomatic of fundamental change that cannot be ignored. Although some analysts contend that the iPad is not causal to the decline in other PC sales, teasing out platforms data seems to show a divergent view.

The bottom line is that Windows-only computer units are down 2.0% while OSX-based computer units are up 272% (this excludes both the iPhone and iPod touch).

Correlation is not causation but tests or surveys where substitution can be proven do exist. For example, a recent survey shows that 77% of users reported that their PC usage decreased after getting a tablet. It also showed that 28% considered their iPad as their primary computer.

So coupling the sales data with the usage data does point an accusatory finger for the decline on the iPad.

In addition, some vendors are being hit harder than others which also hints at where substitution is happening. For example, IDC reports that Acer US unit shipments fell 42% in the first quarter and 16% globally (Gartner's numbers are less dramatic but in the same direction). Since Acer is known for its netbook computers it's another telling sign of possible substitution (Acer's own management has indicated as much.)

So the weight of evidence is beginning to be conclusive: the iPad is the new PC. It should be clear by now that the iPad moves computing into new contexts so it does not yet substitute the PC market but extends it and increases consumption. Substitution is happening in low-end grazing type of usage, a place where the PC was ill-fitting anyway. Incumbent vendors might actually be relieved that the lower margin netbook is finally being supplanted and they can concentrate on the higher end.

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Notes:

1. Analysts like to call the iPad a "media tablet" but the same AdMob survey shows media consumption to be one of its least popular uses.

Yesterday RIM reported their quarterly earnings. The results were mixed to slightly negative and the shares were down 10% in after-hours trading.

I'll work through the smartphone market data at a later time but for now what I want to focus on is RIM's strategy which really means understanding RIM's intentions or their approach to the market. For that we have to go straight to the source: what management actually says. Trouble is, management often speaks in a jargon that is unfamiliar to people (sometimes unfamiliar to anyone outside the company).

Strategy analysis involves translation. So here follows the interpretation of Jim Balsillie's remarks during the conference call (transcript sourced from Businessinsider.com).

What Balsillie Said	My interpretation
First of all, what we announced is Gingerbread. This is not Honeycomb. I don't know what the number of Honeycomb apps is, but it's not very many. Whereas Gingerbread they've got lots of them.	RIM will support Android apps in the PlayBook tablet. As there is not one Android, I need to clarify that RIM will not support Android tablet (Honeycomb) apps but Android phone (Gingerbread) apps. So RIM's tablet will support Android phone apps even though our tablet does not actually have a phone in it, but requires tethering to a BlackBerry for cellular data.
You've got the volume of the handset apps, so if you're looking for the tonnage of apps, or some kind of long tail stuff, you've got it.	This support means there will be many apps including apps that are not very popular. We don't like supporting unpopular apps. We like a few good quality apps but this approach allows us to offer all kinds of apps.
At the end of the day, people are going to want performance.	However, many apps will not run smoothly.
You're just not going to get things like gaming and multimedia, you're not going to get the speed going through a VM interface. If you want content, or Flash type stuff, or you're looking at AIR-type, evolving web-type assets, that's what you're going to do.	Games and graphics will not run well through emulation. For processor intensive experiences we will have native execution options or browser apps.
There's no compromise here. You've got the tonnage of apps. And you've got the performance. Do I think the tonnage is overplayed? Yes.	By supporting emulation of Android apps we can offer a large catalog of so-so apps while having a small portfolio of high quality native apps.
But if you think it's about having a couple hundred thousand apps, there you go	For people who value large selections, they can go to one store.
Do we believe it's about super high performance? Yes	But for those people who value quality, they can come to our store.
I'll just offer that observation that today broadly in the world without any specific comment on us or our competitors, there are multiple ecosystem patterns that need to be considered	Beside emulation and native we also think there are many other ways to deliver applications.
Do we believe it's about full web fidelity? Yes.	For example, Flash.
These are concepts that were really relegated as not technically possible, which we're doing here. This is a no compromise environment.	Because of Moore's law, Flash is becoming viable on a mobile device.
If you want to work on Android, great. Do we think people will want to migrate web assets? Yes	Then there are browser apps.
Do we think they're going to want super high performance native assets with the SDK? Absolutely	We will have our own native SDK.
You think they're going to want to use their Flash based stuff for an offline Flash/AIR type environment? Yes	And support Flash.
I'm just not interested in these sort of religious application tonnage issues.  I really think we put that issue to bed.	We have a new platform but catalog sizes can no longer be used against us.
And if you think the whole world's going to want to develop for Gingerbread, fine. Do I think that's going to happen? Then why is there a different environment for a tablet? And you know about the performance issues and you know about the app volume issues, cause it's tough. And that's why QNX matters	Google's ecosystem is fragmented, Android apps are not able to rely on competitive hardware and there is too much competition. That's why developers should target QNX (which is unfragmented, built on fast hardware and there are few apps on it).
Is this stuff going to go more in the browser and HTML 5 and more native? These are going to be strong trends. But if you want these app players for different VMs -- and don't forget we have 25,000 BlackBerry 6 apps	Browser apps will increase in value and we also have legacy BlackBerry apps.
So, at the end of the day, we believe this is going to be about performance. It's going to be about enterprise greatness.	But we believe in a future with native applications running on QNX.
Things like multi-threaded capability, symmetric multiprocessing. We believe it's about an uncompromised web. We believe it's about enterprise security. True multitasking, not with suspension -- and that matters because you're going to want to run these things in the background.	Because QNX is a robust operating system with PC-like performance. It also supports a good browser.
But I'm out of the religious war on tonnage, which I'm delighted.	However, before QNX takes off, we will provide access to catalogs of apps which are built for other platforms.

Microsoft's Steve Ballmer argues that the tablet computers (aka slates, media tablets or iPads) are PCs. Steve Jobs argues that they are post-PC devices. There are analogies to trucks, cars and various metaphors for what these new devices symbolize. Some argue that because the iPad needs a PC, it's not a post-PC device.

But how to define a new generation of computing? Since the PC is not the beginning of computing, it may make sense to look to the eras of computing that preceded it.

The first post-mainframe computers worked alongside mainframes and were typically used by engineering departments (vs. the finance and accounting departmental role occupied by mainframes.) They did not require a dedicated (often external) mainframe service team and could be administered by in-department system administrators. Input was not through dedicated data entry personnel and output was not a ream of folded paper. Users could use a CRT terminal to interact with the computer directly. Digital Equipment Corporation, Control Data, HP, Honeywell, Prime, et. al. grew up in the shadow of IBM but thrived. Their products were cheaper and simpler to operate. Initially, the products were not more powerful.

The first post-minicomputer microcomputers (also known as PCs) were used alongside mainframes and mini-computers. They were typically used for 2-dimensional spreadsheets analysis by individuals in many departments and were easier to justify cost-wise than the time-sharing cost structure of the incumbent computers. Many microcomputers were able to access mini-computers and mainframes through terminal emulation software (and sometimes special hardware boards) so they were still able to work with existing business processes. They did not require dedicated personnel for administration but had a shared support department. Input and data storage were on the "desktop" as was printing. Compaq, Dell, HP, Apple and IBM embraced this new form factor. Their products were cheaper and simpler to operate than the previous generation of computers. Initially, the products were not more powerful.

The first post-microcomputer tablets are used alongside microcomputers for tasks such as presentations and entertainment. They have software available that allows access to desktop computers and services dependent on PC-architectured servers. They depend on PCs for data backup and software updates. They do not require IT support. They do not require a keyboard or a desk. Apple and many mobile phone vendors are embracing the new technology. They are cheaper and simpler to operate. The new products are not more powerful.

To define a new generation of computing by its isolation and exclusion of the previous generation is not sustained by the history of computing.

I would suggest that the definition of a new generation of computing is that the new products rely on new input / output methods and allow a new population of non-expert users to use the product more cheaply and simply.

I might add that the consequences of each generational shift are:

1. Consumption increases
2. Skill required decreases
3. Support required decreases
4. There are new applications and use cases
5. The economics are not favorable for incumbents
6. The economics are favorable for new entrants
7. The older generation slowly fades through diminished growth but never disappears

The last time I took a snapshot of the iPad death watch it was March 9th, 2010. Almost a year ago. The now-classic quotes are reproduced here.  Last May I wrote:

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.

I thought that would be that. As the success of the product would become self-evident, predictions of imminent demise would trail off. The pain of share loss would prompt a wave of challenger copycats. Imitation would be the the best form of flattery.

But no.

Critics were not silenced. One year, 15 million units, and $9.2 billion later I went back to the source of the quotes and found the following (published quotes dated after March 9th 2010). (Cited from aaplinvestors.net with some editing for brevity and relevance):

“Problematically, the Android competition is just as expensive as the iPad lineup, so Apple obviously feels free to continue gouging consumers on iPad pricing.” Paul Thurrott, Windows IT Pro, 3 March 2011

“Apple’s iPad 2 might be ‘magical’ but it still should’ve been better ... It needs more G’s. It’s still just a toy” Zach Epstein, Boy Genius 2 March 2011

“11 reasons NOT to buy an iPad 2 ... Reason 5: Competition David Gewirtz, ZDNet, 23 February 2011

“Given what I’ve seen of Honeycomb and Motorola’s excellent tablet, Cupertino will have some serious catching up to do with their iPad 2.” J.P. Mangalindan, Fortune, 4 February 2011

“We very carefully chose our tablet processor, the Nvidia Tegra 2, and to really compete it will take [Apple] some time. You know, [Nvidia] is well known for graphics.” Jonney Shih, Asustek Computer, 3 February 2011

“If you were to ask me in two years time, will Apple have less than 50 percent of the global tablet market, I think that’s a certainty. Neil Mawston, Strategy Analytics, 31 January 2011

“We have an extreme focus on the innovation of LePad and LePhone because these products will dominate the future market. Though Apple is winning a significant share in the Chinese market, it has not gained a clearly leading position yet. Our advantage is we know this market better.” Liu Chuanzhi, Lenovo, 27 January 2011

“The iPad may still be the lone leader, but with 100+ competitors on the way, it won’t likely keep its majority market share unless the pending next generation iPad really addresses all the complaints about the current version, like a missing camera and a lack of a USB port, and the company has to add those features without a major price increase - a tall order, to be sure.” James Brumley, Investopedia, 13 January 2011

“Hands-on PlayBook demonstrations at CES showed its differentiation in multitasking and performance, which may be difficult for Apple/Android to rival.” Mike Abramsky, Royal Bank of Canada Analyst, 11 January 2011

“Apple Inc.’s popular iPad is getting its strongest competition thus far as consumer-electronics manufacturers unveil tablet computers with bigger screens, front-facing cameras for video chatting and more.” Rachel Metz, AP Technology Writer, 3 January 2011

Apple may be simply trying to get in ahead of Research in Motion’s aggressively priced PlayBook or combat the early success of Samsung’s Galaxy Tab.” Rick Aristotle Munarriz, The Street, 29 December 2010

4. Competitors are coming. Brett Arends, Wall Street Journal, 22 December 2010

Reason 6: WiFi is still unreliable David Gewirtz, ZDNet, 16 December 2010

“I can’t imagine anyone under the age of 30 wanting an iPad. A PS3, Wii, GameBoy, or even a useful laptop maybe, but an iPad? Furthermore, I do not recall ever seeing anyone under 30 actually using an iPad.” John C. Dvorak, PC Mag, 13 December 2010

“We hope our tablet PCs can reach a global market share of 10-20% initially, and become the market leader in two to three years.” Gianfranco Lanci, CEO and President, Acer, 26 November 2010

“It’s a nice-to-have product, for those of us who don’t have a budget, but is it a must-have product? I don’t think so.” Ashok Kumar, Analyst, Rodman & Renshaw LLC, 12 November 2010

“Steve Jobs never says anything without thinking through it carefully. But I think in this case he may be a little afraid of this category. And he’s finding whatever he can to attack because he sees [seven-inch tablets] as a challenge to the dominance of the iPad.” Adam Hanin, VP Marketing, Viewsonic, 1 November 2010

“There could literally be millions of first-generation iPads gathering dust in people’s home offices already. This product is the tech industry’s biggest MacGuffin yet.” Paul Thurrott, Windows IT Pro, 23 October 2010

“I cannot see a need for the thing.”John Dvorak, MarketWatch, 22 October 2010

”For those of us who live outside of Apple’s distortion field, we know that 7″ tablets will actually be a big portion of the market and we know that Adobe Flash support actually matters to customers who want a real web experience.” Jim Balsillie, Research In Motion, 20 October 2010

“iPhone and iPad have been amazing products that have opened new markets. But I do not think they will own either market in a few years. Android will.” Fred Wilson, AVC.com, 18 October 2010

“The constant search for an ‘iPad killer’ and the sheer multitude of tablet computers launching in the next 18 months should make Apple aware that its competition is fierce and will only become tougher.” Barbara E. Hernandez, PCWorld, 5 October 2010

“HP’s New Tablet Could Be an iPad Spoiler HP’s decision to bundle a tablet computer with its new $399 printer could make trouble for competitors.” Cliff Edwards and Aaron Ricadela, Bloomberg Businessweek, 23 September 2010

“Our tablet will be better than the iPad.” Chang Ma, VP Marketing, LG, 20 August 2010

“Not only is Apple typically lost in the enterprise, but it focuses very little of its time there. And with a new, potentially more compelling tablet coming — the Cisco Cius — the iPad’s success in the corporate world could be short-lived. Here’s why:... 10 The power of Windows” Don Reisinger, Channel Insider, 5 August 2010

“I don’t think there is one size that fits all…I’ve been to too many meetings with journalists who spent the first 10 minutes of the meeting setting up iPad to look like a laptop.” Steve Ballmer, Microsoft, 29 July 2010

“ [...] It still isn’t the device that I’d take to a meeting because it has no input.” Bill Gates, Microsoft, 2 June 2010

“Which means I end up on the iPad — and tablets more generally — where I started. Tablets will not create a new category, but will supplant (or merge with) one or more of the current substitutes: smartphones or netbooks.Here I am less optimistic about the iPhone and webOS than I am about Android. ” Joel West, professor of Innovation & Entrepreneurship, College of Business at San José State University, 30 May 2010

“The iPad is useless. Beautiful, but useless. The iPad is too heavy. It’s awkward to hold and view in public. It’s fragile. It requires expensive accessories to protect it and extract more functionality. ”Josh Belzman, MSNBC.com, 20 May 2010

“Mum, the iPad is not ‘amazing.’ It’s just marketed very well, both by Apple and its culpable partners in mainstream media. ” Paul Thurrott (in response to comment by Mum), Paul Thurrott’s Super Site for Windows, 26 April 2010

“In short, I don’t get the ‘magical and revolutionary’ vibe that Apple chief executive Steve Jobs touted at the iPad’s January unveiling.” Rob Pegoraro, Washington Post, 9 April 2010

“The first troubling sign is the fact that you can still get an iPad today. They didn’t sell out. The pure slate form factor has failed all these years because, other than for vertical applications, people want and/or need a keyboard for regular use. The fact of the matter is that a touch screen or bluetooth keyboard just doesn’t compensate.” Jonathan Yarmis, Ovum, part of Datamonitor Group, 6 April 2010

“I don’t get it. It costs $500 for the basic model, when you could get a laptop with a lot more functionality for about the same price. The iPad hype machine has been in full effect this week, and I still think it’s just that—hype. ” Alex Cook, Frontier Outlook, 3 April 2010

“As far as what this means to Apple, one thing to keep in mind: Even if the iPad sells more than the iPhone did in its first year, it’s still only around 5% of the company’s revenue. So it’s a very small slice. From there, it probably doesn’t grow as large as the smartphone market. So, if you’re buying under rumors, keep perspective in mind. The iPad’s a great product, but it’s probably not a game-changer.” Eric Bleeker, Analyst, Fool.com, 31 March 2010

“The iPad will remain an expensive, niche device compared to all-purpose netbooks.I think that one of the iPad’s most important uses will be for reading ebooks and publications. Even so, though, when it comes to the marketplace, netbooks will sales still far outstrip those of the iPad.” Preston Gralla, PC World, 30 March 2010

“Don’t Believe the iPad Hype. Apple has sold out pre-orders of the forthcoming device, but it could all be a marketing tactic. By not manufacturing enough iPads for the initial launch date, is this a case of Apple shooting itself in the foot?” Mike Schuster, Minyanville.com, 29 March 2010

“‘iPad Killer’ May be Palm’s Last Hope”Tom Bradley, PC World, 20 March 2010

“Even if your company has relented and now supports the iPhone, as growing numbers of businesses do (70% of the Fortune 100 are at least testing it, says Apple) you’ll want to say “No” to the iPad and other tablets. Here’s why: 8. Speaking of money, there is no money in the company budget to pay for iPads. 9. Not supporting iPad will be the enterprise norm. Robert McGarvey, CIO Update, 16 March 2010

“This morning, the fool’s parade gets started. Apple is taking online “pre-orders” for its iPad tablet, which is supposed to begin shipping on April 3. Buying a new kind of product sight unseen is foolish. Especially given how mysterious Apple has been on what the iPad can do and what restrictions on capabilities and media access it will place on users and content providers.” Galen Gruman, InfoWorld, 12 March 2010

“The recent launch of Apple, the iPad tablet, has won the award for the second edition of Fiasco Awards delivered this Thursday in Barcelona. From the more than 7,000 people who voted via the website www.fiascoawards.com, 4,325 have considered it the fiasco of the year. Fiasco Awards, 2010, 11 March 2010

“I think I’ve mentioned this once or twice before, but it bears repeating until it sinks in: the Apple iPad is not unique, nor necessarily the best of breed in the media tablet sector it is spearheading. And it ain’t gonna help Apple shareholders any.’” Anders Bylund (TMF Zahrim), 11 March 2010

From this critical review, it looks like 2011 will indeed be the year of the iPad 2.

On the eve of iPad 2.0, it's time to think again about this curious new computer. My intuition tells me that this product category will behave very differently from the iPhone and will not be subject to the same sales ramp.

The iPad has been on the market for less than a year but it's still a puzzle for many. It's a product that's often seen as an iPhone product line extension. From a hardware point of view, it certainly seems to be. It has an almost identical internal architecture and uses almost the same software. An engineer would look at it and reasonably say it's the same thing.

However, from the way it's used and the way it's sold, it has very little in common with its smaller cousin. There are plenty of experts who can detail how the products are used differently, but I would highlight the portability of the iPhone makes it suitable for a completely different set of tasks than the less portable but more immersive iPad.

But what I want to dwell on here is how differently the products are sold.

I'll build the case from evidence that Apple provides. The most important observation is that the iPad is an unlocked product. Although you can hire an operator to provide you with data services for it, the product is designed not to rely on that. As a result the product is effectively "divorced" from the operator channel. This means it does not typically benefit (or suffer) from subsidy.

This may seem an interesting side-note to the iPad story, but I think this is a central pillar of the market strategy. The iPhone was designed around a high-ARPU data plan. I've even suggested that the iPhone is nothing more than a data plan wrapped in glass and polished metal. Because it was designed to enable migration of cellular voice users to data plans, it's priced to skim profits from the migration. At some future point in time when a skimming strategy is no longer optimal, the iPhone might be re-positioned for penetration, but that time is not now.

As part of a skimming strategy, the iPhone has a limited distribution channel. It's only sold through special agreement with selected operators. Again, timing is crucial. That channel is expanding, but for nearly four years the product has not been positioned for sale through any channel other than Apple retail and Operator retail.

On the other hand, the iPad is marketed for penetration. It had a low price and an unlimited distribution strategy. It could be sold through any consumer electronics product point of sale. And then some. It could conceivably be sold through as many if not more points of sale as the iPod (i.e. tens of thousands.)

It can be sold in any country, can be distributed through middlemen and can be priced arbitrarily [1]. It can be bought in bulk by companies or schools or hospitals. It can be re-sold in a secondary market. It is essentially a perfectly liquid commodity.

Now we can step back and ask why and what are the implications for competitors.

The reason the iPad was positioned asymmetrically to the iPhone is, I believe, because it could be. I believe that the iPhone is sold the way it is (through operators) because that's the only way it could be sold effectively. Cellular products have always come with lots of fine print, footnotes and asterisks rooted in the regulatory environment that underlies the industry.

The iPad is a product built and sold along the lines of the Mac and the iPod--unrestricted by orifices and aligned with the unregulated environment that computers have always enjoyed. Essentially, for the iPhone, Apple chose to go along with the telecom industry's rules but as soon as it had a product that did not need to comply to those rules, it ran back to its comfort zone: control.

If we take this to be the cause, the implications for competitors become clearer. Apple is more in its element selling the iPad than it is in selling the iPhone. Other tablet contenders however are in an opposite strategic stance. Almost all the credible tablet alternatives rely on the telecom channel for distribution. The rush to build iPad alternatives is as predictable as the derision that was poured on the product when it was launched.

But the alternative products are positioned in different ways. They are positioned as big phones.

Which brings me to my final point: selling big phones is hard.

These products are not compliant with what users expect from an operator: a service plan. As a result they are also not competitively priced with the iPad. Apple engineered a price for the iPad that makes comparisons extremely favorable. Buyers know the thing they are buying is not a phone so they look at the price carefully.

But the most crucial weakness of alternative vendors is the fact that operators don't know how to sell tablets. Tablets are small computers. They are bought in the same way that buyers buy laptops: in-store testing. Notice that except for the iPhone operators only provide phone mockups in their stores. This is because they want buyers to discuss their purchase with a sales rep. This is not the way laptop hunters shop. Another tell-tale sign of a disconnect between operators and tablets is that operator shops are physically tiny. PCs (and tablets) need large tables for users to look, touch, heft and fondle. Just on square feet alone, operators and tablets are not a good match.

If you need any more evidence, consider the plight of operator-subsidized netbooks.

 

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Notes:

1. I realize that this is not currently true and the distribution is limited but that's only a matter of supply constraints. There is no theoretical positioning limitation.

 

The Windows Phone platform currently has hardware specifications that imply a cellular phone device. What is interesting in light of the new WebOS TouchPad, the newly announced Android tablets, the RIM Playbook and the iPad is that this supposed "third horse" of Windows Phone has no hint of present or future presence in the tablet form factor.

That might have something to do with the plans to move Windows to the tablet form factor. Perhaps Microsoft thinks that pocket size devices deserve a separate operating system, platform and ecosystem than portable mobile computers. Perhaps Microsoft plans to have two separate interfaces for these tablets (slates vs. tablets?) Then again, Ballmer held up a Windows Phone and said "This is Windows too."

It gets confusing.

The bottom line is that without a tablet implementation, Windows Phone developers and content providers will find that the WP ecosystem will have a limited addressable market and will not be suitable for all forms of media or apps. Tablets are currently expected to grow even more rapidly than smartphones did and so there will be significant numerical advantages to those platforms that support multiple screen sizes and form factors.

Now that Nokia has anointed the Windows Phone platform as its exclusive conveyance to the device market, the question in the headline becomes: Where is the Nokia tablet?

The world's largest PC company just launched a "media tablet[1]". Conflating the iPod Touch and iPad brands into "TouchPad" HP joins RIM in announcing an integrated OS/device product to compete as a platform vs. iOS and Android (and to some degree even against Windows).

There are others waiting in the wings. Presumably, Microsoft is hard at work to release a tablet-compatible Windows sometime near the middle of this decade. MeeGo is also going through its gestation period targeting Atom-based tablets. John Gruber notes the excitement around tablet platforms in his article about this post-PC renaissance in computing alternatives. I also noted that the end of the PC era was marked by the end of WinTel at CES.

In that context, yesterday's WebOS event was perhaps anticlimactic. But it's still remarkable. Consider how far we've come. Step back now and remember the dark days only one year ago when, right after the iPad announcement, a  nearly unanimously chorus was pouring derision on the concept.

AAPLinvestors is still maintaining the iPad death watch which I took a snapshot of back in March 2010. To reminisce: It was exactly one year ago, on Feb. 10th 2010, that Bill Gates was quoted as saying "It’s a nice reader, but there’s nothing on the iPad I look at and say, ‘Oh, I wish Microsoft had done it.’" On the same day, Shannon Zimmerman of The Motley Fool wrote: "[Apple's] hamster-wheel of innovation ... may have hit a snag with the iPad." Those are just two of dozens other memorable quotes.

I noted last May that the secrecy surrounding the iPad prior to launch was unnecessary. Nobody understood the product for months after it launched (and many still don't a year later).

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.

Indeed, responses only came after sales figures started to cause consternation among competitors.

How did these presumably keen observers of the market fail to notice the sea change under way? This is not just a rhetorical question. It really is hard. Students of disruption know that spotting such change is a difficult skill to obtain. But it is a skill, not a gift.

So here we are, 12 months later and the derision has turned to flattery by imitation. The only scorn I hear about the TouchPad is that it can't come to market fast enough.

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1. I find this term repugnant and highlight it here only to ridicule those who coined it.

"Media tablet hype around devices such as the iPad has also affected consumer notebook growth by delaying some PC purchases, especially in the U.S. consumer market. Media tablets don't replace primary PCs, but they affect PC purchases in many ways," Ms. Kitagawa said. "At this stage, hype around media tablets has led consumers and the channels to take a 'wait and see' approach to buying a new device."

Gartner Says Worldwide PC Shipments Grew 7.6 Percent in Third Quarter of 2010.

Fascinating. I'd love to hear more about the non-iPad "media tablets" that delayed PC purchases last quarter. Maybe I don't get out enough.

But more to the point, let's combine the data from Gartner and the forecast for iPad.

I show below the impact of the iPad on PC vendor sales. I'm using my own estimates of world-wide PC sales (you can see other estimates here (Apple 2.0))

The world-wide PC units shipped without and with iPad:

When including the iPad Apple goes from 7th to 5th ranked, and with 50% growth clearly within shot of top rank next year.

Now I look at PC unit shares:

With the iPad Apple goes from 4% share to 10% share. Again, within striking distance of number one or two in a year.

Finally, growth rates:

Apple's share growth goes from second to first but also several times higher than any of the others.

When Gartner spins the iPad as a "Media Tablet" it's clear that the device is disruptive. Reminds me of what Gartner thought about Smartphones four years ago.

I cannot think of a better endorsement for an investment than a snub from Gartner.