Monday, June 28, 2010

Convergence vs. Format vs. Channel – Why the iPad has not yet Won my Heart

I am in the throes of a continuing dilemma: to iPad or not to iPad. The Apple legions would tell you my agonizing is futile, that Apple will dominate the “netbook/bookreader” space the way it’s dominated the “mp3/mobile phone” space. I am not yet convinced, and here’s why.


There is certainly room in the market for a portable device with a larger screen format. The larger format lets you interact with richer information sources and given a robust input mechanism such as a keyboard, it let’s you richly tie your own information to the information you interact with. This is compared with the smaller handheld platform which in many ways limits the depth of information that can be dealt with. Think of blogging vs. texting; think of the difference in web surfing on a phone vs. a laptop; or reading a book on a Kindle vs. a phone. And the fact is that the converse is also true. No one is going to be holding a iPad up to their ear to take a phone call, nor sticking the iPad in their pocket to listen to tunes on the school bus.

The question for me then become what set of features will something of this format converge upon, and what sort of business model captures value from that? The iPad is not and will not simply be a larger iPod. Users who choose it will have unique requirements and the types of information one interacts with may not be open to the same business models that information sources do on the iPod. Internet, email for all practical purposes are free. Music and cellular service were not.

Media Anchors the iPod

The exception to the media richness rule for handhelds is media, music and voice. One can store and retrieve this sort of content easily from a handheld device. The interaction with this type of content then is less about codifying knowledge but by instant retrieval in a contextually relevant situation. One interacts with their world by bringing their music into it, accessing it instantaneously according to the immediate desires and needs.

Music anchors the iPod in more ways than usage patterns. Apple’s business model is based upon it. Let’s be clear about it. Apple is not just a purveyor of iPod’s. Apple is a media store. Apple has a phenomenal market cap, not because it sells iPods, but because it sells the music that you put on the iPod. Apple has become the dominant channel for media. Think of the mall CD store around only 10 years ago. They are all but extinct.

So the logical question is: what will anchor the iPad? Is there a ongoing revenue stream that Apple can take over that will be of the equivalent of music for the iPod? Apple thinks its written media. Make no mistake about it. Music is to the iPod what books, magazines, and newspapers are to the iPad. If Apple cannot dominate more complex textual media the way it dominated music its business model will be significantly diminished.

It’s unclear to me yet that the stickiness of music for the iPod will necessarily translate to the iPad and text content. There are several reasons for this.

Amazon and Google

First, much of the textual media we access is already free. Internet, blogs, etc. All one needs here is simply access to the internet. And while the iPad may be a better platform for accessing the information, much in the same way that you can contextually access music on the iPod, without a viable keyboard, you’re ability to manipulate and create your own such content limits your ability to interact with the media in the additional dimension that this expanded format would allow.

Apple claims it’s reinvented how one interacts with such basic programs as email or calendaring. This may be the case, but let’s recall that Google dominates “the cloud.” How long before Google puts similar features onto it’s already popular versions of mail, calendaring, and documents, and before netbooks with touchscreens allow Google to make use of similar looks and feels, much like it’s Android platform now snipes at the iPhone platform.

And what about books and magazines, the closest analogue to it’s iTunes store? The problem here is that electronic channels are already well established. Unlike the burgeoning electronic music industry which Apple helped create and solidify in the midst of it’s early chaotic beginnings, we’ve been buying books online since the beginning of the internet. Have they been e-books? No. but I counter that this is not what matters. Once you’re selling books electronically, it is really a small step to selling electronic books. Amazon and Barnes and Noble already are established as online sellers of books. They have power with book publishers. Apple is not the pioneer in a new channel, but rather a newcomer to already established set of channel relationships. Don’t underestimate that power. Apple’s early domination of the e-music channel allowed it to command price premiums and gave it power to compete on price at the right time. It used proprietary standards only until it’s iTunes dominance was so well established that reversing it’s position on standards actually served to buttress it’s already entrenched position. Amazon [and Barnes & Noble] commands that sort of position with book publishers now and they are well established “clicks and mortar” players.

The Convergence Conundrum

I’ve never owned an iPod, but I love the platform. I’ve decided that once my current mp3 player (an iRivier H10 I bought almost 6 years ago) dies (and contrary to jokes about all things Windows-based, it continues to be rock solid performer – much to my chagrin) that I’ll replace it with an iTouch (no iPhone; my job supplies my cell, iPhones will never be enterprise standards, and I don’t need more small gadgets.) Here’s the problem. Once I have a device that runs the Apple apps platform, why would I need two? Wouldn’t I buy the device that best meets the needs of only those incremental things that I still lack?

This is part of the issue. It’s easy to see how the integration of phone, music, and small packet internet integrate well into one package, i.e. how they converge. But once we establish the viability of a separate device, the additional advantage of convergence becomes less sure. This is what Amazon is betting on. It’s what Google is betting on.  There are 3 points of convergence that are already established and it is unclear which will actually win. Google owns the convergence of the cloud. Amazon owns the convergence around the ebook channel. Apple wants to own the convergence of the device.

My Bet

My bet here is that the channel and hence Amazon will win. Amazon wants you to buy books through their bookstore but use them on any device you want, including their popular Kindle reader, and including the iPod/iPad platform. Apple wants you to buy books and only use them on their platforms, hoping its platform is sticky enough to convert you. Amazon already does significant volume and reaps significant profits from its books sales and so has price advantage. Neither will advocate open standards until one wins out.

My bet is that the platform will not establish the same sort of stickiness that it did in the case of the iPod, because Apple is not starting from the same sort of position and in an industry with the same sort of immaturity as the e-music industry.

Here’s where the competition will come from.

Amazon will continue to sell books for the best pricing. Publishers won’t like it, but then neither did music distributors when Apple did it. Until people figure out exactly how e-books are best read (small devices, backlit LCD, or EPaper) Amazon’s platform agnostic strategy seems better to me. Amazon has just dropped it’s price on the 2nd gen Kindles to $198, and I predict that Apple will eventually be forced to remove the Kindle apps from it’s app store. Google will develop and proliferate next gen operating systems, enabling netbook manufacturers who cannot compete with Apple’s resources to establish iPad-competitive platforms on their machines (think Android). Next gen netbooks with touch screens and these updated operating systems will come out faster than expected. And at the prices that manufacturers will be willing to charge under Apple’s premium pricing, they will compete.

To be sure, Apple has it’s brand, and it’s legions of loyal (dare I say rabid) users, and they will certainly get spill-over sales from this, although for reasons I’ve mentioned, and because lots fewer people read books than listen to music, it’s difficult to say how that will play out. They key will be if Apple and it’s app developers can develop apps that make use of the iPad’s unique format for as of yet un-thought-of uses and if they can do this faster than the entrenched competitors can refine their particular points of advantage.

As for me, Amazon just released an update to its Kindle for PC software to add the features I needed that were missing (screen color changes to adapt LCD screens for more comfortable reading, annotation capability, and support for screen rotation). My netbook is now the e-book reader I need, and short of the Kindle’s e-paper, perfectly adequate, especially given it’s ~$250 price tag. Given Amazon’s still unbeatable e-book pricing, I’ll be buying books from their store, and unless Apple pulls the Kindle apps, I’ll still have the option of switching to an iPad should the platform play out differently.


Kendall J said...

Well I didn't think I would see one quite this fast, but here it is. An "Android" tablet:

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