No-one divides an audience like Apple and the iPad launch was perhaps the first time that it has been possible to look at an Apple product, and say fairly convincingly ‘I don’t get it’ and make a case for your point of view. And many people have.
Of course any Apple fan boy can tell you that you not getting it, and that’s part of the appeal of the product. It brings out the rebel in the young, who say ‘I want to buy that product because non-fan boys (squares) just won’t understand what it’s for.’ But that’s not really a good enough reason for everyone to buy it.
Here at Faultline we’d like to look at it a different way. In fact both ways. Of course many Apple lovers will go out and buy the oversized iPhone, more because the iPhone has now developed uses which show its screen to be a limitation, than because the iPad has any appeal of its own. And many people will argue that without Windows how can any device have access to ‘proper’ applications. Well the lack of ‘proper’ applications hasn’t stopped Apple products being successful up until now, so we can’t see that stopping the iPad. There is a natural exuberance which developers have when they are allowed to do whatever the hell they like, an experience that has not been promoted since the beginning of the Windows era in the early 80s, an area which has grown stale this past 20 years or so. The enthusiasm of developers for the Apple App Store is tantamount to the creativity released with the start of the internet. So there lots of are applications, even if they all look a bit weird and they only have one simple function, instead being generic applications.
The iPad device appears to us to be every bit as functional as a netbook. Let’s ignore those people who give strict definitions of such things, like it has to run this or that version of Windows and have this or that storage. It’s much more basic than that. A netbook is a portable device which you can use all day without plugging it in, using mostly web based ‘cloud’ applications. The iPad is in fact very good at that and we know of hundreds of people that could use the iPad, on its own forever, and completely replace their desktop PC, never mind a netbook.
Take for instance a completely bizarre application – in the enterprise. This device could be made invaluable and some of those ‘proper’ applications, such as giving portable access to enterprise apps, will certainly emerge in short order. In the distant past companies like Grid Systems Corporation (subsequently bought by RadioShack) made computers that were meant for lugging about the enterprise, especially in rugged environments. They made it as far as NASA and the Space Shuttle during the early 1980s, because they were powerful and lightweight. Half of the US forces used them because they were robust. We’re not saying that the iPad is robust, but it is lightweight like a clip board and because it is both general purpose, and flat, it will find specialist applications in industry. If you are checking an automobile in steps along its manufacturing route, you want your hands free and something light to tick things off on, so it will find a way into industry.
But that kind of a success will NOT give Apple the kinds of numbers that it needs and the point of this article is that if you deconstruct the device into its separate markets, you soon get an idea of just how popular this device can become, or not. The key markets are the high volume ones of phones, PCs, netbooks and ebook readers and all those other markets, like enterprise are extras.
Another market that the iPad will eat into is the netbook market, for the same reasons that smartbooks will eat into it. There will be those who want netbooks to have Windows on them, but in the main, especially in the consumer market, people will want longer battery life, in a multi-purpose, large screen device, which can do word processing, email, web browsing, media playing and other forms of entertainment, such as gaming. In a way you can think of the iPad as the first, oversized, Smartbook.
Apple simply took a single design, and produced a chip which can support that design ‘ of smartbook ‘ while Qualcomm, Samsung, Nvidia and Texas Instruments, each have to make a chip which supports multiple operating systems, multiple formats, multiple power ranges, and multiple cellular standards ‘ so theirs will emerge at least 6 months later even though they thought of it first. This creates a perception among consumers that Apple is a genius company ‘ because it works outside the usual rules of standards based eco-systems. What it actually is, is brave ‘ because it doesn’t wait until all the standards are set and every piece of the jigsaw is in place ‘ and is content to put as much of the jigsaw together itself, that it can. This is why the personality of Steve Jobs is so important to the company, because someone has to gamble multiple $billions, and for that you need a CEO with some swagger, and not too much regard for the opinion of others (outside the company). What Apple has done is take a multi-core ARM processor and tightly integrate graphics functions. Those designs already exists within the Snapdragon family of chips from Qualcomm and will also come out of Nvidia. Expect extended chip roadmaps at Mobile World Congress, and volumes in the last quarter 2010, which can do everything that the A4 Apple chip can do.
Now a number of you will be bringing out your definitions of a smartbook and saying ‘Hold on, this has not got cellular voice,’ so how can it be a smart book. Of course it has an HSDPA chip inside it, so there is no reason why it could not have switched cellular voice. However the voice logic and noise canceling microphones etc.. would up the cost of manufacture and defeat its price advantage. Which is why we have always assumed that cellular voice was NOT part and parcel of a smartbook. In fact most people probably agree that a smartbook is not a phone, except that it can be turned into a phone using the data channel ‘ effectively cellular VoIP. And this does not have VoIP. Yet.
But of course VoIP merely an application and Apple chose not to pre-empt the App market by providing its own VoIP, but has just relinquished its disapproval of cellular VoIP (because AT&T has) so already companies are announcing that you can use the iPad as a phone, with a VoIP client (see Worth Noting). We’re equally sure that Skype, Google Voice and all the other VoIPers already queuing for the iPhone will be hollering shortly and that earpieces and other devices to go with them, will also be clamoring for attention. It will have voice over both HSDPA and over wi-fi so it will be a phone.
The latest research papers out there show that smartbooks will outstrip netbooks by 2013, and in its general purpose mode the iPad is really a smartbook, in tablet form. There will be smartbooks that look like oversized phones and some tablets, also some that come with fixed side sliding, keyboards. But by grabbing what looks like a 6 month head start, the iPad may do one of two things for smartbooks. It may dictate the form factor for success, in the way the iPhone did for capacitive touch screen phones, or it may do the opposite, and simply demonstrate how NOT to do it. Either way it will take an indecent market share by being so early and we have to ask what Nokia in particular, as well as Samsung, LG, Motorola and Sony Ericsson, will be doing to accelerate their smartbook creation.
Some will just create downscaled netbooks, using Windows (see Worth Noting); others will wait for Chrome from Google and copy the Apple iPad format, while others still will come out with products in shorter times scales using Android. Some may copy the iPad but move things further along to LTE? There are plenty of visions for Smartbooks and some will no doubt hit long before the winter.
The one function of the iPad which has been picked up by most writers is its similarity to the Kindle. But it’s not actually similar. This is a general purpose piece of hardware, trying to do the job of a highly focused and specialized ebook reader. Kindle’s are 10 ounce devices (280 grams), while the Sony eReader is even lighter at 9 ounces. The iPad is 1.5 pounds or 21 ounces, 22 for the cellular version, more than twice the weight. The Kindle is 0.36 inches wide, the iPad is 0.5 inches wide. By Kindle standards the iPad is cumbersome. Although the pricing is similar to the Kindle DX, the low end Kindle can currently be had for $249, around half price, and the ebooks that Amazon sells with it have just adopted the 30% model which Apple charges. Other ebook readers are immune at even lower pricing with some in the $150 range and the Barnes and Noble nook ebook reader will only be delivered, after a three month delay, during February, barely before the iPad, but at a significant price drop compared to the Kindle DX.
The battery life on a Kindle is up to a week and there’s a very good design reason for that. It uses what’s called electronic ink, which is a high resolution, slow refresh technology, which does not need a light behind it, but uses ambient light to make it readable ‘ the same as a book. It does this because you can then set your own lighting which is right for your eyes, and reduce eye strain.
iPad users are going to need to remember to charge their device every night, and in some instances when they use it both for work and socially, multiple times per day. The Kindle can be charged any time during a week, and even the version which has the CDMA cellular chip in it, manages 4 or 5 days.
iPad batteries WILL be annoying, in the same way that all new generation phones are annoying. In order to get all the next generation function, you have to learn to plug it in after work, immediately. What it needs is a two day battery, so that if you forget, then at least it is forgiving. The Kindle offers a normal USB port to charge from a PC, as standard, the iPad offers a USB connection, to a proprietary Apple plug, so yes you can charge it from a nearby PC, but no, you cannot borrow someone else’s cable.
The problem with comparisons like this is that people will descend on the Apple store and ask for an iPad, believing that it will do the job of a Kindle and be pretty upset when it does it, but not half as well. But actually even that’s not true. People tend to apply cognitive dissonance to Apple purchases ‘ that logic goes, ‘I bought it so it must be good’ and instead they will refuse to believe that the Kindle is any better for reading. But it is and many people will actually buy both.
There is also the issue of having to sign up for a cellular data plan. The Kindle can ONLY download books, and the data plan is built into the price of each book. This is not the case with the iPad, primarily because it has so many reasons for attaching to the internet ‘ web browsing, email etc’ So it needs a wireless broadband sub, where the Kindle and all other eBooker readers like it, don’t.
Down the road there will be screen technologies which support E Ink, or something like it, as well as supporting the fast refresh needed for video and other applications ‘ companies like Pixel Qi have been showing such screens at this year’s CES. Power consumption is around 25% of a normal screen and they can refresh fast enough for hi-res video, but no devices yet use this type of screen. What the iPad uses is an LED screen, so the backlighting can be reduced dramatically depending upon application and it could be set on very low light for eReader applications, and if Apple did this, the other uses of the device would use up the battery and those used purely for reading would have a far longer battery life. It doesn’t seem worth doing that quite yet, but normal screens will get closer and closer to the performance of E Ink, in a short time frame, perhaps two years, in similar prices.
Qualcomm’s Mirasol technology uses a tiny amount of ambient light harnessing MEMS technology. Effectively 1,000s of tiny mirrors make the best of any ambient light so that the screen can be adapted to any amount of light. These screens are in their infancy, but may lead to a method whereby massively low power can drive video and reading on a single screen, but in these sizes that’s probably two to three years away.
All of this is to say that Kindle will not die tomorrow, though it might be diminished, and neither will other specialist reading machines. But in the three to four year, second generation iPad timeframe, general purpose devices will take over from specialists reading devices.
All of the publicity around the iPad was that it used the epub standard, whereas Kindle did not, but Sony has already gone down this route, so it’s not so revolutionary.
So it’s not so much going to take market share away from specialist ereaders, as expand the reader market to general purpose devices. If you can afford the iPad because you need an ultra portable web and email device, then the ereader side is free, and while you may never had been a candidate for a Kindle, you may now begin reading ebooks.
The iPad also has all the function of an MP3 player, and this works the same way. If you had budget for an MP3 player of maybe $150, you may now decide to NOT get an MP3 player, but instead get a device which has extra functions and use the money for that. You have to find another $350, but perhaps you can achieve that by putting off your notebook upgrade.
But it is the game playing features of the iPad which we think are its best, and which accelerate the demise of all hand held game playing architectures, such as the Nintendo DS and DSi and the Sony PSP. These are also multifunction devices, and have stretched their penetration by adding VoIP clients, Mobile TV clients, video download and store, web browsers and collaborative gaming platforms, using wi-fi.
The architecture of the PSP, reading over wi-fi from a remote video collection held on a PS3 somewhere on the web, can immediately be copied by Apple, with its home servers speaking to remote iPads.
These devices are bought for the same reason that the iPad will be bought, because little Johnny says he needs one, and parents are just as happy to buy something that his school books can be read on, as a pure gaming device.
We expect developers to focus here, simply because one specially developed version of a game can then run on the iPhone, the iPod Touch and also the iPad. The first two are already in place in large concentrations, while the iPad is simply a better screen experience.
Something like 70% of all App Store content is games, and we don’t see that changing, except to say that the numbers now are large enough to attract all of the major games publishers such as EA, which demonstrated its Need For Speed Shift game at the launch and praised the extra processing power of the A4 chip for gaming. But so far all of that energy went into the iPod Touch, and much of it will still go that way. At $199 to climb aboard the iPod Touch market, the $499 for the bottom end of the iPad market is a steep hill to climb and we think that only a small number of dedicated, slightly older, gamers will make the hop right away, plus those who really buy their children just about everything.
The big weakness of the iPad is the fact that there is no new store for video, except existing downloadable video, as seen on iTunes. Apple was supposed to close the loop with this device and the not so well received Apple TV product line, and have them both the target for iTunes TV, a cable rival made up of streamed, broadcast TV channels. Sure there will be ATSC M/H dongles made to output TV signals to the iPad, and there may even be MediaFLO dongles made for the iPad ‘ both relying on the fact that the iPad can play streamed video sent over wi-fi. But no new streaming capability was launched with the product, and even if it exists, it means that such a TV move by Apple will not arrive in time to take advantage of the immense 6 month lead it has on most similar devices.
The iPad itself could run the software which is in the Apple TV, and the device could send content to any wi-fi enabled TV, so internet TV could be sent to the iPad, converted there to a format that the TV can play and output over wi-fi. But it seems a long journey and something your Windows desktop or Apple Mac can do far better, feeding them both. It is content that Apple needs, in the streamed form, and similar to scheduled TV, in order to make the iPad impenetrable to rivals.
Tons of tablet devices will emerge in direct response to the iPad. It would have been suicide to launch a device without services and a business model, prior to seeing what Apple had to offer. Most of the devices launched in the next six months will be inadequate compared to the iPad, and then Chrome and Android based look-alikes, using Android Market as a lynchpin for services, will emerge and try to compete across the board.
But for the time being we see the iPad taking a piece of each market ‘ netbooks, notebooks, media players, ebook readers, portable gaming platforms, MIDS (mobile internet devices), Blackberries (portable email devices), but taking less than its fair share of portable video devices (so rest easy portable DVD players, etc’) until Apple innovates up a level and introduces iTunes TV (rumors say it is scheduled for the Summer, we’ll see).
If it takes 10% of 7 markets the number of devices will be significant (like owning one market 70%), but it will take a few years to reach that point and will not, in our view, generate enough money to keep Apple shareholders happy, and we are confident at Faultline that we have just seen the tip of the iceberg in this announcement and that a cool streaming video service announcement would have the potential to more than double the sales of the iPad. If that service included live ESPN sports games, they could quadruple. How likely is that? Well Jobs is the largest shareholder at Disney, which owns ESPN, so you work it out.
If the portable gaming console market is around 47 million devices a year, the iPad could perhaps take 5% of that immediately rising to 10% in a year or so, and on that alone it would get a long way (2.3 million) towards the estimates which financial analysts are touting, of 3.6 million iPad devices this year.
If the iPad merely took a 3% or 4% of the netbook market, as the first smartbook, then from a 33 million device market last year, and potentially a 50 million device market in 2010, that could potentially add 1.5 to 2 million devices alone.
But what about people simply upgrading from iPods, mostly from the iPod Touch. With around 21 million buying iPods last quarter, that’s 80 million a year, and once again even a 2.5% share of those would yield another 2 million customers. We are already at 7 million iPads in 2010 devices (we accept that the iPad will only start in the US and only be available there for part of the year, so the real number will be way under 7 million), but this gives you a feel for how much Apple is low-balling expectation to financial analysts, pushing a number around half this. Apple will sell all it can make, if 3.6 million is the type of number it expects to make.
Meanwhile many of the published words on the iPad focus on the fact that it never had a camera after all, that there is no proper USB port, and that Adobe Flash once again is not supported on an Apple device. Big deal. These are all sideshows.
Apple has introduced this device conservatively, and will have ordered components in a conservative manner. The iPad has many more announcements ahead of it, designed to shake competition from one segment or another and we will see Apple spin a low number of sales as success for the next two quarters, after which it will have had to have made the device more appealing with service additions.
We’ll leave you with this last thought. We never bought an iPhone, because everyone we see on the train already had one, and we didn’t want to be the same as everyone else. Think how much more accentuated that effect will be with these whopping great devices being pulled from briefcases everywhere by style conscious Neanderthals. We’ll probably pass.