iPad Revisited

I’m ready to concede that my prediction that the iPad would be a dud is flat out wrong. I will, however, couch my concession with the observation the iPad has, at least not yet, fundamentally changed the way we use the Web but rather it has added a very powerful new way to use the Web. The iPad has been additive to the market, and while strongly disruptive it is not transformative, but whether Apple sells 10 million iPads next year or 25 million, even though the limited time in the market makes it difficult to predict, it is safe to say the number will be very big.

The iPad does not appear to be cannibalizing Mac sales, according to recent sales statistics released by Apple, however it is evident that the device is depriving Apple of additional iPod sales, which on balance isn’t a bad thing considering the disparity in price points. The fact that iPad users are also a robust Mac segment underscore two important points, the first being that an iPad isn’t very useful without a computer to tether it to from time to time, and iPad consumers are so far loyal Apple consumers who have multiple products from the company.

One area that Apple is seriously impairing competitors in is the netbook category, which I predicted would not happen. Clearly we see a shift in netbook consumption going in favor of the iPad, which confirms something we already knew about netbooks which is that they are compromised devices that serve as something people use in addition to a desktop or laptop computer, and something we didn’t know about the iPad, which is that the market has accepted the iPad as a true multi-purpose device rather than just a better way to surf the web or take advantage of mobile apps.

I will offer a cautionary note on the netbook numbers, which is that this market moves in relation to the school year so before we call the ball on netbooks vs. iPads we should wait until the back-to-school shopping season gets fully underway to see how the price differential impacts device sales in each category. I think we will ultimately see that iPad sales accelerate as the new school year approaches but in this economy it’s worth waiting until the numbers actually start coming in.

Perhaps the most powerful contribution that the iPad has made is that it has broken the Curse of the Tablet and unleashed a new generation of devices that embody many of the most significant characteristics of the iPad, the form factor and application characteristics. Cisco’s recent product announcement, along with the many Android tablet announcements underscore how influential the iPad has become in shaping competitive product plans.

During the demos of the tablet, the most remarkable aspect was how interactive the Cisco tablet experience will be, compared with the hottest tablet out today, the Apple iPad. Cisco is building a device around collaboration, not consumption, which makes sense given how collaboration is a big focus point for Cisco and for getting work done.

[From Cisco Crams Its Broad(band) Ambitions Into an Android Tablet]

Lastly, no I am not an iPad user and I don’t plan on becoming one, in fact I am even ditching my iPhone for an HTC Incredible (as soon as Verizon ships it to me). Apple is no longer the company I used to love, their business practices are increasingly vindictive and petty, examples of both aspects very well documented. While I will remain loyal to their laptop computers because they are hands down the best available but I really hope the company devotes engineering cycles to overhauling this product line as it’s getting a little long in the tooth. I will buy a tablet at some point but will look first to the many Android offerings that are in the pipeline, and I am very interested to see what HP does with the PreOS in a tablet offering.  

Traffic or Device Sales, What Matters Most?

James wrote something yesterday that included this graphic:


What caught my attention, as was the intention of the graphic, was the Android traffic number climbing from effectively zero to more than 40% in just a year and a couple of months. Obviously this was the intention of the graphic (note the green color of the line… designers use green to symbolize wealth) but given that it is published by Admob, which is being acquired by Google, I think you would have to take this chart with a healthy dose of skeptically driven “show me” before you accept it as fact.

The reason I suggest we have some skepticism about this is not because the data is fabricated but because it suggests something very specific that is different from showing Android is beating Blackberry, Windows Mobile, and Palm (although it is believable on the latter) in one statistic that matters, device sales, but rather that application usage on Android is achieving parity with Apple.

I downloaded the Admob Mobile Metrics Report and it is very clear, this chart is derived from an analysis of Admob’s network traffic, not mobile network traffic by device or by carrier. Admob, which serves ads into 15k websites and apps on iPhone and Android, analyzes their traffic and trends it according to the type of OS and type of handset (smartphone or feature phone), but also internet devices like the iPod Touch and the upcoming iPad.

Admob claims 10 billion monthly impressions, which no doubt provides a snapshot of trend data but one subject to a lot of interpretation as it does not include meaningful traffic from Windows Mobile or Blackberry devices as those markets have demonstrated less tendency to browse websites with their devices. Let’s set aside for a moment the strategic implications of this observation by agreeing that Windows Mobile and Blackberry have squandered a big headstart in this market which enabled Apple to brilliantly exploit web browsing as a core competency of the iPhone… and later apps (although as I have pointed out before, Apple was originally hostile to external developers building apps for the iPhone).

This leads me to the main point of this post, which is to ask the question what matters more, how many devices are sold or how consumers use them? There is no denying that the device sales underpin everything for handset manufacturers because that is what carriers respond to and where the handset manufacturers generate revenue, but there is no denying that despite impressive sales numbers by RIM and Microsoft (which isn’t a handset manufacturer but should be considered one for the purpose of this analysis) but at the same time each of these platforms has become less important in the consumer space as the iPhone and Android have dominated the consumer mindset.

I don’t have hard numbers to back this up but I think anecdotal observation is undeniable, consumers use the iPhones and Android devices in a fundamentally different way than their Blackberries and other smartphones. I do recall a statistic that I read recently which said the average iPhone user has 11 installed applications versus 3.5 for the average Blackberry user, and I suspect the divide is equally stark against Windows Mobile devices, and it’s clear that Android was developed to mimic the iPhone in this regard.

If we accept that the iPhone/Android markets are doing more than just reading their email and making calls, does this reflect better capabilities of the devices or a far more simple process for acquiring and installing apps on the iPhone/Android? The answer is clearly yes because the app marketplaces and extensive third party developer capabilities, as well as the unique aspects of the handsets, have resulted in a massively more extensive and vibrant market for mobile applications than on the Blackberry and Windows Mobile counterparts. No denying this.

Now here is where things get interesting. Carriers price their wireless plans with voice and data components, with data predominately offered as all you can eat pricing so with data consumption growing at over 100% annually the carriers are seeing growth in the one part of their network they can’t monetize while at the same time incurring significant capital expenditures for network build out. That data traffic has been surging creates a range of problems for carriers who by all accounts cannot expand their networks fast enough (or afford to when they can’t charge subscribers $60 or $70 a month for data), including degrading voice capability (which is profitable) to add to data network bandwidth.

The other problem that data presents is that it erodes a business that is super profitable for carriers, SMS which generates about 20% or $200 billion of global telco revenues. As apps increasingly provide notification capability and instant messaging, carriers will be put in a real quandary and I suspect we will see them throttle apps that infringe on their core businesses (like voice and SMS), as well as apps that are bandwidth hogs (like Slingbox for mobile).

There is a fellow by the name of Andrew Odlyzko that you should take the time to read up on if you are interested in these topics. Andrew is a Professor in the School of Mathematics at the University of Minnesota and by all accounts one of the most accomplished researchers who specializes in the economics of network consumption. Odlyzko believes that voice is seriously underrated as a market and carriers are making a strategic error by not improving the quality of voice and seamlessly integrating voice with data, but he also asserts that data traffic rates will fall from their aggressive growth rates to somewhere around 30%.

Where this brings us is full circle, if mobile network traffic does trend down then the lines on the network traffic graph provided by Admob would converge, or put another way, normalize. It’s not to suggest that Admob is wrong, only that you have to look at their data with a complex set of filters that put into perspective the limited solar system they are measuring. The other implication of all this is that all you can eat data is likely a phenomena that consumers will not enjoy in perpetuity, or access to mobile apps will be filtered according to the bandwidth they consume. I think it is also plausible to consider that mobile data pricing plans will be tiered according to the device the consumer is using, as in Blackberry users typically use less data therefore have a cheaper data plan than iPhone users.

Whatever the eventuality, one this is clear and that is the wireless market is getting much more complex.

Android & iPhone, Same Thing Only Different

I watched the Android coverage over the last couple of days and quite honestly, I don’t get it.

Mossberg comes out with a column that basically says, to paraphrase, “the Android is a real competitor to the iPhone, here’s all the things that are better on the iPhone.”

“Google’s new G1 phone announced today is the first real competitor to the iPhone. Like Apple’s product, it’s a serious handheld computer with a powerful new operating system (called Android) and a clever touch-based user interface. Like the iPhone, it’s likely to be a major new platform for third-party software. But it’s also very different, and may appeal to different buyers.”

But then he goes on to point out:

1. Tightly bound to Google Contacts, Calendar, and Gmail. No Exchange sync.

2. “The G1 won’t win any beauty contests with its Apple (AAPL) rival,” and “still, it feels pretty good in the hand when closed, although I found it more awkward when opened. ” So it feels good and awkward.

3. “The web browser is based on the same open-source technology as the iPhone’s, but works differently.” Same thing only different…

4. No street view in google maps… which is kind of ironic considering it’s, you know, GOOGLE maps.

5. “The G1’s multimedia capabilities are less polished and complete than the iPhone’s.”

6. No built in video player, gotta go download it. There is a Youtube player but no video player.

7. “And it lacks the iPhone’s ability to change the orientation of a web page or photo by just turning the phone” and no flicking through photos with your finger.

8. The G1 also has much less memory than the iPhone.

On the pro side, the Android does have copy/paste, which the iPhone desperately needs, and MMS, which nobody uses.

Gizmodo came out today with a review that is less generous than Mossberg’s, who typically plays it down the middle. Is Google spiking the packaging when they ship this handset out? Is there halo of sunshine that emanates from the box when it’s opened?