John Akerson's Thoughts

Business, technology and life

Making Sense of the iPad

Fortune Magazine interviewed Jeff Bezos recently in Seattle. He drew a difference between Kindle and the iPad – “I think there are going to be a bunch of tablet-like devices, its really a different product category. The Kindle is for readers”

“Amazon accounted for about 80% of all electronic book sales last year”  Amazon reported a profit of $299 million last quarter, and electronic book sales  are a huge component of that. Amazon has about 600,000 books available, and sells, on average, about 24 eBooks per year, per Kindle.  I understand the Kindle.  (I may understand it better than investors, who have lowered Amazon’s stock since the recent Kindle price cut.) Amazon’s profit from the Kindle works like Gillette’s profit from selling its latest razors.  The razors don’t matter. Sure, Gillette makes money from the latest, but the blades are the real source of profit. That article suggests it, but it is easier to understand when you realize the math behind 24 ebooks per Kindle, per year. Apple hasn’t released numbers for their iPad,  but the iPad isn’t limited to books. It can download apps, music, books, and every other “blade” that Apple can make available to it.

So – back to the Ipad.  From a technology perspective, from a capabilities perspective and from every other perspective, it is crystal clear that there is nothing unique, revolutionary or special about the iPad.  I didn’t understand why Apple would build it or why users would buy it.  It made no sense to me. The market slice is between Kindle, Nook, Droid, iPhone, Netbooks and PCs is razor thin. Why build and position a device between them? 

Yet, for some reason, iPads sell, amazingly.  Why?  I’ve tried to make sense of the iPad. I’ve tried to  figure out why and failed repeatedly.  Is it the existing user base? Certainly that has a lot to do with it, but if you already have an iPod touch, an iPhone, an iPod, and an Apple Mac, do you really need an iPad?  Conversely, if you have an app, or a song and it is already in the iStore, do you need to sell to the same user-base that’s already bought it?  When you’ve seen Microsoft’s Origami succeed at nothing and it was essentially the iPad minus Apple’s marketing, when you’ve seen Dell and HP fail to sell touchpad computers in any real volume, and when you already have iPod, iPod touch, and iPhone – why put the money into development of an upsized iPod touch-like “me-too” device.

I’ve found the answer in a most unlikely place. I was amazed when it finally clicked.  I was reading Eddie Alterman’s editorial in the July 2010 Car and Driver magazine. I thought it was such an odd place for digital and technology enlightenment. Shoot, it was in the PRINT version, and I couldn’t find a link anywhere to a web-version. The interesting thing were his thoughts about the iPad. He sees the iPad as the cutting edge slicing the distinctions between print and digital media. The iPad is a “convergence of print and digital values (that) will give writers, editors and art directors all kinds of opportunities to deliver more engaging, more entertaining and more useful stuff.”

The iPad is an animal that eats brand new kibble. Media wants to feed it. Media wants it to succeed. For every small-town or mid-market newspaper that has canned its entire local news group. iPad might be an answer for all the people who want media in the 21st century to find a way to be profitable. Eddie suggested how this one device acts as a shining star lighting up a dark sky – beating back the gloomy futures that writers feared.  Creators of content and consumers of content can converge at the iPad.  In that place it makes enormous $ense.  For media that wants to feed the iPad in a quasi-desperate sort of staving off extinction gasp, iPads, Nooks and Kindle’s are magical. Still – does the iPad make sense for Apple?

Of course, and it goes way beyond Amazon’s philosophy for the Kindle. Look at it this way: If you could sell 3 million razors in the first 80 days – you might not need to sell any blades at all. At this point, I could buy a fair netbook for $300, a kindle for $169, and have two devices instead of an iPad. Those two devices would enable me to read anything, go wireless, Skype, run a bunch of programs, and generally do a dozen times what the iPad does. So, in those terms, the iPad makes no sense.  Somehow, Apple sells millions of “that which makes no sense.”  That makes enormous financial sense for Apple.   iPad = $$$$$.  

Do they truly have no competition able to compete with their marketing prowess and consumer evangelism?? Why not?  What do you think the next Apple media-consumption device will be?

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June 29, 2010 - Posted by | Business, Competitive Advantage, Marketing

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