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New Taiwanese Tablets Show What So Few Have Suspected: Apple's iPad 2 Is An Expensive Toy!
Several months ago, amid all of the hoopla of the iPad 2 launch, I illustrated that, although Apple will sell a lot of tablets, those sales will come at increasing decreasing margins. Those who have not read it or do not follow the logic are recommended to reference Competition Heats Up In The Mobile Computing Space On Many Fronts –Prices Driven Down Once Again By The Big Players and more importantly Steve Jobs Calls End Of the PC, We Call The End Of The Fat Margin Tablet – Including The Pretty iPad, With Proof! and The Tablet Pricing Wars Have Commenced, Targeting Apple’s iPad 2 Which Is Not Even For Sale Yet…
I have studied this space closely and have made quite a few pertinent, yet apparently highly contrarian observations. One, Apple's stunning margins and sales growth will not be able to continue simultaneously. Two, Apple's marketing has truly blind sided many as to the true utility of their products versus the competition. This is a video of a $200 Barnes & Noble Nook eReader blowing the pants off of an iPad in speed and browsing tests despite the iPad costing more than twice as much...
Once the feature, performance and capability set moves too far past parity (a point we have reached already) then Apple will not be able to justify nor sustain its premium pricing power. A perfect example is my experience from the past week, where I went to pick up a tablet in my never ending quest to achieve true mobile computing nirvana - in other words, the capability to do real work, engage in real communications and consumer real media, practically anywhere I so desire for as long as necessary (without having to worry about batteries and plugs).
The mere promise of such prompted me to buy and iPad last year. Alas, reality struck and although the iPad is superb for consuming media (as long as that media is the media that Jobs & Co. deem worthy of consuming), it fails miserably in the production and connectivity (except for Apple product connectivity, where it apparently shines). I have tried products from many vendors using many OSs - Windows, linux, Android... My latest foray, though appears to have hit pay dirt. Before I go on though, let's recap where Apple stands in this space and how it got there.
Apple is now a full fledged mobile device company
The vast majority of Apple's revenues stem from iPods (currently mature and rapidly shrinking as both % of revenues and on an absolute basis), iPhones (representing over 70% of Apples profit and iPads (the segment started to diversify away from the high concentration reliance on iPhones for profit. Click to enlarge...
While the reliance to on the iPhone is the result of an outstanding business success, it does leave the company vulnerable to competition wrecking havoc with its earnings. Apple's management wisely turned lemons into lemonade by refusing to compete in the low margin netbook arena (even as netbooks ate away at Apple market share) and reinvented the tablet PC. Voila! Selling a stripped down netbook derivative product at 40-50% margins that has usurped much of the rather fledgling netbook market that fought and struggled for 10-20% margins. Of course nothing lasts forever. While the netbook vendors had a problem competing with Apple vis-a-vis hardware/ecosystem, the coming of Android's Honeycomb has not only solved the dilemma but also pushed the arena of competition into their purview - low margin, high volume, high utility production. In essence, what happened to the notebook computer through netbooks will happened to the tablet. For those that don't believe me, look at the first Android offering from the company that invented the netbook.
The Asus Transformer, is one hell of a piece of kit, and is the cheapest credible tablet device on the market at $399. For those who are not familiar with it, it boasts a bigger, brighter, more resolute screen than the iPad 2, bigger and better cameras, more memory, more speed, and a better optimized OS, for a minimum of $100 less than the entry model iPad.
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Click for video IT Pro Portal The Asus Eee Pad Transformer has been a very popular tablet - even topping Amazon's best selling tablet list - for two main reasons. Firstly, it provides great value for money; it is both cheaper than the iPad 2 and has a bigger screen with a better display resolution. Then there's the fact that it has a rather affordable accessory that can convert it into a fully fledged netbook with a 16 hour battery life altogether. The device, which runs on Android 3.0 Honeycomb, is powered by Nvidia's Tegra 2 chip and comes with 1GB RAM as well as 16GB onboard storage. Apart from Wi-Fi, it has USB, HDMI and Bluetooth connectivity. |
Once we cut through all of the marketing inspire awe, first mover advantage and related media accentuated hoopla, do we find that the iPad is really a toy?
After experimenting with my own transformer and detachable keyboard, the obvious became even moreso. The Apple iPad 2 is an actual toy as compared to the Transformer, which actually give the user the ability to do real work, on a real keyboard, with real apps. I VNC'd and RDP's (or any other screen scape method you favor) my way into my office computers and had full, unfettered access to ALL of my files (Dropboxed or not), all of my apps in their full fidelity (Photoshop, Word, Excel, Outlook, Powerpoint, etc.) and Pinnacle for full 1080p video editing. This, in combination with a keyboard, is the real deal, and for much less than an iPad.
Stories of the iPad being distributed throughout the enterprise truly make you wonder why in the world they would choose such a device over a faster, more capable device with a full keyboard that costs 20% less!?
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The misinformation that I hear spouted in the tech media concerning a lack of apps for Honeycomb is nonsense. I truly believe these guys haven't even tried the product before making such a comment. After signing into the Transformer, all of my applicable apps tranferred over from my Evo automatically, as well as all of by wireless settings. 95% of of these apps worked without a glitch. Out of 85 apps maybe two, three max, had an issue. And those apps that were coded specifically for the platform looked absolutely spectacular on the most stunning screen that I have ever seen on a portable device - any portable device! Oh yeah, did I add that this is the cheapest of all of honeycomb and iOS tablets?
The long-awaited Samurai II: Vengeance has finally arrived on Android ! While the iOS version got rave reviews for its stylized manga graphics and quick, bloody gameplay, Samurai II for Tegra based Android phones and tablets delivers even more visual stunning graphics and polished gameplay.
Where Asus failed miserably in traditional support, it more than excels in the new age of the Android open source model. I doubt Apple can (or will even want to) compete at this level.
Now, it is not as if the Asus was not without its problems. It is obvious this is all bleeding edge, brand spanking new tech. After charging the device, I dug into it to find that I could not load apps from the market and the screen would freeze once I browsed with the attachable keyboard. I called Asus tech support, who was basically clueless (they actually had me downloading Windows files to investigate the problem). After nearly half an hour of nonsense and disgust I was told I would get a phone call from a developer after the case was escalated, which I never did. I then turned to XDA at about 1 in the morning. I was referred to a real time IRC chat where a developer solved my problem in 30 seconds (simply wipe data and reboot, something I should have thought of and tech support should have known). I was also directed to an Asus programmer who is a permanent fixture over at XDA developers. He suggested that I send him my devices firmware edition and mac address, which I did. He then pushed out an OTA update to my device within 24 hours which fixed all of the issues - ALL of them. This is a NEW level of service, a level that Apple, et. al. will not be able to, and probably would not even want to) compete at.
It gets even better. I own an HTC Evo, which is currently significantly faster (running at 1.2 Ghz) than all of its newer, higher tech (hardware-wise) replacements and competitors. When I say faster, I mean 200% to 400% faster. Not only is it much faster, it is also more stable, has much longer battery life and boasts many more options. How is this possible? Well, the Evo has massive developer community behind it which facilitates constant improvement of the product, and significantly extending its life cycle. That means saved money, better experiences and most of all, ultimately superior products. HTC has been locking the bootloader on its recent products, basically telling developers that they are not welcome to much around with the insides. While I'm sure HTC (and Motorola) have done this to appease the carriers (who essentially don't have a clue and are less than two or three years away from being disintermediated if they don't get a clue), they are making a grave mistake. It is the half a million member strong XDA developer and real time beta testing community that has allowed the Evo to be the first phone to sell as strong as it has - and at full retail price - a month before it's product refresh date.
Asus, who has a history of catering to developers and the tech/geek crowd, via high end motherboard manufacturing and such, has actually made its custom source code available for download directly off of its web site. This will very, very quickly translate into near real time improvements, customizations and bullet proofing of the software and firmware (Sony has also made its source code available). As an example of what can be done with a strong developer and testing community, reference the Barnes and Noble Nook video above. It has been improved significantly since that video was made and now runs butter smooth and reliably at 1.3 Ghz, while playing nearly every video format that can be thrown at it. For the sake of comparison, it was purchased from Barnes and Noble running at 800 mHz and crippled to simple play YouTube and Barnes & Noble ebooks. Any problems had with the device can be addressed by the community in minutes, literally. Google has created a new way to sell computing!
So, is there truly a threat to Apple in the Tablet Space?
With Android's market share growing, Apple is getting considerably more aggressive in using the legal IP route in defending its market share and growth rate. Android and its manufacturing partners have been pushing the development bar in both hardware and software, forcing Apple to become materially more competitive. Now that the low margin Asian manufacturers have been given the gift of a competitive OS, the smartphone market has moved farther into their court for they are specialists at high volume low margin products. This is a game that is Apple’s to lose for they need to defend their margin. Notice what has happened to the iPad 2, although not wanting for demand, dropping in margin already with less than a handful of the 400+ competitors that have slated releases coming to market
With Google also eyeing the tablet market with the launch of Honeycomb (aka Android 3.0) for devices with larger screen sizes targeted at tablets, the competition is intensifying. Many media outlets and sell side analysts assume it as a given that Apple’s iPad 2 is the reigning tablet champion by a large margin for the balance of 2011 and 2012. Such a perspective is quite premature given that the hard hitting manufacturers have, for the most part, not shipped their tablet offerings yet an Honeycomb has essentially in beta (version 3.1 is slated for release now and is truly production ready). The Asus Transformer is, by far and large, materially superior to the iPad 2 in nearly every category save weight and size, where it is comparable but not as thin. It is also 20% cheaper and much better equipped. Contrary to reports, Asus has produced many of them, but the demand proved to be overwhelming and they are on back order everywhere.
Anecdotal research shows such demand, ex. retailers who have ordered 100 show -234 in inventory, illustrating 234 customers vying for 100 tablets. A medium size electronics retailer receiving 100 units is a far cry from limited supply.
The Motorola Xoom tablet is the first tablet to ship with Honeycomb and there are several dozen other Android tablets (not to mention offerings from HP/WebOS, RIM/Blackberry and Microsoft/Windows partners) that are slated to hit the market this year. While Apple’s iPad may currently be enjoying the lead in the market, Honeycomb puts Google in an excellent position to catch up, much as Android has done in competing with iOS in the smartphone space.
Not only is competition expected to put significant pressure on prospective demand, it is driving costs up as well. The following is excerpted from the subscriber document 
Apple - Competition and Cost Structure.
Subscribers should be sure to read the 20 page analysis - Apple - Competition and Cost Structure
You can follow me via Twitter to keep abreast of my opinion and analysis.
Related reading:
- Google’s Android Market Share Explodes As It Expands Its Reach To Cars, Toys, Home Automation, Music & Movies – All In The Cloud Wednesday, May 11th, 2011
- Looking at the Results of Google’s “Negative Cost” Business Model Employed Through Android Monday, May 2nd, 2011
- Blackberries Getting Blacked Out, Imitate Amateur Base Jumpers Sans Parachute! Friday, April 29th, 2011
- A Realistic Look At The Success Of Google’s Investment History Thursday, April 28th, 2011
- My Thoughts on Roger McNamee’s View of Google and Mobile Computing Sunday, April 17th, 2011 and Google’s Q1 2011 Review: Part 2 Of My Comments On The Gross Misvaluation of Google Tuesday, April 19th, 2011
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Why not spend a little time looking into how Google has been coasting on search revenue and what Facebook is about to do to that side of their business?
Or the other search models being developed for people who hate google search and bing.
Why is it always Apple this Apple that?
Just a little CC Reg
Add a keyboard and a proper computer to a tablet -and you've a got an amazing machine.
+1 on the great people at XDA Developers. Been a member for MANY years.
http://forum.xda-developers.com/
Reggie; We understand you dislike Apple. You find every reason in the world for dissing it.
But what you don't talk about is function and support. They work. They blow every other operating system away for ease of use and there is a worldwide community willing to share their knowledge to help anyone else keep their's working. The other companies are cutthroat and see if you can get a rep on the phone?
And this is exactly why Apple will end up making the short of the lifetime. There are too many shareholdes and customers who are making decisions with emotions versus more empirical values. How in the hell to you "dislike" a C corporation? It's an inanimate object trading shares on an exchange. No one is trying to "diss" Apple, I'm calling out exposure to margin compression.
As for support and community, no one beats Android's support over at XDA. And it's growing exponentially from a base of over a half a million realitme developers, coders, engineers, users and beta testers. Now that some companies are actually catching on and using the resource as an asset versus treating it as a liabilty, it will grow even larger - even faster.
I'm responsible for the IT functions that support about 80 people that travel globally. They all have iPads and most have turned in their Windows/netbooks. They are also given bluetooth keyboards, either the standalone ones from Apple or the ones built into the iPad case.
Staff would rather have a root canal than return to a windows netbook/laptop.
I thought the iPad was going to be a big toy, a larger iPod. I was wrong.
Properly intorduced into a corporate environment, read being able to centrally control them like a Blackberry, they save money. Use ActiveSynch to control password, security, remote wipes, what apps can/can't be installed works. Dropbox or similar controls file synching and is especially useful while someone is on the road.
The Dragon app, free, is very good at allowing people to dictate trip notes to the iPad, translate to text and then e-mail to a secretary has taken off. All people on the road use it to communicate.
The push feature for Apple e-mail, calendar contacts etc used with Exchange works like a charm. The integration between native functions such as looking up an address on Safari and then having the mapping function drop a pin and give you directions to wherever it is you want to go removes the needs for a GPS.
Using software such as Teamviewer or Wyse Remote Cloud allows access to any server based application or access to your desktop.
Using virtual desktop tooks such as VMware View or Citrix allows you to access your desktop, or multiple desktops depnding on what you are trying to do, makes managing remote iPads easy and frees up a boatload of technical staff time to focus on other issues.
Writing new apps for an iPad requires programmers to learn a language called Objective-C but once they get the hang of it, new Apps flow seemlessly and using the Apple Enterprise version of the App store allows for these apps to be made available to only your staff.
I'd go on, but until your favorite new device can be deployed remotely but managed centrally it is never going to make it in the corporate world and that is where Apple is making some penatration that I don't believe you are accounting for.
Again, I'm not an Apple fan - all of these devices and operating systems end up causing me headaches and drinking too much, but do be careful not to overlook how well an iPad can fit into an organization where you have people that travel needing access back home - they will dump a Windows machine if you can give them the access they need to get their jobs done.
Actually Google is way ahead of the game in enterprise deployment. Have your team look at Chromium netbooks - total cost is $20 to $28 per month, + $50 per year for Google apps and screen scraper to allow you to access all of your legacy windows apps. Let me say it again, TOTAL cost, hardware, software, OS, IT support, maintenance, antivirus, security, warranty replacments - $20 - $28. Have you company compare that to $600 iPads (*80=$48,000) that they have to pay you and your department a couple of extra hundred of thousands of dollars per year (minimum) to service and maintain. $300,000 for the first year, $240,000 or so every year thereafter plus software costs - as compared to $20 per month * 80 plus $50 per year for Google apps plus access to legacy software. Sounds like a hard sell to those who have not succumb to Apple marketing if you ask me.
Of course, if you absolutely need the tablet form factor, you can take the Asus above, optionally up to 16 hour battery life with the keyboard. The problem with the Apple and the Atrix keyboards is that they weren't software optimized to work with touch screens, don't charge the battery (instead they drain it), and don't come with full sized SD card slots and two standard USB ports either. Asus added those very practical touches.
These are ultimately more functional than iPads. I have had one for a year and know it intimately, jailbreak and all. It's for sale if you want it!
Thanks Bruno, used to do what you do, your post was enlightening. Indeed "but until your favorite new device can be deployed remotely but managed centrally it is never going to make it in the corporate world" is the core issue for IT & management.
I'm sure android's not far behind though... And Win7 on Tegra & better interfaced would be ideal for corporate IT.
Sure, but what does it taste like?
Ah the aapl haters continue to mis the only thing thats important: The power of sex appeal and marketing/brand appeal. You think Coke tastes any different from the other coke wanna-be's? Ah, brands matter, loyalty to brands matter even more. Not to mention, Reggie is just talking his abysmal long GOOG/short AAPL portfolio. Anyone that knows GOOG well, I mean insiders working there knows they are like a bunch of trust fund babies waiting to spend the next check and have little focus at the top. So by all means, keep buying GOOG and be on the hope train. AAPL has continued to make those who say they have no new sizzle look stupid, and they will continue to do so. So hate all you want but when it comes to making actual fiat that the govt will surely debase, buy AAPL over GOOG and for gods sake take advantage of the silver/gold rout and buy something shiny while the charts look broken
Thanks for the info, more ammo to bash apple's always fine with me!
How flexible is the OS for photography management / on the run editing or photoshoping?
What about Win7 tablets Vs Android ?
Oh, i almost forgot, apple = satan.
But, but, but Apple is American made. LOL
I wonder if we can avoid Apple/Google/Blackberry/NSA tracking by buying foreign products.
Probably not ...and that "private" Israeli company has the US government contract to monitor all of our telecommunications... anyway.
Great analysis, Mr. Middleton.
I have dorked around with the $250 color Nook, and had Android up and going in just a bit over an hour.
The coming iPad killers have been predicted for several seasons now. Sure, they'll come eventually. But we're a long, long way from proclaiming the iPad dead. I'm no Apple fanboy by a longshot, but at this point one can't be anything but impressed with that company.
I'll believe they're in trouble when I see anything that comes close to being a competing product at half the price. And that means on the shelves.
Sooo.. you've never used an Android tablet then?
Apples have always been toys, but the girls like them.
Reggie SOLD ME!!!
$700 for an IPAD..... Not in this lifetime! A $500 notebook is a much better value!