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Will Apple rule the iPad market? (part II)

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.

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  • http://relentlessfocus.tumblr.com relentlessfocus

    It's really too early to tell about the execution (in the Apple sense, not the Texas sense) of an HP tablet or an Android tablet. If HP can coax a tablet out of WebOS they may be able to leverage their business connections and EDS connections to make bespoke tablets for businesses where a robust app market is not as important as custom designed solutions. If HP can integrate webOS and bespoke apps built by HP for their business clients into their overall "low cost/value" approach to their business customers they may be able to do quite well without having to attack Apple in the consumer market. They may also be able to parlay their purchasing power into producing a Wal-mart cheapiePad to compete with the iPad on price if not apps though there are the existing WebOS apps to start with. WebOS has the advantage of a potential large number of developers with skills to develop for an HPad if they can build up a market and they can double pixel their existing WebOS apps.

    Google may work with initial Android Tablet makers to get something usable though Android suffers the commodity OS syndrome we've both been on about. Nonetheless Google has no reason NOT to try to establish a beachhead in the tablet market as their throw it against the wall and see if it sticks policy wouldn't need to stretch much to adopt Android with its existing array of apps into a tablet and then craft a bespoke app store mimicking Apple's approach (yawn, again). There are a growing number of anything-but-Apple buyers who could jumpstart an HTC android powered tablet.

    I'm sure we'll see multi-touch tablets from lots of makers (ARM claims there are 50 current Tablet projects they're aware of) ranging from cheap Chinese knock-offs to premium level Pads making use of Android's market place. In the current regulatory environment, dominating a market with 80-90% of sales may not be the greatest strategy.

  • http://asymco.wordpress.com asymco

    Relentless,
    Of course HP will get some volume out of an HPad, but I turn the question to you: why did HP fall down and stay there when it came to smartphones. Take a look at this graph: http://blog.asymco.com/2010/02/24/hp-continues-to

    HP had the advantage of business connections, EDS and massive sales force. They could have crafted bespoke apps for a smartphone. They had the Windows (!) Mobile platform not some consumer OS without enterprise-grade security.

    I agree we'll see loads of iPad wanna-be's but my point is that it's all going to look a lot more like the iPod than like the Mac and unlike the phone market where Apple has to muscle its way in and make compromise with its channel, the iPad has a clear field to stake out as its own.

  • http://relentlessfocus.tumblr.com relentlessfocus

    My crystal ball continues to have major software bugs but in regards to HPad success based on HP's mobile phone strategy I quote that famous phrase, "past results are no guarantee of future performance". You may well be proven right in your analysis (humble pie is a staple in our household… yum) but I suspect that HP didn't spend $1.3 billion in an intense bidding process (if Palm can be believed) without a strategy in hand (hence my execution comment). For all its faults HP has not sunk like a stone tossed in the Gulf of Mexico.

    I'll be quite happy if iPad rules the tablet market but I suspect rule will mean 40-60% of a stable tablet market and not… wait, oops, crystall ball crashed. Rebooting now…

  • http://asymco.wordpress.com asymco

    I will say this as well, as I pointed out earlier: (http://blog.asymco.com/2010/04/28/hps-palm-play/_

    "[The Palm] deal is not about keeping a smartphone brand alive but about keeping HP alive.
    The days of standalone phone companies or standalone computer companies are coming to an end.

    HP deserves credit for overcoming the first of my 5 obstacles: recognition of a threat.

  • http://relentlessfocus.tumblr.com relentlessfocus

    Don't get me wrong, I'm rooting for AAPL in this competition and my money is where my mouth is but I hate underestimating potential competition even if Apple holds a strong hand. In addition to the recognition of a threat (maybe not to its existence but to its growth) HP have experience in and hopefully learned from experience about integrating acquisitions into their corporate structure. HP's game plan should be revealed soon if the rumournet is correct. I also think Jon Rubenstein was a good purchase for HP if they take advantage of his skills.

    From my viewpoint HTC continues to present the best Android case. I'd love to know who company C was in the Palm bidding and despite their declaired non-interest I continue to think HTC is company C. Unlike others I don't think Palm's extensive IP portfolio is a big deal but not being an Android or Win Phone 7 clone will be potentially important in all smart device markets which I think will not be limited to phone, small smart devices a la iPod Touch or tablets but which will expand to fill multiple vertical markets.

    Keep up the good work, your posts are always appreciated!

  • Paco

    I'm sorry to think you are completely right. If Apple enjoys a dinosaur-long rule on the iPad market, innovation and prices are the ones that will suffer the consequences. I mean, we consumers.

    • EricE

      Paco – I really don't understand your comments. Apple single handedly created the current smart phone market, not established phone "experts". Who's the real innovators? Where was all this innovation when I was saddled with a gawd awful version of windows mobile on my Palm Pre (that could only be upgraded by buying a new phone)?!?

      The only company able to beat the iPod consistently was… Apple!, when they released the next version. Same with the iPhone and now the successor to the iPhone with the iPad (typing on mine right now). Maybe HP will be able to compete (with an acquisition – there's innovation for you). Google is moving lots of units with free and buy one get one free promotions, but they have yet to show they will be more relevant than or overcome the fragmentation issues of desktop Linux :p

      As for price, everyone swore the iPad would start at $700-$1000. Instead Apple debuted it at $500 and there are still complaints it costs too much :p

      My conclusion? Those that make negative comments against Apple about innovation and price are either extremely myopic, ignorant or just have an irrational ax to grind against Apple. I also marvel at the bloodbath that would be the tech press if all the other (whining) competitors to Apple were held to the same standards. Success through honest competition and simply building a superior solution sure does breed lots of jealousy and petty bitterness.

      Boo Hoo indeed!

      • EricE

        "Where was all this innovation when I was saddled with a gawd awful version of windows mobile on my Palm Pre"

        Whoop's, I meant Palm Trio. I loved that phone so much I've already started to block it's name :p

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  • http://lantinian.blogspot.com Nikolay Andreev

    WoW. Just reeding this article for the first time now, 4 months later and I am stunned by the how much what has happened validates your powerful predictions.

    Just recently I think the ACCER CEO said of the Apple products (referring mostly to the iPad) as being a virus that the industry will quickly corner and relegate to a niche, just like the Mac is. When asked about the iPod dominance, he had no answer.

    When the CEO of one of the worlds biggest PC makers make those kind of remarks, you begin to see how "uncomfortable some people in the PC business are with these post PC devices" and how accurate Steve Jobs was again.

    Again, one of the best articles on your site indeed. It just brought some many thoughts I had on he iPad future to a higher level and integrated them.

    Thank you.

  • Jeremy Whitt

    "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."

    I'm guessing one important lever that Apple can use is pricing? If a half-worthy competitor ever comes along and Apple drops the price of their first gen iPads, (They may be on to a 2nd or 3rd gen before a real competitor comes along) wouldn't that help them continue to destroy these so called competitors?

    • Tom

      With a global recession, and with stiffening competition, apple dropped its asp on computers a whole whopping 2.9% over last year. iPod prices continue higher, and iPad prices should stay put for the foreseeable future. Everyone expected the asp for the iPad to be $1k or more. Most iPad competitive devices being showcased this month have not been able to quote a price, or have quoted a very expensive price, leaving the iPad as a cheap front runner.

    • David Chu

      If Apple wanted to, I'm sure they could destroy everyone on price point. E en though Android is free, the development costs of iPhones are spread across tens of millions of units.

      I have full belief that when Apple sees an opportunity to go for the jugular, they will do so. But as long as they feel that they can keep innovating and effectively differentiating their product, they will stay with their premium pricing strategy.

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