Monday, January 9, 2012
The year ahead for Apple: the iPad dominates (and one more thing...)
With 2012 barely a week old (and possibly the last year ever), I thought it would be a good time to make some prognostications for the tech industry in the year ahead. As an iOS developer, I pay a lot of attention to Apple, so I'll concentrate on what I think is in store for the Cupertino company. Love them or hate them, they're certain to continue to make their presence felt in 2012.
iPad continues to dominate
Apple will announce the iPad 3 in March, to begin selling sometime in late May. It will be an iteration of the existing iPad design, but a little thinner, sleeker and sporting a 2048x1536 Retina display. Tech pundits will give it mixed reviews, repeatedly pointing out that there is no LTE version, but consumers will embrace the device and Apple will again have problems meeting strong demand. In addition, Apple will keep the iPad 2 around, slashing the price of the base model to US$299. With Apple's BOM costs for the iPad 2 now falling under US$200, they maintain their profit margins and whittle away at the value proposition of competing tablets, most notably the Kindle Fire.
This isn't a big deal for Amazon; the Kindle Fire is their razor handle and Amazon's digital books, music, movies and apps are the blades. Amazon will continue to improve their Kindle line, updating the Kindle Fire software and introducing a follow-on color tablet device in a larger form factor that's more suitable for viewing movies, magazines and textbooks. The Kindle doesn't need to appeal to everyone, only to Amazon's best customers, and ensure that Amazon has a path to their digital customers outside of Apple and Google. Amazon is happy to be the Schick to Apple's Gillette in the tablet market.
For the Android tablet makers, that large sucking sound you hear is Apple continuing to vacuum up all the mobile device profits in developed countries. With Apple using their billions in cash to lock up the best values in the supply chain, Android tablet makers will be hard pressed to match the iPad's juicy margins. Making it up in volume won't be possible: with Android lacking any compelling value proposition for the general consumer, Android tablets will remain the province of open source zealots, tinkerers and Apple-haters, and sales will be anemic in developed countries. The story will be a bit different in emerging economies where US$100 is too large a differential for most consumers, but razor thin profit margins will make Android tablets a money loser for all but the most nimble device makers. The story will be brighter for Android in the phone market, where Android's "openness" aligns closely with the mobile carriers' desire for total control of their customers, but here too Apple will continue to soak up the lion's share of profits on mobile phone sales.
The sad passing of Steve Jobs won't slow Apple down this year; if anything, his spirit will continue to haunt One Infinite Loop and energize the company. Though Tim Cook is no Steve Jobs, he doesn't have to be; ultimately Apple's products will speak for themselves, as they always have. And while we will all miss watching Jobs unveil Apple's latest and greatest, there will still be one more thing...the new Apple TV.
Television, the Apple way
With all the rumor and speculation swirling around the forthcoming Apple TV device, from Jobs' cryptic comment in his biography that "I finally cracked it" to talk of a 50-inch Apple branded television, it's hard to see where this one might go. I'd be surprised if they announce this early in the year; Apple needs to line up enough content owners behind the new device for it to be compelling to consumers and seem inevitable to the rest of the industry. The movie studios are scared of change and will draw out negotiations. I would look for a big announcement in the late summer or early fall.
A lot of speculation focuses on what kind of UI the device might have, with talk of Siri-style voice control, but I don't think that's the most interesting thing here: I'm sure the UI will be butter smooth and easy to use, whatever form it takes. When Jobs said "I finally cracked it", I believe he was thinking at a higher level. Apple has had the technology to build a nice TV set for a long time, but they haven't because there's no money to be made there, and simply building some pretty on-screen menus isn't interesting enough. Changing the way people perceive television and building a new business model behind that is what's interesting to Apple.
How many of you remember the first Motorola ROKR? That was the first "Apple phone", a Motorola mobile phone with a built-in iPod, released in September 2005 to widespread yawns and poor sales. It's no coincidence that Apple and Motorola parted ways not long after, with Apple announcing the iPhone in January 2007. The ROKR was a learning experiment on Apple's part, a way for them to get an understanding of mobile phone technology and the business model behind it. The genius of the iPhone was in seeing what a mobile phone could be. In 2006, a mobile phone was a commoditized product that let you make phone calls, painfully type out text messages on a cramped telephone keypad and take tiny, fuzzy pictures. Most consumers just took the cheapest device they could get from their mobile carrier. In 2007, a mobile phone became your portable connection to the internet, people lined up at the Apple store to buy it and happily switched carriers to make it work. Apple makes handsome margins on the device and a little pocket change on media sales through iTunes, the carrier attracts deep pocket customers who gladly pony up US$80 a month or more for an expensive data plan, and consumers get a clean, easy to use device that gives them Internet access on the go. Making phone calls becomes almost an afterthought. While the iPhone may not be in the carrier's best interests long term, the prospect of all those free-spending Apple customers in the short term was enough to sign up one carrier in every big market.
In 2011, teevee consists is a giant flat panel with a rat's nest of wires to a craptastic cable box, DVD player and game console, along with four inscrutable 57-button remotes lying on the coffee table. People pay US$100 or more per month to their monopoly cable company for access to hundreds of streams of random programming interspersed with twenty minutes of 100 decibel commercials per hour. Consumers pay attention to exactly 3.5 hours of programming a week; the rest of the time they flick channels endlessly, searching for something good. The flat panel screen is a commodity, as are the cable box and DVD or Blu-ray player; the game console is a barely differentiated loss-leader. Apple has been playing around the periphery of this miserable, steaming technology stack for several years with their "hobby", the little Apple TV box, that lets you watch movies and TV bought on iTunes and stream Netflix. They're learning about building UIs for giant flat panels and figuring out how to negotiate with the studios to get compelling content.
Apple has a lot of interesting pieces in place. iOS devices are already eating away at the hand-held game market. Sales and rentals of videos though iTunes have value to both the content owners and consumers with disposable income: the studios get flexible pricing and detailed sales metrics, consumers get their favorite programs without the commercial, movie previews or FBI warnings and the can watch at home or on their mobile device. Content distributors like MLB and Netflix can create custom apps for both iOS and Apple TV that give them greater control over how their content is distributed. In many ways, apps are the channels of the future. Facetime video chat is a great app, especially on iPad. The Airplay feature of iOS devices is a hidden gem here, effectively turning that big flat panel into a flexible video terminal for your iPhone, iPad or iPod touch, allowing you to project your favorite movie, TV show, game or app onto the big screen for all to enjoy. Apple TV sales figures may be modest when compared to other iOS devices, but the couple of million little Apple TV boxes sold in 2011 could be just the tip of the iceberg. The killer app for Apple TV is the ability to effortlessly bore friends and neighbors with all those bad vacation photos you took.
Apple could take the Apple TV platform in a number of directions. While I would love for them to do something that would allow me to ditch my collection of 57-button remotes, more likely Apple views the DVD/Blu-ray player, cable box and game console as legacy -- they will all go away on their own soon enough. Imagine Steve Jobs watching television, cross-legged on the polished hardwood floor of a nearly empty room with just a Tiffany lamp and a sleek, 50-inch Apple branded flat screen, the slim, silver seven-button Apple remote in his hand. You wouldn't need or want anything else. If Apple does produce their own television set, simplicity will be it's main value proposition to consumers. It will be designed to stand alone rather than integrate with all those legacy devices. You won't need to hire Geek Squad to set it up, but it won't appeal to people who are heavily invested in all those legacy devices. The tech press will complain about it being closed and limited, but it will strike a chord with certain buyers, particularly the 9% of US consumers that have dropped their cable television service. I'm sure Apple has a mature prototype television set sitting in Sir Jony Ive's office in Cupertino; whether Apple thinks the world is ready for it is the real question.
For the rest of us, Apple will continue to make the inexpensive little Apple TV box. They may update the hardware this year to add Siri-style voice control, but I'm expecting the real innovation will be on how content is bought and delivered. The rumor that Apple plans to bid for rights to broadcast English Premier League soccer is intriguing. The Apple TV already comes with apps for NBA, NHL and MLB as well as the Wall Street Journal. What would your television viewing experience be like if all your cable channels became apps on Apple TV, with in-app purchase or subscriptions for premium content? How would you divvy up that US$100 a month you currently spend on cable TV among all those apps? If enough of your favorite shows were available on Apple TV, canceling your cable TV subscription would be a no-brainer. I'll bet that many of the content owners would be happy to cut out the cable companies and have better control over their relationship with viewers.
Whatever Apple does around teevee this year, you can bet that critics will deride it as too limited, closed or incompatible, just as critics derided the first iPhone and iPad. Meanwhile, Apple will be laser-focused on making their customers happy and earning generous profits in the process.
Posted by Don McCaughey at 7:01 AM