Why the iPad Matters — even if you are already sick of it.
The PR was stunning, the product impressive, and the strategy tiresome.
Apple stoked rumors of a dreamy tablet for either two years old or thirteen, depending on how you count. For six months, the leading tech blogs have been quivering with speculation about the “Jesus tablet”. One blog, Gizmodo, offered $100,000 cash for an hour with an Apple tablet and lesser amounts for photos. Apple sent the lawyers after them and the cone of silence over Cupertino remained intact.
As the Wall Street Journal memorably noted, the last time there was this much excitement about a
tablet, it had commandments written on it.
Yesterday’s unveiling was attended by a few hundred journalists, selected by Apple for their demonstrated susceptibility to Jobsian hypnosis. They had all taken a bite of the forbidden fruit and dutifully played their assigned roles. Six months ago, they circulated Apple’s deliberate leaks about a $999 price point. Today, they drooled over the iPad, marveled at the $499 starting price, or sniffed at its inadequacies. For Apple, it’s all good — there is truly no such thing as bad PR.
Has Apple once again defined a new category of computing? Probably. Tablet computers are going to be an important way for many of us to consume media and the iPad looks to be the first important tablet.
But as he did with personal computers and music, Steve Jobs has tried not only to create a market, but to control every aspect of it as well. Last time the spoiler was Microsoft, which left Apple a tiny sliver of the market. This time, expect Google to offer consumers the choices that Apple would deny us. In Silly Con Valley, the fun never stops.
The New Taxonomy
Jobs opened with the right question: is there room for a device that sits between the PC and the smart phone? The answer seems to go something like this: create content with a computer, communicate mobile content with a smart phone, and consume content with a tablet.
- Create on a computer. If you are working intensively with photos, video, words, numbers, or charts you are going to do it on a computer and eventually on a cloud-connected-computer like Google envisions with its Chrome OS.
- Communicate on a smart phone. If you are talking, Tweeting, messaging, using GPS navigation, listening to music, conducting routine transactions, consuming location-based services, viewing simple content (brief messages, short videos, a few pictures) a smart phone is ideal.
- Consume on a tablet. But if you are consuming media in a serious way: extensive multimedia browsing, gaming, reading lengthy content, watching a movie or a show that is more than a clip, or as will become increasingly common, a combination of these things, a high performance tablet is much better than a phone or a laptop.
Of course you can do almost anything on any connected device. You can write a novel on your iPhone, you can play games on a laptop, and you can Tweet from a tablet. You can email or browse from any device. I have now read four complete books on my iPhone — not optimal, but it doesn’t suck. I have read zero books on a PC and
perhaps 20 books using e-ink style readers. But the framework is useful because as hardware becomes free and both software and files move online, we are spending more time in front of a screen than ever before. Being in front of the right screen matters.
A tablet is ideal for professionals who work on their feet. I cannot see the world’s 9 million physicians making rounds with an iPhone or while holding a notebook. But medical information systems that sync with smart tablets are a huge market (whether Apple can get out of it’s own way and serve this market is another question). Transportation and freight, process-intensive industries like chemicals, steel, or paper, outside sales and any professionals and anyone else who is on their feet all day already consume tablets running specialized, dedicated applications. A general device that can also run specialized applications makes a ton of sense.
More fundamentally, the iTab is built upon the UI of the future: human touch. 10,000 sensors that respond to your fingers, a variety of virtual keypads and keyboards, and finger motions that are likely to be completely unhinged within a few revisions. Remember, a lot of people did not want an iPhone until they held one in their hand. Good reason to think that the iPad will be even more seductive — especially since the processor is apparently unworldly fast.
Gaming, Browsing, and Reading are a tablet’s killer apps. Watching movies may emerge as a fourth, but movies are high bandwidth. work fine on laptops and, unless you are on an airplane, more fun to watch on a huge screen with other people around.
What Apple Learned from the iPhone
Three things surprised Apple about the iPhone. To start with, the App store results blew them away. Nobody expected 3 billion downloads.
Second, gaming. The popularity of iPhone games stunned Apple. Portable, connected games are fun and powerful — but nobody realized how games would dominate Apps. How important is gaming? Two thirds of all online video gamers become addicted for life: 217 million people worldwide and growing. Sales of video games will soon pass sales of books. The iPad will accelerate this because and it has a hand held screen that is eight times bigger and basically disappears. You will not see the device — just the game. With the release of the SDK yesterday, every serious game for the iPhone is being expanded and enlarged for the tablet. The applications are quite likely to be amazing.
Third, the iPod Touch. Who would pay $400 for an iPhone without a phone? A lot of people. The iPod touch is on fire — Apple is selling them in record numbers. They are basically pocket sized iPads.
Browsing on the iPad will be astonishing because it is fast and tactile — again, the device will disappear. The great illusionist was not simply working his magic yesterday when he claimed that “seeing it is nothing like touching it”. My bet is that surfing on an iPad will be very compelling and will make mouse surfing seem pedestrian. We will see, but all the talk about “magic” yesterday suggests that Apple is keeping with its tradition of selling a very cool experience, not just a cool product. Will the tens of millions of older people who are computerphobic be tempted to use iPads? Yes.
Which leaves reading. The iPad will make an excellent reader for newspapers and magazines. It will not save traditional ink-based print media businesses because there is still no business model that completely replaces their rapidly vanishing advertising revenues. Like the iPod, the iPad will unbundle content (“I can get you the daily lead story from the Wall St. Journal, all of the New Yorker cartoons, and anything written in the NY Times by David Brooks, Tom Friedman, or John Markoff for $.29/day, delivered to you by 6am rain or shine”). Publishers will hate seeing their newspapers and magazines unbundled just like labels hated seeing their albums unbundled, but it seems certain to happen.
Textbooks: The Tablet’s First Killer App
In a look at textbooks markets here, I argued that the Kindle will disrupt textbook markets. The iPad is even more likely to do the job. Not by accident do four of the five publishers who yesterday announced that they would produce content for the iPad have very large textbook divisions. Textbooks are a great market for tablets for several reasons. First, America’s 16 million college students are early technology adopters. Second, they can be forced to adopt technology by faculty and college fiat. 23 years ago, I was one of the first students ever required by a college to buy a laptop. Mandating a $500 tablet will not be a hard decision for many colleges, especially if big textbook publishers subsidize tablets in exchange for colleges adopting their course bundles.
Third, textbook publishers are ready. They have already invested a lot in electronic textbooks and multimedia course content. McGraw-Hill has more than a thousand electronic textbooks. Thomson Learning’s unit Cengage Brain sells e-textbook and chapters. Freeload Press, launched in 2004, offers ad-supported e-textbooks. Fourth, textbook publishers prefer electronic editions because they destroy the secondary market.
You cannot resell your electronic textbook (not yet anyway).
But traditional publishers will not be the sole beneficiaries because tablets will revolutionize the delivery of open source content. Open source publishers have an enormous amount of high quality material ready for tablets. OpenCourseWare was started by MIT to make course materials available online for free and is growing rapidly. They have hundreds of content partners that have assembled material for nearly 2,000 courses. Their website gets more than 3 million monthly visitors. Connexions has 15,000 modules that enable faculty to develop instructional materials online or recombine with existing materials. Everything is open-licensed and available for use worldwide.
The Hewlett Foundation-backed the Open Education Resource, a clearinghouse that develops and promotes open content. The Multimedia Educational Resource for Learning and Online Teaching (MERLOT) is a Cal State digital library of 20,000 online course materials used by
67,000 faculty to develop teaching materials.
The digital textbook market has not taken off in part because students are not keen to read books on laptops or netbooks. But Apple has deep distribution relationships in the educational market. Within a year, expect lower cost iPads to be flooding colleges. In short, e-textbooks represent a smoldering market in need of a tablet to set it ablaze. Several startups, including one announced today called Inkling, are poised to help small publishers and authors move educational content to the iPad.
If students buy $2-3 billion of printed college textbooks today, how much will they spend on printed books vs open source digital media in five years? In ten? When this market changes, it may change quickly because a quarter of all college students are replaced each year, so it has a constant supply of customers with unformed habits. It is also a classic “broken” market because, as with prescription drugs, the people who make the buying decision (professors) are not the people spending the money (students).
These markets are easily politicized because customers feel victimized.
It is easy to imagine students, enamored with their cool iPads, demanding that faculty move to open source courseware and faculty, wanting to be technically hip and economically accommodating, rushing to embrace the cause.
Will the Market Disappear?
How fast will the textbook market change?
In 1991, encyclopedias were a $1.2 billion market dominated by Britannica, which had a 50% share. Britannica’s secret weapon was its 2,000 strong sales force that sold the $1,200 product door-to-door as a key to social mobility (“madam, no family in this neighborhood would deny their child the advantages of a complete set”). With an advisory board consisting of more than 80 Nobel Laureates, Britannica kept World Book, owned by an obscure investor named Warren Buffett, stuck in the #2 position.
Two years later, Bill Gates became convinced that CD-ROMs were the next must-have item on personal computers. To promote demand, he decided to put an encyclopedia on a CD. When Britannica and World Book wouldn’t talk to him, he licensed the content of a third-rate encyclopedia sold in grocery stores — Funk and Wagnalls. He crammed it onto a CD, tossed in a few minutes of video clips, priced it at $395, and charged into the marketplace.
Nothing happened. Encarta was a joke.
So Gates dropped the price to $99 and in 1996 saw Encarta sales reach $100 million. Encarta vaporized Britannica. The high fixed cost company imploded and was liquidated for less than its book value. With a $99 product, Gates cut the total demand for encyclopedias in half from $1.2 billion to $600 million. By 2001 he cut the total market in half again. With $200m in sales, Encarta had destroyed 75% of the encyclopedia market and owned two thirds of what remained.
That same year a kid named Jimmy Wales assembled an open source online wiki and opened Wikipedia to community contributions. Today, there is no market for encyclopedias outside of a small online subscription business. Digital technology and open source content combined to destroy a $1.2 billion market in less than a decade. Textbook publishers who are salivating at the arrival of the iPad should think very carefully about what the same combination will do to their businesses.
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