The Network Garden - Mark Sigal's Blog

Integration versus Fragmentation: Making Sense of Apple's Q4, 2010 Earnings Call

There is a classic scene in one of my all-time favorite movies, ‘Boogie Nights,’ which chronicles the rise of the porn business in San Fernando Valley in the 70s and 80s. 

In it, aspiring adult film star Dirk Diggler (Mark Wahlberg) readies for his first film, when upon disrobing, the shot cuts to Scotty J. (played decidedly fey by Philip Seymour Hoffman), who upon seeing the size of Diggler’s greatest “asset,” conveys a sense of shock, awe and bewilderment.

Flash forward to yesterday’s Apple Earnings Call, and the 'Diggler on Display' moment was when Apple announced that 14.1M iPhones sold in the quarter (40M for the Financial Year), and the only gate on the company’s ability to grow that number is increasing supply, not growing demand.

Of course, this is funny because over the next few days, you’ll probably hear a wave of stories about the market being disappointed in iPad sales and the contraction of Apple’s margins.  Psychologically, the market needs the stock to move, even if briefly, down 5-15% , so it can feel like it’s being appropriately measured, but this is all nonsense.

Why? I heard nothing that gave me cause for pause in the call.  Quite the opposite.  Consider these freaky good ‘year-over-year’ numbers, which equates to finally comparing the company’s performance relative to a true peer – itself!

Shock, Awe and Bewilderment: Law of Big Numbers

• 67% sales growth, year-over-year (now $20.34B of sales for this September quarter);
• 70% growth of net income, year over year (now $4.3B);
• Grew cash $5.2B in the quarter to $51B (not a bad rainy-day fund);
• 27% growth of Mac unit sales, more than double IDC’s 11%  average PC industry growth;
• 91% growth of iPhone sales, year-over-year (14.1M, up from 7.4M a year ago) @$610 ASP
• Since 2005, revenue has grown 5X, and earnings has grown 10X

In other words, somebody should be b-slapped for even speaking ‘disappointment’ about a wholly new category, like iPad, that Apple has seeded and grown to 4.2M devices sold this quarter, only two quarters after launch. 

Calling it a case of catching a tiger by the tail, Jobs laid out plainly why there is nothing really credible on the horizon. He called the non-iOS tablet segment DOA, noting that Google’s Android will not even be ready for the Tablet market for another three quarters.

Cost, form-factor, lack of a software surround and absence of a subsidized channel are all reasons that Gen 1 of non-iOS based tablet maker's entrants will lay an egg, in Jobs' view. 

Meanwhile, there are now 30K apps built from the ground up for iPad, and a company in full sprint from an innovation and market penetration perspective.

A note aside is that in the corporate market, it is easy to see how both iPhone and iPad are becoming the status devices, usurping RIM’s BlackBerry device.  The company named a bunch of pilots and ‘approved device‘ lists at GE, Pfizer, NBC-Universal, P&G and significant chunks of the Fortune 100 and F500. Needless to say, the Mac has benefitted greatly from this trend as well.

By the Numbers: Apple Retail Rocks

• Year-over-year sales for the quarter have grown 75% to $3.57B
• Average store sales have grown 52% to $11.8M
• 62% increase in number of visitors served (74.5M)
• Now in 11 countries, 317 stores

In other words, the biggest gamble in its integrated value chain for consumers (i.e., bricks and mortar Retail Stores), is another unfair advantage that they’ve seeded and cultivated.

Game Over, Game On

So here’s my theory: Jobs doesn’t usually attend Apple Earnings Calls, unless he feels that he needs to convey a message. 

Well, the message he had to convey is this.  It’s game over, in terms of market sway, for RIM.  They just aren’t going to catch up to Apple in their current domain, and they’ve shown no competency in other domains, especially software platforms

At the same time, Jobs basically gave Google its props, acknowledging that Android has a proposition with carriers and handset makers, and adoption numbers that are material and real.

But, here’s where he laid down the gauntlet, telling the story of how TweetDeck wanted to roll out a version of their software for Android, and found that there were 100 different Android variants on 244 different handsets, all having shipped in the past twelve months.

By contrast, noted Jobs, there were only two variants of iOS out there.  His assertion: that developers and consumers don’t want to have to be the systems integrator.

They want devices, systems and experiences that just work, and more innovation will come (via software) from Apple’s Integration relative to Google’s Fragmentation.

There was Steve, attacking the goodness of open, daring to say that “open systems don’t always win,” and framing the battle ahead as Fragmented v. Integrated.

It’s Game On.

Related:

1. Analysis of Apple’s Third Quarter 2010 Results: A Gorilla Climbs to the Top!
2. Apple's segmentation strategy, and the folly of conventional wisdom
3. Horizontal, Vertical and the Google Path to Riches: Ruminations on Today's $GOOG Earnings Call

Horizontal, Vertical and the Google Path to Riches: Ruminations on Today's $GOOG Earnings Call

Before I jumped into the tech biz back in 1993, I spent the first chunk of my career in the real estate business (retail real estate asset management, to be exact), and in that domain, they often speak of two different types of real estate developer models: horizontal developers and vertical developers.

Horizontal developers specialize in acquiring unimproved land, and their value-add is going through the zoning, permitting, entitlement and infrastructure development process so that, what was once acres and acres of dirt and trees, is now "stubbed out" and ready for vertical development.

For example, what was once raw, un-zoned land might now look like this:

1. Three residential sub-divisions of 47 lots each with varying size lots;
2. A retail development site sized and zoned to accommodate a neighborhood shopping center;
3. A two-story commercial office building site;
4. Open space for parks and walkways

More often than not, beyond the essential infrastructure of roads, plumbing, electricity and the like, these horizontal developers don't actually develop the actual home or shopping center, but rather, make their money selling the ready-made slices to a "vertical" developer, such as a home builder or a shopping center developer, who specializes in developing, marketing, monetizing and managing this class of asset.

The key takeaway is that the nature of development, the actual customer and the lifecycle of yield realization is very different for horizontal versus vertical developers, which is why it's very common for developers to focus on one domain or the other.

However, when you get into the domain of large scale developers (think: Kauffman and Broad Homes), they do both, and so you see a duality between the horizontal side of the business and the vertical side of the business.  

The horizontal side of the business must perennially be locking up sufficient inventory, such that as market conditions facilitate, the vertical side can readily convert that inventory into new housing tracts.

And it's a true duality, in the sense that there are real holding costs for all of this undeveloped land, and once the undeveloped land is built into actual homes, if the vertical side is unsuccessful at selling through its inventory, things can get ugly quick -- as the most recent housing bust underscores.

So what does this have to do with Google? For the longest time, Google has really been, from a synchronized horizontal-vertical development perspective, all about search. Grow the inventory, and simultaneously grow the ability monetize that inventory via AdWords/AdSense.

In the other areas of their business - Mobile, Maps, News, Video, Images, etc. - they have been content to be the horizontal developer; namely, creating tons of new inventory for future (theoretical) monetization, but no externally stated plan of how they were going to do so (i.e., monetize that inventory in a meaningful fashion).

The gambit has long been whether these other areas were just loss-leaders to surround and protect the main business, or serious vertical businesses in their own right. 

Netting out today's Google Earnings Call, the company wants you to know that they are making $2.5B+ in Display, another $1B+ in Mobile (really mobile search), and are cracking the code to better monetize video content every day.

To be clear, Google isn't Apple in the sense that they build stuff that works together in a tightly-coupled 1+1=3 fashion.  

But, today's earnings call should serve notice that they are moving beyond the "Sugar Daddy and a Bunch of Trust Babies" stage, and focused on vertically developing their (formerly) horizontal inventory with serious intention to capture multiple new multi-billion dollar opportunity segments.

It's the Google Path to Riches, and it's working, which is highly bullish...independent of the relativity to the Apple and/or Facebook narratives.

Related:

1. Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon
2. Apple's segmentation strategy, and the folly of conventional wisdom

Understanding today’s Apple's iPod and iTunes Event with Steve Jobs

I am so tempted to confuse the tail with the dog.

At today's Apple Event, Steve Jobs (who looked, dare I say, healthy) said something that is worth ruminating on.

He said that the consumers of Apple TV, Apple’s favorite hobby, don't want a computer in their living room, specifically citing “storage management” as a problem that consumers wish to avoid.

What they want instead is top-flight Hollywood programming, such as first-run HD Movies, Music, and TV Shows.

It was an odd distinction; especially since the knockout success of iPad proves the irrelevance of such arbitrary distinctions.

Thus, it almost seemed like Apple worked backwards from $99, and needing a wedge into being a ubiquitous living room peripheral, they chose a domain that they Own and Control (iTunes Media) over one that they merely Profit From (iOS Apps).

Why do I say this? Conventional wisdom was that the revamped Apple TV was going to become an iOS device, and specifically run iOS Games and Apps, a logical, an obvious stronghold for Apple to pursue, specifically because it is so disruptive to Sony PlayStation and Microsoft Xbox (a combined 150M user installed base).

Plus, one can see the power benefit of vertical integration for consumers and developers vis-a-vis an integrated platform that scales from handheld media devices to mobile phones, tablets and big screen, HD TV screens.

But, alas, nix that. At $99, they couldn't figure out how to make games and other apps work. Given that the device is running an A4 and can support up to 720p HD Video Output, I can only guess that it's a storage issue, some combination of footprint and target margins colliding.

Do the Nano-Nano Shuffle

Also of note, Apple has embraced the job of wear-ability, by focusing on making both the iPod shuffle and the iPad Nano easy to operate while being attached to a jacket, belt or ear (okay, I am joking about that last point).

In fact, the Nano was effectively reborn as a multi-touch device -- but won't run iOS apps.

Can you feel a fragmentation headache coming on? Given ‘em credit, though. There is a method to the madness. 

iOS, iPod touch and…Ping!

Meanwhile, back in the land of iOS, or what Apple calls a revolution in touch and apps (operators standing by), there have now shipped 120M iOS devices, and Apple is activating 230K new iOS devices a day, with a subtle dig at Google inflating Android activation counts.

If Steve Jobs isn’t the Second Coming of Michael Jordan, I don’t know who’s better.

App store has also generated 6.5B app downloads (200 apps/sec) across 250K apps, and the biggest deal on the horizon is a unified 4.2 software release in November that upgrades the iPad to the same level of functionality as the iPhone and iPod touch.

Stuff that matters Is the fact that printing is coming to the iPad, and the activation of AirPlay, which allows you to push audio, video, photos over wi-fi to other devices.

The entrée of the event, though, was the iPod touch, now the most popular iPod AND the #1 Portable game player.

(Scratches head wondering again, "Why new Apple TV doesn't play iOS apps and games?)

Jobs officially the dubbed iPod touch, the "iPhone without the phone," and promptly gave it a Retina Display, front-facing camera and FaceTime, a rear-facing camera with HD video recording at $300 for the mid-level version.

I am so totally buying that, and so will a lot of people if the success of iPhone 4 is worth anything.

The other big deal of the event was the revamp of iTunes, now focused on improving Discovery via Ping, an inspired name for what could be an inspired service.

The intersection of my media likes, my circle of friends and my favorite artists has a lot of potential.

Apple is combining the equivalent of a short post on Facebook with the dumb simplicity of Twitter in expressing taste and filtering based on similar interests.

Best of all, Apple has logically baked Ping down to the device-level of the iPhone, iPod touch or iPad.

How many companies could introduce a major step up like Apple, with their iPod touch, and surround it by reinvention of Nano and Apple TV, while making iTunes social?

Of those, who could be trusted to accomplish all that in a year, let alone one tightly synchronized event.

Apple is simply an amazing company, albeit leaving me a bit confused as a developer -- at the level of tail, not the level of dog.

Related Posts

1. Riddle Me This: Aren't the Rumors of a $99 Apple TV a "tell"?
2. Check Mate: Understanding Apple's iPad
3. Apple, TV and the Smart, Connected Living Room

Riddle Me This: Aren't the Rumors of a $99 Apple TV a "tell"?

 

I think that I am safe at this point in generalizing that Apple, as a Company, is dedicated to delivering real, sustainable value to its base of users. All of the economics and first-hand customer experience bear this point out.

That is why I can’t reconcile an iOS-based Apple TV device reboot with the rumored $99 price. 

Why? iOS’s existing library of Games (and the developer base behind it) presents an obvious and fundamental beachhead into disrupting the video game console segment, which is currently dominated by Xbox (40M+ units), PlayStation (36M units) and Wii (70M+ units).

Simply stated, Apple is holding a good hand, and this time they are NOT going to deliver an Apple TV that struggles for relevance.  

The new Apple TV - rumored to be called iTV (yeah, yeah, I know, lawsuits are standing by) - at its most basic, will be a dialing up of the iOS App Delivery Truck to a new type of environment - big screen living room TVs.

Quantifying things a bit, simply adding up the installed base of the video game console market's leaders shows a target of 150M* potential users -- a massive opportunity.

That is, of course, parallel to the existing 100M iPod touch, iPhone and iPad owners for whom such a device is not only not a hard sell, but strangely now is a no-brainer.

Now, back to $99. To me, this implies one of three paths for Apple TV. 

One is the Limited Storage, cloud dependency path.  The thinking here is that Apple is growing new datacenters, which could be commensurately timed with such a launch. 

The second path is getting to $99 via Subsidy, as is the case with iPhone. This path has the dual benefit that it delivers an end-consumer $99 price point and supports a higher bill-of-materials cost, thereby enabling a more powerful device.

Regarding the second path, I just don't see it happening anytime soon, given the large affiliate fees that could be compromised under such a model and the general intransigence of the satellite and cable services providers.

In terms of the first path, knowing the process of building apps on the iOS Platform (my company, Unicorn Labs, has built photo, music, game and ebook apps), I am gonna go out on a limb and say that the rebooted device will need to have ample local storage and processing power to be at least as good as iPad is.

Now that we know the capabilities of a bigger-screen iOS device (i.e., iPad), Apple isn't gonna deliver a solution that yields a worse user experience than a predecessor product. That's just not how they roll.

In other words, the $99 case where most of the cost runs in the cloud, is shaky, at best.

That's not to say that Apple won't have the iOS version of Apple TV able to take advantage of an iPad as a Fat Client (and perhaps, even as a Thin Server).

But, fundamentally my money is on the third path; namely, running on top of the Mac Mini as a $99 software add-on, with the user being able to choose between a $69 Magic Trackpad, a $200 iPod touch, a $99 iPhone or $500 iPad as the controller.

I guess, the point that I am making is that the $99 Apple TV rumor, which Apple has done nothing to dissuade, is a "tell" about where this product is headed. What do you think?

Related

1. Check Mate: Understanding Apple's iPad
2. Apple, TV and the Smart, Connected Living Room
3. What it Means to be a "Social" Media Center

XLNT NYT Piece on Tesla Electric Cars and Elon Musk (with plenty of soap opera and spin)

 

Mr. Musk has never run afoul of federal regulators, but he has had a long history of friction with the news media. Some reporters who cover the company closely say Mr. Musk’s hyperbole sometimes crosses the line into what they regard as distortions.

“I don’t believe him,” says Ray Wert, editor in chief of Jalopnik, a blog about the auto industry. “He’s made so many prognostications in the past that just have been so completely wrong. I don’t think he’s lying. I actually believe that he believes what he’s saying. But I just think it’s nowhere near what the reality is. It never has been.”

via nytimes.com

Color me a skeptic. Given the extreme costs and complexity to achieve scale, the fact that Tesla is pursuing the main of the market vs. an underserved niche, and the fact that the auto industry is a big ecosystem with a long history and lots of pattern recognition, it just feels like too much has to go right for them to succeed.

Analysis of Apple’s Third Quarter 2010 Results: A Gorilla Climbs to the Top!

 

All that you need to know about Apple’s Q3, 2010 earnings is that the iPad, a mere 90 days after it started shipping, almost outsold the Mac – and this was a quarter that was the best ever for the Mac (there were 3.27M iPads, and 3.47M Macs sold in the quarter).  

Mind you that going into the quarter, many thought that if the Company sold 1M iPads for the year they’d be happy.

This fact led to an interesting exchange between Apple COO, Tim Cook, and one of the industry analysts, who was querying him about cannibalization of either the Mac or the iPod by the iPad.

“Cannibalization? The real answer is that it's too early to tell. If you look at the quarter we just finished, we’re thrilled that we recorded the best Mac quarter ever, at the same time we sold 3.3 million iPads. For us it's a jawdropper,” noted Cook.

Cook went on to note that, whereas everyone else seems to focus on the negatives and risks of having a diverse, nominally overlapping portfolio, within Apple, it’s the exact opposite.

They see having ‘Halo Effect’ as a bigger factor from both a technical and market perspective, a point further underscored when Tim rolled out a stat about how the growth of iPod facilitated a re-birth of the Mac, synergies that they see playing out again with iPad. 

I have previously blogged in detail on the Halo Effect working in Apple’s favor, so suffice it to say, I am just happy to hear it expressed as a core thought process within Apple.

Strictly the Facts: Apple by the Numbers

Superlatives aside, the parade of numbers is just staggering. The Company posted record revenue of $15.7 billion, which is now its best ever, ahead of the last holiday quarter.  This translated to $3.25 billion of profit (a 78% increase), and dropped another $4 billion to the coffers, meaning that they are now sitting on $45.8 billion in cash.

While logic dictates that the law of big numbers should be catching up with Apple, these results compare to revenue of $9.73 billion and net quarterly profit of $1.83 billion in the year-ago quarter, and in fact, Peter Oppenheimer, Apple’s CFO, is every bit as bullish in the quarter ahead. 

“Looking ahead to the fourth fiscal quarter of 2010, we expect revenue of about $18 billion and we expect diluted earnings per share of about $3.44,” noted Oppenheimer.

While the Company has been quick to assert that they will not create price/margin gaps to enable low-priced competitors to outflank them, nonetheless, gross margins continued strong at 39.1 percent compared to 40.9 percent in the year-ago quarter. 

This beat expectations, and is particularly impressive in light of the impact of the strengthening dollar against international currencies, and especially the Euro, since international sales accounted for 52 percent of the quarter’s revenue.

The Mac Business

As noted, Apple sold 3.47 million Macs during the quarter, representing a new quarterly record, and a 33 percent unit increase over the year-ago quarter (and 100K Macs over last quarter).  

Not only is the Company growing its PC unit sales ahead of the rest of the market, with strong double-digit growth in each of the domestic and international regions, but in a number of Asia-Pacific segments they are simply crushing it, showing 73% year-over-year growth in AsiaPac, 144% in China, 184% in Korea and and almost doubling in Hong Kong.

The iPhone

On the iPhone front, the Company sold 8.4 million iPhones, representing 61 percent unit growth over the year-ago quarter – well ahead of the 38% growth rate of the overall global smart phone segment. 

Beyond the basic impressiveness of these numbers is the fact that the Company seems pretty clear on how they are managing their carrier relationships on a country-by-country basis, so as to maximize the balance between market penetration and financial yield (the ASP on iPhone is an impressive $595). 

Here, Cook gave the example of Spain, where the Company is toggling from an Exclusive Carrier model to Multi-Carrier in the quarter ahead (likely owing to the weakness of the Spanish economy).  As expected, no commentary was provided on the Apple-AT&T relationship, and Cook deflected the one question that came his way.

Candidly, I expected indigestion around the fact that while 8.4 million units sold is magnificent (and ahead of The Street consensus of 8.35 million units), whisper numbers actually ran as high as 9.5 million units. 

Thus, owing to the lazy logic of many analysts and the consumer investor, who equates Apple with iPhone, at least as a growth story, it would not have been shocking to see an analyst or two spin the story as disappointing and ding the stock, especially in light of the recent Antenna-Gate stories, and perceived increased competition with Google’s Android.

But, Apple was very clear on the call that some of this was a by-product of coming into the quarter with ample iPhone 3GS inventory, then needing to sell it down to nil in advance of the iPhone 4, which did not actually ship until June 24, a process the translated to inventory scarcity and about 250K less units sold during the quarter. 

And if there were any doubts about the popularity of iPhone 4, Cook put them to rest, stating that Antenna-Gate or no, Apple is selling every iPhone 4 they can make, and that returns on iPhone 4 are materially less than with 3GS, especially for antenna-related issues.

The fact that the analysts seemed to readily accept this, and have already updated their models to factor the impact of the transition to iPhone 4, tells me that whereas Apple has long been the most mis-analyzed (and thus, under-valued company in tech), within a quarter or two, they will probably be overvalued.

iPods, iPads, iTunes and App Store

Apple sold 9.41 million iPods during the quarter, representing an eight percent unit decline from the year-ago quarter, which is to be expected as they transition from standard MP3 devices, where they still have 70% of the market share, to multi-function iPods, like the iPod touch.

Also, of note is the fact that iTunes did over $1 billion, and is growing 25% year-over-year, in part fueled by the fact that there are now over 100M iOS based devices out there (includes: iPhone, iPod touch and iPad).

Similarly, Tim Cook touted the App Store as generating 5 billion downloads and having 225K apps within its marketplace, of which 11K apps are specific to iPad, a distinction that I previously flagged as a precursor to platform fragmentation.

With respect to the iPad, the Company began selling them during the quarter (in 10 countries), with total sales of 3.27 million units, and a $640 ASP.  Nine more countries are coming online on July 23.

But to really frame the incredible ramp of iPad, consider Cook’s comment that it took 20 months for the one millionth iPod to be sold, but only one month to reach that same milestone on iPad.

Cook’s point, which he came back to more than once, is that iPad is moving well beyond an early adopter device and into the mainstream.

Apple Retail Store Performance

In Q3, Apple Retail did $2.58 billion across an average of 287 stores, which is up 73% year-over-year, owing in part to the fact that average revenue per store increased from $5.9M to $9M.  Nobody asked the question about same-store numbers relative to year-over-year, but it’s clear that their retail model is thriving.

Moreover, relative to the earlier mentioned Halo Effect, Apple Retail sold 677K Macs vs. 492K a year ago, and about half of these were to customers who had never owned a Mac before.

Corporate Market Penetration

This remains an area where Apple’s strategy feels more opportunistic than strategic, inasmuch as large enterprises have never been the Company’s strong suit, nor is it apparent that the Company has a sales, marketing, support and professional services organization focused here.

Nonetheless, Tim Cook cited 80% of the Fortune 100 being in pilot or deployment on iPhone, 60% of the Fortune 500 and another 400 higher education institutions that have approved for iPhone for faculty and students. 

Similarly, in the first three months that iPad has been available, 50% of the Fortune 500 is testing or deploying that device.  

iPad and iOS in general lend themselves very naturally to a vertical segmentation strategy should the Company ever get religion about cultivating an indirect ISV and VAR channel.

Netting It Out: This is a company that had two game-changing product launches in the last quarter alone (i.e., iPad and iPhone 4); that is very confident in its product pipeline (an iOS-based Apple TV, anyone?) and is at an all-time high on its “legacy” Mac business.

Plus, this is like 22 out of 23 quarters in a row where they have simply left their own projections in the rear-view mirror, and of course, $46 billion of cash reserves is a crap-load of money for a rainy day fund.

For the first time, though, I felt that the analysts in the call were treating Apple with the respect of a industry 'Gorilla,' a point made even clearer watching Cook and Oppenheimer effortlessly flick off the analysts' questions, just as King Kong did to tiny airplanes standing at the apex of the Empire State Building.

Whether it occurs this quarter or next, when Apple passes Microsoft in revenue, that will be the seminal moment for those of us who have embraced Apple both in the dark days and the happier ones; i.e., times like right now.

Related Posts

1. Holy Shit! Apple's Halo Effect 
2. "Antenna-Gate" (How Apple's PR perception shapes its reception reality)
3. Apple, iOS and the Post PC Era
4. “Unfair Advantages” – Assessing Apple’s March, 2010 Quarter

"Antenna-Gate" (How Apple's PR perception shapes its reception reality)

"...but I'd say one of the worst aspects is how the issue undermines your confidence in the device, leading to a kind of idle paranoia that at any moment a call may drop or an email won't go through if I'm not holding the phone in just the right way." - Ryan Block, gdgt

via engadget.com

So the good folks at Engadget have taken an informal survey across their geographically-dispersed team and among their media inudstry peers, concluding that the Antenna problems associated with iPhone 4 are inconsistent and overblown.  

Nonetheless, I am just going to call this hiccup on Apple's most successful product launch ever Antenna-Gate from here on out, so it's clear that at least from a PR perspective, Apple has a (mini) crisis on its hands. 

Why?  Simply put, perception is reality.  As much as I love Apple, and as much as I hate to say it, this is one of those cases where Apple's legendary secrecy, certitude and silence on gray areas (e.g., think: App Store and iOS platform policies), has lead many to conclude that Apple is wearing a black hat in this matter.  

Add to that, the Apple haters and attention whores that have a vested interest in this one not going away, and you have the requisites for a firestorm - heat, oxygen and fuel. Or, "shit storm," as industry curmudgeon, Dave Winer, puts it.

This, despite both the macro data (there are no legions of frustrated users that one would expect with a sample size of 2M units) and the anecdotal data (media types are exactly the group to self-righteously flagellate themselves if they could consistently replicate a problem) suggesting that this is more mole hill than mountain.

Put it all together, and it will be really interesting, from a future case study perspective, to see how Apple unwinds this one in a manner that reconciles their brand equity, their (recent) history of limited missteps and their legacy of heroic customer support.

Mea Culpa: I mocked up this cheesy overlay of Steve Jobs on Nixon not because I think Apple is doing anything scandalous, illegal or otherwise, but rather, to frame how (mis) handling of even minor crisis' can be ruinously damaging, if for no other reason than perception has a way of becoming reality, something that I blogged about HERE.  

UPDATE 1: Jim Dalrymple reports that Apple to hold special iPhone 4 press conference on Friday.

UPDATE 2: Crisis "resolved," as Steve Jobs does the mea culpa, offers unconditional return for unhappy iPhone 4 owners (no re-stocking fee) and offers up free iPhone 4 cases.  At the same time, touts 3M units sold in three weeks since launch. Yowza.  You watch, this one's over.  Light is always/usually better than shadows - except when there is a marketing advantage to be gained from said shadows.

Related Posts:

1. Apple, iOS and the Post PC Era
2. Five reasons iPhone vs Android isn't Mac vs Windows
3. Is Facebook a Brand that you can Trust?

Four Thoughts on the WHAT, WHY and SO WHAT of Google App Inventor for Android

There is something enticing about a software toolkit for non-developers; the concept that if you can articulate a workflow or algorithmic outcome, you can "meta-program" it without writing a line of code. 

That's why I think that there is some warranted excitement around Google's App Inventor for Android. It represents a holy grail and a myth at the same time.

I have four thoughts that I would like to put forth for assessing the "WHAT" (what is it), "WHY" (why do we need it) and "SO WHAT" (how is it materially better than current practices) of Google App Inventor for Android:

1. App Builders like this face a classic 1.0/3.0 Conundrum: The question with such solutions is are they powerful enough to solve a REAL problem out of the box, versus merely facilitating a proof of concept. This is analogous to the distinction between a dog walking on its hind legs (impressive, but not compelling) and an organism that functionally walks upright to the point that it can reliably get between Point A and Point B, completing meaningful tasks along the way.  On this one, I hearken back to the Java Bean Box, another component-based model for non-technical users whereby you could pull objects into a runtime sandbox, define the hookup parameters between various methods, and build a finished app. The challenge was that while it was all impressive, in practice to solve a real problem, you needed to enter the bowels of the underlying code, which broke the connection to the Bean Box, meaning that the solution was neither compelling in 1.0, nor scaled to ANYWHERE useful in 3.0.  How does App Inventor for Android reconcile this one?
2. History Suggests the Real Opportunity lies with ISVs, not Laypersons: The success of Visual Basic for Applications (on the Windows platform, which spawned many an ISV, while creating tremendous lock-in advantages) and HyperCard (on the Mac) shows that there is a need for Rapid Application Development tools that find the balance between facilitating specificity for a desired outcome and simplicity of implementation and subsequent refinement, while reconciling the practicality that in most cases, these efforts are 1-5 person efforts.  Dale Dougherty of O'Reilly/Maker cogently argued this same point in 'The iPad Needs its Hypercard.' Given Apple's proximity to so many media/content providers, its failure to move quickly and visibly in this realm presents an opportunity for Google to outflank them.
3. Will Google 'Eat its own Dog Food' by Exposing Core Google Services to this Model? If Google really wants to prove out the efficacy of this model, the most compelling way to do so is by eating its own dog food; namely, but wiring core services such as News, YouTube, Search, Gmail and Maps to the Google App Inventor.  Why does this make sense?  One, the moral of the story from the PC era is that the potency of Visual Basic was not that you could create wholly new apps from scratch, but rather that you could harness and extend Microsoft Office.  Carrying this analogy to the present, extending Google Apps and Services is the most fundamental way to create a 1+1=3 relationship between Android, Google App Inventor for Android and core Google Services. Two, it forces the company to get better at usability and workflow around specific application use cases, as opposed to merely supporting generic workflows, a tendency that often pushes the company towards a fuzzy "NOT EXACTLY" bucket I railed on in 'Google Buzz: Is it Project, Product or Platform?' Three, such an approach pushes the company beyond its somewhat sanctimonious "Open-ish" position, where it pivots between being REALLY open in areas that it wants to commoditize (such as Mobile, Tablet and Desktop OSes) and quasi-open in areas that it sees as proprietary differentiators (Search and Advertising).
4. Why Limit App Inventor to Android? I get it that the primary battle that Google is fighting today is against Apple's iOS platform of 100M iPhones, iPod touches and iPads, not to mention the mindshare battle with developers. Moreover, the App Inventor toolset and runtime are built in Java and tuned to Android's runtime dynamics.  But, if the Google credo is that open always wins and that what's good for the Web is good for Google, shouldn't such an initiative be structured to work great on any mobile device that is HTML 5 ready (i.e. outflank iPhone by making universal apps more/as compelling as native apps), not to mention for web designers, bloggers, micro-bloggers, Facebookers and the like? To be clear, the choice of the naming scheme that Google chose -- App Inventor for Android -- is suggestive of just such a conclusion.

As always, God is in the details (back to my 'Project, Product or Platform' pushback), but kudos to Google for pushing the ball in this direction.

UPDATE 1: Jason Kincaid of TechCrunch does an early test drive of App Inventor, and his thoughts are pretty much what you'd expect at this stage of the game.  

UPDATE 2: Google is shutting down App Inventor, which was both entirely predictable, and smart to do sooner than later. One year of life then and "done" (it was announced mid-July last year).

Related Posts:

1. Google Buzz: Is it Project, Product or Platform?
2. Open "ish": The meaning of open, according to Google
3. Decomposing Google News and Making it Social

 

iOS and OpenDoc: Everything Old is New Again (Apple and the "last mile" to true Mobility)

  
There was a brief period in the late 90s when computing had the potential to be almost Widget-like, simultaneously Composite, Distinct, Rich and Unified.

This was a divergent computing path from the homogeneity of Microsoft's Windows computing model, which by then was well on its way to winning the Personal Computing Wars. 

Pioneered by Xerox, but spearheaded by Apple, the divergent path was called OpenDoc. 

OpenDoc was premised on common document "data sets" and integrated, but autonomous, "workflow structures."  

In the fallow period before Steve Jobs returned to the Company in 1997, OpenDoc was a relatively big push by Apple (read about it HERE).  

That stated, OpenDoc's failure was total, best evidenced by Jobs putting a bullet through its head almost immediately after he returned.

But, I would argue that the moral of the story on OpenDoc is less a case of a solution in search of a problem, and more a case of poor execution meets poor timing on the wrong platform.

Specifically, I would assert that today's APPLE -- with the iOS Platform of 100 million mobile devices and 150 million credit card-validated consumers -- is very well-positioned to solve the meta-problem OpenDoc pre supposes.

Case in point, this post was a stream of thoughts shuffled between Pages and Mail on my iPad; and then on to my MacBook Pro, with final push off to the Web, where you are reading this. The end-verdict (for me, at least) is that in creating this post on iPad, there is still too much friction from a workflow and data flow perspective.  

And don't even get me started on the kludgey-ness of mashing and syncing data repositories and managing information lifecycles, which are still somewhat primitively handled in this model.

The bottom line is that, as configured, it relegates the device to "lite" content creation and data input when the iPad has the potential to be so much more, given all of the nooks and crannies of times, tasks and activities that the device has inculcated itself into my life (and many others, per the recent 'The State of iPad Satisfaction' Survey).

As such, none of my current truths mitigate my core belief that we are on the cusp of completing the "last mile" to rich, persistent information mobility; a domain where compute, communications, gaming, media playback and media creation tools are literally at your fingertips.

Exciting times, to be sure.

Related Posts

1. Five reasons iPhone vs Android isn't Mac vs Windows
2. Understanding Apple's iPad
3. The Google Android Rollout: Windows or Waterloo?

Adobe Crumbling: Is Winning Mobile Flash Fight Critical to Company’s Success?

  

"Pretty sure Adobe didn't care about 'open markets' until they got locked out of one." – Dave Winer

In ramping up its on-going PR blitz to try and sway public opinion in favor of forcing Apple to support its Flash Runtime model, Adobe is facing three fundamental challenges.

One, at this point it lacks great, un-bloated products that make their user base want to step up and defend them. Contrast this with Apple, where the term 'fanboy' speaks volumes about the dedication of its users.

Two, Adobe now lacks an execution culture that would have otherwise rendered the mobile flash topic moot by virtue of simply winning mobile market share before and/or during Apple's ascent with iPhone, iPod Touch and (now) iPad, a blockade that is now 85M devices strong.  

After all, how long has Adobe been promising Mobile Flash, and how many devices is it actually running on out in the wild after all these years?  In absence of a winning offense, all that Adobe has to roll out is a feeble defense? C'mon.

Three, Apple's embrace of native, governed platforms is paralleled by their embrace of HTML 5, WebKit and other best of breed open Web technologies, which renders huge chunks of Adobe's campaign murky at best. 

Simply put, proprietary Flash hardly passes the open 'sniff test' that Adobe's leadership is trying to wordsmith around at a time when Apple is clearly playing a leadership position in pushing the open mobile web forward. 

Adobe Co-Founder: Flash Fight Isn't Critical To Company Success

There is an axiom that it is hard to PREVENT something that you are simultaneously PREPARING for. Thus, it seems that in Adobe Co-Chairman and Co-Founder, Chuck Geschke, asserting that the "Flash Fight Isn’t Critical to Company Success" that he is effectively preparing his company for failure.

But this begs the question. Is this assertion even true?  After all, Adobe has three core lines of business: Print Design Solutions (Photoshop), Web Design Solutions (Flash) and Document Management Solutions (Acrobat).

The print products are getting long in the tooth, and Adobe is widely perceived to have created bloatware and kept the price of products like Photoshop and Illustrator artificially high. This segment was once the core bedrock of the company's stellar reputation and strong relationship with its user base. These days, it is unquestionably less so.

By contrast, the company's position with respect to Acrobat, appears rock solid and highly profitable, with no real competition in the immediate horizon.

Hence, the pivot feels like Flash - exactly the reason a Co-Founder would dismiss its importance. 

Why do I say it feels like the pivot? Desktop is slowly giving rise to Mobile, and in mobile, Flash is exceptionally weak (read: non-existent). If Adobe fails to secure a beachhead in Mobile via Flash (thanks to a combo of Apple's blockage, emergence of HTML 5 and Adobe's poor execution), it could easily see its Web design tools become less relevant, weakening synergy with its Print Design Solutions.

In such a scenario, Adobe starts to look like a one-trick pony, which isn't tantamount to death – just irrelevance.

Five reasons iPhone vs Android isn't Mac vs Windows (Guest Column @ O'Reilly Radar)

Last week I presented at Stanford Graduate School of Business in a session on Mobile Computing called, "Creating Mobile Experiences: It's the Platform, Stupid."

As the title underscores, I am a big believer that to understand what makes mobile tick, you really need to look beyond a device's hardware shell (important, though it is), and fully factor in the composite that includes its software and service layers; developer tools and the ecosystem "surround." Successful platforms, after all, are more than the sum of their parts' propositions. They are not simply a bunch of dis-integrated ingredients.

Having built hardware and software platforms since 1994, this thought process has led me to harp endlessly on why the iPhone platform (and its derivatives) is such a game changer. By contrast, I would argue that the long-term success of Android is anything but a given.

It's human nature to look to the past in an attempt to understand the future. As such, I was unsurprised when I was asked during my presentation if Apple and iPhone vs Google and Android in mobile computing is "destined" to play out as Apple and the Mac did when confronted by Microsoft and Windows in the PC wars.

As I have provided "big picture" analysis on this topic before in other posts (here and here), I want to share what I see as the five "little picture" reasons Apple vs Google isn't destined for the same outcome as Apple vs Microsoft:

Read the full post @ O'Reilly Radar by clicking HERE.

Update 1: John Gruber of Daring Fireball gave this piece some loving, saying "Astute analysis from Mark Sigal. Android may well grow to overwhelm the iPhone OS in terms of market share, but if so, it won’t be for the same reasons Windows did on the desktop." He also linked to it as well, which given his massive audience, generated a sizable traffic pop (John is the consummate Apple insider, whose pieces have been cited more than once by senior Apple management, including most recently, Apple CEO Steve Jobs).

Update 2: This piece has generated jaw-dropping comments (~100) and re-tweets (467 and counting), and through the one bit.ly link I have that I can trace, shows almost 6,700 reads, which doesn't even factor direct access to the article (from folks like Gruber, O'Reilly site visitors, Google searches, etc.).

Related Posts:

1. Check Mate: Understanding Apple's iPad
2. The Google Android Rollout: Windows or Waterloo?
3. Google Android, the Dawn of Mobile, and the Missing Leg

“Unfair Advantages” – Assessing Apple’s March, 2010 Quarter

Remember the snarky dismissals that they were a marketing-driven company, little more than sugar water and sparkly bubbles? 

Or, the contentions that they were merely a high-end niche product builder that could never achieve mainstream prominence? 

First, they “ignored” the worst recession and global financial crisis since the depression to avoid suffocation from a consumer spending swoon, and in the process, take market share, grow their already mighty operating margins and fortify their swollen cash reserves.

That, my friend, should have been the moment when the naysayers finally grokked once and for all that Apple had built themselves an “unfair advantage” predicated on halo effects, deeply integrated solutions across product, ecosystem and channel, and a simple mantra, “It’s the Platform, Stupid!”  

Alas. Enter March Quarter, 2010, and Apple has done it once again.  

How so? They grew top line revenues 49% year-over-year to $13.5B (12.5% better than projections) and net income 90% year-over-year to $3.07B (36% better than projections), in the process, throwing another $1.9B of cash into their coffers (they now have $41.7B in cash/cash equivalents).

But, it’s the “how “ side of the equation that is most impressive, beginning with the iPhone and ending with the Apple Stores.

Simply put, iPhone blew the doors off the barn, realizing a best-ever quarter of 8.75M units sold – a year-over-year increase of 131%, which is over three times the growth rate of the overall smart phone segment – while maintaining an ASP (average selling price) of ~$600 per iPhone. 

What made iPhone so strong? Well, consider that Asia Pacific grew 474% year-over-year; Japan grew 183%, Europe another 133%, and so on.  

In other words, the iPhone continues its run unabated as a global phenomenon, not so easily dismissible by skeptics as a bauble for wealthy Americans defaulting through savvy marketing to a popular consumer brand. 

Candidly, the iPhone numbers are what impressed me the most about the earnings, given rumors of a new iPhone coming this Summer (which could have led to consumer purchase delays), and the very valid question of whether Apple has captured the low-hanging fruit of well-to-do consumers, and thus, would face slowing growth ahead.  It wouldn’t have shocked me if it had played out differently, but it didn’t.

Meanwhile, Apple still apparently sells these things called Macs, and in the March quarter, Apple achieved its best March quarter ever, selling 2.94M Macs (vs. a 2.7M units consensus), representing 33% year-over-year growth (relative to 24% for the rest of the market).

Similarly, the iPod business, which is rapidly coming to mean iPod touch, did 10.9M units in the quarter versus 11M in the same quarter last year, which translated to 12% revenue growth – Apple’s best performance in two years – owing to iPod touch unit sales growth of 63% year-over-year, and the device’s higher ASP than classic iPod models.

The other key “yowza” from the earnings call was Apple retail, where Apple Stores continue to rock. Here, the company did $1.68B through the Apple Stores, versus 1.38B in the prior year’s quarter, but most importantly, they grew same-store sales to $5.9M per store from $5.5M in the prior year.  The same-store numbers represent the company’s best performance in six quarters.

As an old retail guy, I can tell you that same-store sales are a key indicator that a company is growing the right way (versus cannibalizing its pre-existing retail footprint by simply opening more stores).

All in all, it’s time for someone to say, “uncle,” but you just know they won’t.

Related Posts:

1. Ruminations on Apple Q1, 2010 Earnings Call and Investor “Dead Zones”
2. Holy Shit! Apple’s Halo Effect
3. Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon

Grumpy old men, the "Inmates" and margins (iPad, iPhone and the future of computing)

As the iPad descends upon us, it is fair to ask, "Is this the beginning of the end, or the end of the beginning?" Depending upon whom you ask, the conclusions widely vary.

For example, RealNetworks' Rob Glaser forcefully argues that Apple's vertically integrated model "Must be stopped." He cautions: "If that's the way the industry plays out -- and there are a couple of vertical stovepipes that are closed -- A: we will have a much slower pace of innovation than we've ever had and B: there will be a tremendous loss in terms of value creation versus it being more horizontal."

Meanwhile, science fiction writer, blogger and tech activist, Cory Doctorow, recently made waves when he asserted in 'Why I won't buy an iPad (and think you shouldn't, either)' that, "If you can't open it, you don't own it. Screws not glue." He concluded:

The real issue isn't the capabilities of the piece of plastic you unwrap today, but the technical and social infrastructure that accompanies it. If you want to live in the creative universe where anyone with a cool idea can make it and give it to you to run on your hardware, the iPad isn't for you. If you want to live in the fair world where you get to keep (or give away) the stuff you buy, the iPad isn't for you. If you want to write code for a platform where the only thing that determines whether you're going to succeed with it is whether your audience loves it, the iPad isn't for you.

And don't even get me started on the legions who dismiss Apple's end-to-end approach with an "Apple's Evil" slap, or more stridently, paint the story as "destined" to play out as things did in the PC Wars, with arrogant Apple racing to an early lead, only to get its head handed to it in the end.

I won't spend a lot of time bringing to the fore the masses that see the Apple model in more favorable terms, as the numbers speak for themselves across just about any metric that matters:

• 85 million iPhones/iPod Touches/iPads sold
• 185,000 applications built
• 100,000 developer ecosystem
• 4 billion application downloads
• 15 billion iTunes media sold
• JD Power Award for Customer Satisfaction
• Ungodly operating margins/cash flow

So how to reconcile the animus with the market's clear directional momentum? 

Read the full post @ O'Reilly Radar by clicking HERE.

Related:

• Innovation, Inevitability and Why R&D is So Hard
• The Chess Masters: Apple v. Google
• Open "ish": The meaning of open, according to Google
• Android vs. iPhone: Why Openness May Not Be Best
• iPad First Impressions: The Good, the Not So Good and the Not Yet

iAds, Game Center and a Bunch of Filler (Quick Takes on the iPhone 4.0 OS Announcement)

A year ago at this time (March 17th to be exact), Apple was announcing iPhone 3.0, a release that I dubbed ‘Block the Kick,’ inasmuch as the depth of functionality incorporated into that release was indicative of a company (Apple) that had learned the lessons of the past, and wasn’t going to give the nascent competition any chance to catch their breadth, let alone make up ground on Apple's massive market lead.

Here we are a year later, and it should be clear to all, based upon today’s announcement, that the iPhone OS is rapidly reaching maturation; the iPhone/iPod Touch/iPad Ecosystem is thriving; and Apple is now looking to consolidate their position (which I believe will lead to more form-factor derivatives in the next 18 months).

In consolidation phase, you fill your remaining gaps and polish the diamonds in the rough, but generally speaking, slow down the pace of pure innovation.

First some numbers:

• Apple has now sold 450K iPads
• Apple has sold 50M iPhones and 35M iPod Touches
• 4B Apps have been downloaded from App Store
• 185K Total Apps in App Store 

If you want the deep dive breakout of features in this release, Brad Stone of The New York Times has the consolidated version and gdgt has the verbose version, including the Q&A Session after the event with Steve Jobs.

My focus is on the standouts, of which there are a few. I divide these into 'Fill the Gaps' and 'Differentiators,' as the former are already incorporated on other mobile platforms, whereas the latter have the potential to push innovation in the mobile applications space.

Fill the Gaps:

• Multi-tasking: Apple’s approach here is to provide specific APIs for - A) Audio services to incorporate multi-tasking (think: Pandora playing music in the background while doing other things on your iPhone); B) Voice over IP (think: Skype receiving calls while in other apps); C) Background location (think: TomTom updating turn by turn directions even if you leave the app); D) Local Notifications, a server-less model that enables real-time location dependent social services (think: Loopt or Foursquare updating your location to tell you who’s nearby or to provide location-aware offers - In a nod to privacy concerns, a triangle-type of indicator in the iPhone’s status bar will notify users when this feature is being used by an app, and give granular controls to enable/disable on an app by app basis; E) Task completion allows tasks that take some time, such as uploading a photo to the Internet, to be pushed to the background when a user switches to another application; and finally, F) Fast App Switching, which enables users to leave or return to an app while preserving its last state.
• Folders: This is Apple’s solution to having page after page of scattered applications; pretty elegant and clean.
• Unified Mailbox: The current model is to have to toggle between multiple email accounts, which is especially heinous on the iPad.  Now you can manage one in-box, toggle between accounts, between threads, handle attachments, etc.
• Corporate/Enterprise Features: Better encryption and mobile device management, as well as more tools to deploy custom applications to employees.  More is good, but it's hard to get too excited until I see Apple making a concerted effort around verticals and specific corporate-focused applications.
• iBooks for iPhone: This is an extension of what was just added for iPad, and gains multi-device syncing capabilities, making it closer structurally to the Kindle application.

Differentiators:

• Game Center: With 50K games in the App Store, which Apple happily noted represents 10X the number of game and entertainment titles on rival mobile platforms from Sony and Nintendo, Apple is essentially co-opting the social gaming network platforms (think: OpenFeint and ngmoco’s Plus+) with this feature set, which enables creation of leaderboards, profiles, player-to-player challenges, cross-game discovery and the like.  This is a smart move for Apple to add this to the platform, as it can also funnel Genius functions (and a social graph in general), and while Apple was scarce on the details, it falls into the same bucket as In-App Purchasing; yet another tool to enable developers to engage, cross-pollinate, and thereby, better monetize. Sidebar: the release of Game Center is slated “slightly behind" the overall rollout of OS 4.0.
• iAds: This is the mobile advertising system that is being built into the core OS as a result of their acquisition of Quattro Wireless, and was arguably the most provocative, compelling aspect of the whole event.  Why? Well for one, with 185K apps out there, Apple has the kind of critical mass needed to affect a total reboot of the mobile advertising segment in the Apple image, and away from the Google search/display centric model (Sidebar: Apple estimates that they could serve up to 1B ad impressions a day under such a model).  By that, I mean ads which are more deeply integrated within the application, enabling either rich media extensions to the application or non-disruptive paths in, out and back into the mobile applications itself (i.e., so clicking on the ad doesn’t effectively kick you out of the application, a huge disincentive to click in the first place). In the demo, Apple showcased three different types of mobile ads, all of which can be created using HTML5 (goodbye, Flash).  The first example was an iAd for ‘Toy Story 3,’ which was an integrated media unit called a microsite, complete with a simple game, posters, video and audio clips from the movie. The second was a Nike ad that showcases the deep OS-level integration that enabled an ad to incorporate video and interactivity in the form of shaking the iPhone to switch to new video clips of basketball dunks over the years. The third and final ad was a Target ad of a dorm room, whereby a college student could accessorize the room by choosing different items. Left unspoken, unfortunately, was how exactly iAds are incorporated into the SDK. Is it a separate tool chain, part of the core toolset, or what?  And Apple didn't say peep one about their plans relative to campaign management, analytics and ad inventory management, and the like.  Of particular note, Apple is giving developers a 60-40 split, which is a noticeable departure from the 70-30 split within the App Store.  That said, at least they are providing transparency.  No one knows what cut Google shares with its publishers. The bottom line is that this represents yet another way for developers to monetize on the iPhone Platform, while giving Apple a feather in their quiver to approach Madison Avenue and cultivate iAd agency businesses in the same way that Google did with the Search and Display Ad Market.  

The developer preview of iPhone OS 4.0 is available today but users won't get the new OS until summer, and iPhone 3G and first and second gen iPod Touches will NOT support multi-tasking. iPad will get OS 4.0 in the fall, which will invariably be the unification release for iPhones, iPod Touches and iPads.

Related Posts:

1. ANALYSIS - iPhone 3.0 Developer Preview: Block the Kick Strategy
2. iPad First Impressions: The Good, the Not So Good and the Not Yet
3. Check Mate: Understanding Apple's iPad
4. Apple, the Boomer Tablet and the Matrix

 

iPad First Impressions: The Good, the Not So Good and the Not Yet

“Anyone who believes this thing is a game changer is a tool.” - Paul Thurrott (via Daring Fireball)

I broke with tradition and bought an iPad this weekend.  By tradition, I mean that while I am not adverse to being an Early Adopter of new technology, I am not one of those ‘gadget’ people who needs to be the first person on my block with the latest ‘it’ thingy. 

More to the point, I simply rarely feel compelled to make the buy decision on 1.0 products before the first tranche of consumer feedback has dribbled in.  Let others deal with the hiccups and bugaboos first.  

But, I felt compelled with iPad.  Why? Well, for one, I am a committed developer of iPhone Apps, and iPad is the same lineage.  Plus, underlying that is a general deep appreciation of the iPod touch as a consumer, so I sort of know what I am getting into with iPad.

No less, I am a believer that this next wave – mobile and mobility computing - comes down to successful execution of hardware, software and service platforms, and there can be little-to-no doubt that the iPhone Platform is the prototype for mobile success (to date) with:

• 75M iPhones/iPod Touches/iPad’s Sold

• 150K Applications Supported

• 100K Developer Ecosystem

• 4B Application Downloads

• 10B iTunes Media Sold

• Jaw-Dropping Operating Margins/Cash Flow Generation

• Unparalleled Customer Satisfaction and Loyalty

Sure, some will lazily argue that consumers and developers are dumb or blindly loyal ‘fan boys,’ or more feebly, that iPhone developers are largely unhappy, and ready to shift their development resources elsewhere (read: Google’s Android). But, c‘mon, get real. The numbers, as measured quarter after quarter and in composite, don't lie.

Is iPad Really More than a Large iPod touch?

I threw in a teaser quote above to Paul Therrott’s  ‘Apple iPad Hands-On  First Impressions’ piece, as he writes the SuperSite for Windows blog and loves his iPhone, so he fits my litmus test of discerning skeptic not pre-disposed to all things Apple who nonetheless, is willing to love great products without caveat.  

While I disagree with his overall conclusion (I believe iPad is a game-changer), most, if not all, of his specific arguments are dead-on about the iPad (high design, some design quirks, and a non-essential device, given its somewhat fuzzy category), and if recent reports of Wi-Fi connectivity issues mirror my own direct experiences, there may be bumps ahead that the uninitiated are best to avoid until the iPad has a bit more seasoning.

And yet, I can’t help but feel that this is just the beginning of something big.

For one, the iPad is a surprisingly mature device, with a built-in platform of pre-existing apps, a thriving developer 'surround,' and equally important, the out-of-the box feel of the device does not disappoint.  After having spent a day in meetings with this as my computing device, calendar and note pad all rolled into one, it just feels right.

Plus, there are 75M owners of iPhones and iPod touches who automatically know how the iPad works and are favorably pre-disposed to it.  In fact, site unseen, my seven year old got up early so he could take the iPad for a test drive while I slept. Kids (engagement) don't lie.

In other words, even if you reduce the iPad story down to it being a really big iPod touch (i.e., 512% more screen real estate than an iPod touch and iPhone), it’s a good story, and there really is no other story out there that makes me go, “I want that instead.”

At the same time, I’d be less than honest if I didn't acknowledge that there is something rote about buying the next size up of your Apple 'iP' Nested Doll Set (iPhone, iPod touch, iPad). 

Some of this is the inevitable flow of Apple new product launches, perfected first with the original iPod, and then with iPhone. 

First comes delivering Device Integrity, and here Apple delivers long battery life (10 hours plus – it’s crazy good), computational peppiness, solid video, a decent physical footprint and the ability to be functionally used in 360 degree orientations – portrait or landscape, sitting in lap, upright as digital frame and/or tilted upside down. 

The bottom line is that Touch and Tilt is a great paradigm, and in this form-factor, it’s even better, which affirms why so many of the early adopters of iPad will be iPhone and iPod touch owners.  They are already sold on the user experience.

But, it’s the next stage – Software Differentiation – that I believe will be the point when iPad starts to find it’s ‘sea legs,’ just as the iPod touch did once iPhone SDK materialized; and for a number of reasons that I spell out HERE, the iPad is its own distinct derivative of the iPhone Platform branch, not merely a larger version of the same device. 

As such, we will see developer events and a specific set of features to take advantage of its native attributes.  With Thursday’s event putting the spotlight on iPhone OS 4.0, one wonders what iPad specific goodies will be in that grab bag.

Want to be a Fortune Teller?

This brings me to a story.  Long ago, I was in the real estate business.  My business partner and I went from operating in the LA Market to creating a presence in the Bay Area Market.  

Everyone assumed that we would be at a disadvantage moving into a new market, but as it turned out, lady luck was on our side. 

The LA Market happened to be further in the Boom and Bust Cycle than the Bay Area, and as a result we could see what was going to play out in the market in the coming months, and turn it to our advantage.  Markets that evolve cyclically are like that.

I feel that something similar is happening relative to the advent of the iPod touch, and so we know how this story is likely to play out.  I reckon that if I were to simply change the references from iPod touch to iPad in the post that I wrote over two years ago when that device was just launching – it’s called ‘iPod touch: the first mainstream Wi-Fi mobile platform? – I would have a respectable straw man of how iPad growth percolates.

The difference is that the iPod touch was pretty much sitting invisible behind the iPhone freight train, and also because the legacy iPod numbers were so big.  Hence, nobody really paid attention to iPod touch until it measured in the millions of devices sold.

Here, however, the external expectation is that iPad be judged on iPhone relativistic terms – a very clear segment - smartphones - where Apple was able to attack woeful competitors with an innovative value chain re-think.

With iPad, it’s going to be a slow burn, as people take time to discover the use cases where they’d feel envious if they didn’t have one, tied in part to the iPad-specific software catching up.  

In this regards, today’s news that Apple sold more iPads on the first day of sales than they did on iPhone's first day, will likely be cited as Exhibit A of the device’s 'failure' once it is unable to maintain pace with the iPhone in the days and weeks ahead, as it almost assuredly will (lines pretty much evaporated from my local Apple store by late Saturday afternoon).

As an investor, that will probably be a good time to find a better entry point into the stock.  By contrast, consumers will instinctively know when the iPad starts speaking to them.  For developers, I suspect this will all be background noise, and in the big picture, the device will sell plenty over the long-haul.

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