August 2011
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Day August 31, 2011

The case for the iPad's future

The question of low end disruption should be a concern to any manager. It’s one of the most important sources of growth and has led to a vast amount of wealth creation.

Apple was an early low end disruptor by selling personal computers at a fraction of mini-computer prices. Toyota also offered “cheap” cars as an entrant in the market. Pixar made blockbusters for a lot less than live action studios. Google offers good enough office software without a license. Finally Microsoft built its whole business on low-end business software at knock-down prices.[1]

All these entrants made fortunes often at the expense of entrenched incumbents. Disruption grows the pie but also transfers a lot of value away from existing competitors.

So it should not be surprising that new products like the iPad should be scrutinized for their vulnerability to low end disruption. Brian Caufield asks the question if Apple has any future with the iPad given the potential for $99 tablets.

The question is indeed why not introduce an ultra-cheap tablet, for example from Amazon, which makes up for the low price with an innovative business model like selling content or user behavior data. After all, game consoles are sold this way. This is the classic razor/razor-blade business model.

The answer to why not is actually not simply that the economics don’t work. They might work some day even if they really don’t today.

The answer to why not is that the iPad is not good enough.

US smartphone penetration growth rate update

The survey data from comScore is in and it suggests that smartphone penetration increased by a significant 1.58%. It is now 35.1% with 82.2 million users.

The weekly new user rate was about 863k/wk during July or about 586k/wk average over the last three months. I plotted the weekly add rates for the last 18 surveys and overlaid the three month moving average.

The chart shows that there is an upward slope to the upper and lower bounds of the moving average. Extrapolating trend forward gives me confidence in projecting 50% penetration by July 2012.