iPain: What the iPad Does to its Competition

The iPad is a statement, whether you like what's said or not. We analyze.

Consider what Apple and Company might be trying to kill with the iPad. The answer is often found when you follow the money.

Revenue Streams

Many people were waiting for the iPad to see what Apple had to say about what tablets, ereaders, and the entire genre was going to be. The world now knows the specs. Some prognosticate that the iPad is going to be a profitable hardware device for Apple in terms of how much it, per unit, the iPad costs versus sells for. Ostensibly, the iPad makes money for its hardware. The software that it's going to be supplied with is more difficult to calculate in terms of Cost of Goods Sold.

The second revenue stream is whatever iBooks.com becomes, and how much stuff is sold through it. Apple will take a commission. Some will be one-offs, like books or zines, and others will be ongoing like magazine and newspaper subscriptions. Already Amazon is in a tiff with a large publishing company over pricing. This is an interesting fight.

A third revenue steam comes from whatever carriers can make on the 3G deal. An all you can eat deal at $29.95 a month isn't like to make carriers much money, but it will get them new subscriptions (a/k/a subs), and probably subs that are pretty loyal despite the lack of contract. Whether these subs will be able to join GSM and CDMA networks remains to be seen. There may also be plans that offer all you can eat whilst putting their heel on the garden hose and limiting available speed or delivery of data. We'll see. Buyers of the iPad may be more interested in content that constantly switching carriers.

A fourth revenue stream is accessorizing, and the docking station that turns the iPad into a netbook will be high on everyone's list. Tapping a screen is only good for a little while before your wrist will hurt. Other accessories from Apple and licensed to others will undoubtedly product more revenue in this category. There's often a lot of decent profit margin in this revenue category. And I don't think that this version of the iPad is the last one-- more are to come if any of the other 'generations' of products tell a tale.

Who Hurts

If you were Intel or most any other CPU and chipset maker, you're bummed about the iPad but keen on the category. Apple will use its own A4 CPU, and MacWorld has a great article annotating the background to the chip. So, semiconductor makers, you're toast. Will Apple extend this to its Mac notebook and desktop line-- even its Xserver? It's plausible, but the design goals for the iPad are slightly different for larger products, so it's probably safe to say that Apple's relationship with Intel for these products is safe for now. Others will experience a boon in this genre, likely the usual suspects of Intel, AMD, and nVidia. The cell processors seem to be on the way out for this category of device.

If I were McGraw Hill, I'd be sending shareholder nastygrams to their CEO, who apparently pre-announced the iPad. Funny, Apple likes to pretty much kill organizations that break embargoes. They're funny about that. And so, McGraw Hill wasn't named in the announcement.

But the basic models of how much books are going to cost, magazines, newspapers, and other paper media products really hasn't been determined yet. The interim scrape (now apparently 'solved') between Amazon and MacMillan is just the tip of the iceberg. It's my humble opinion that the organization that really hurts is Google.

Why Google Says Ouch

If the Nexus One Android phone is the 'open' answer to the iPhone, it's a little late. Yes, it takes a while for open platforms to win adherents and fans. Yes, it's a nicely designed phone with a bunch of software available for it. Google, for better and worse, can't brand their way out of a wet paper bag with a sharp knife. This seems counterintuitive as Google is known for their AdSense which is an enormous cash cow. Yes, Google is trying to find ways to get to users quickly and easily, what with buying off airport WiFi systems across the country, and underwriting additional methods of user-tracking.

What's gets mired down is the ability to break into the iPad platform ecosystem with Google Books, and maybe Google as a search engine. Note that the iPad doesn't and won't use Flash, which means no YouTube on the iPad. Apple can in one swoop, shut Google out and also please the RIAA, MPAA, and the newspapers by forbidding it. The Apple iPad CPU is a proprietary one, and Apple can use its own form of 'net-neutrality' should they desire, to prevent Flash/YouTube work-arounds from being very useful. That ought to make the 3G carriers happy, too.

So if you're buying into the Apple Happy Family of Products, you're also not buying into any one else's 1) cell/mobile phone and ecosystem 2) netbook and associated ecosystems, 3) tablet/ereader/xPad device and associated ecosystems and you're also connected to the Apple Development program for better and worse.

Better means that there are 140,000 apps that already are supposed to work from the iPhone app stores on the iPad whenever its delivered. They work no where else. Porting apps to Android and ChromeOS won't be awful, but it won't be the first goal on developer's lists, likely. Google and Apple aren't friends anymore. Worse, it's said that Apple's Steve Jobs is sending ideological barbs about Google's ostensibly do-no-harm mantra. Something about BS.....

Others Saying Ouch

No vendor is going to publicly say: ouch. It doesn't happen.

The dozen or so tablet products seen at CES may be a half dozen, and soon. The rationale heard on the streets is that $499 is too low of a price to compete with. That's not to say that everyone's giving up by any means. My guess is that the competition is heavily SE Asian, and taking on Apple is just the kind of interesting thing that can happen when your supply chain is as astute as Apple's. The ecosystems to compete with Apple's is now the key barrier. Partnering with someone that can surmount the problems, compete with Amazon, and play on all of the courts where Apple wants to win will be key. Perhaps Microsoft will be in an acquisition mode and will simply buy what they need to once again pound Apple into cider.

Afterthoughts..

Gone, friends, are the days of compatibility, open platforms, interoperability. Yes, Linux and Linux via Android seems to have openness, compatibility, even interoperability. And Linux was and still is a barely contained anarchy albeit an anarchy with admirable goals and killer coders. It lacks the leadership needed to carry it forward. Google can't market. Like other organizations filled with brilliant engineers, it lacks warmth and charisma and chutzpah. And I'm worried about the evil rep it's getting. Privacy issues are real and they're not being addressed.

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