Stop the Noiz

All iPad Competitors Will Fail

Frank Fox - 2010.08.23 - Tip Jar

The Best Spots Are Taken

One of Apple's great strengths has been the ability to identify what prices in a product category are the most profitable. This is why Apple hasn't pursued a low cost notebook - it won't exchange increased effort for decreased profits.

Simple math: Assuming the same margins, Apple has to sell twice as many $499 notebooks as $999 MacBooks to earn the same profit.

But often the lower cost item will not support the same margin, so even more units must be sold. Apple conserves its resources without any significant loss of profits by avoiding the low-end market.

The iPad Sets the Bar

This is a problem for everyone else when the potential customer asks one simple question: "Why should I buy your tablet when I can buy an iPad for the same price?"

This forces the competition to either sell for less or offer more features and suffer the margin loss. Either choice requires more work for the competition to match the profits that Apple is earning.

I like to think of the market as a parking lot, and with the iPad, Apple has already taken all the spots up front.

Filtering the Noise

Noise is both annoying and something the human brain is good a filtering out. If you visit someone who lives near an airport, the planes might drive you crazy. The person who lives there has learned to filter out the noise.

Today Apple has the dominant place in the tablet market, but sometime in the near future other vendors will introduce their tablet products. Whether due to increased market size due to the new tablets or them actually stealing some iPad customers, Apple will loss market share.

Future Tablet Market
If Apple owns 65% of the market, others have to split the remaining 35%.

A time may come when Apple is reduced to 65% of the tablet market and the rest is divided up among the competition. The graph will look something like the one above. You can see that Apple brand stands out against the rest. Sure, the competition has grabbed 35% market share from Apple, but that 35% is broken up over so many companies that it looks like noise.

All of the competing products and features are going get filtered out, and people are going to continue choosing the brand that stands out. Sure, some people will listen to the noise and pick one of the other brands because it is $50 less or has a few extra features, but those minor details won't be enough for the majority.

The more fractured the market is by the competitors, the more important Apple will seem.

Apple Is a Moving Target

Apple has done a wonderful job innovating details not on the radar. The competition could get ahead of Apple by releasing a 10 megapixel camera when Apple offers "only" a 5 megapixel camera. (Yes, I know the current iPad doesn't include this feature. It will come, and it's already present on the iPhone 4.)

Apple will stay ahead by pulling out a host of novel technologies that leave everyone else playing catch up.

Without knowing exactly what Apple will do, we can look at its other products to see how Apple has left the competition guessing. The original iPod took everyone by surprise. No one was thinking that a company that only made computers was going to develop and release an MP3 player - that was for consumer electronics companies like Diamond, Sony, and Creative Labs.

The iPad left Dell, HP, and many others years behind in the consumer electronic business, and no one ever caught up.

That is why the success of the iPad scares everyone so much.

Apple Innovation

Among Apple's many innovations, they introduced backlit keyboards with the first 17" MacBook Pro. It introduced unibody construction with the first MacBook Air. Apple released the original iMac without a floppy drive and the MacBook Air without a built-in optical drive. It never used a replaceable battery for the iPod or iPhone, and it no longer does on any laptop. Apple moved the iPhone to the 960 x 640 Retina display while the rest of the industry was competing with the 480 x 320 display on earlier iPhones.

Some of these changes seemed crazy at the time, like dropping the optical drive or moving to permanent batteries. Commentators have ripped into Apple for many of these changes, yet Apple hasn't backed down on any of them.

Leaving out the optical drive gave Apple's notebook a weight and size advantage. Permanent batteries allow Apple to increase battery capacity, and thus battery life, on portable electronics. Apple's design choices are never random; they are focused on pushing design acceptance for the next round of changes.

In hunting, it is easy to shoot a target that is running at a constant speed by leading the shot. But how's the competition supposed to do that if there is no predicting what crazy idea Apple will have next? Apple doesn't just innovate, but they do it on unexpected ideas.

The Old Way Won't Work

Years ago, Microsoft could just spend its way out of trouble. That is not going to work here. Apple has the pocket change (over $40 billion) to take on any stupid short-term challengers.

While I think that a carefully crafted strategy could take on the iPad (see 5 Strategies Microsoft Must Use to Succeed Against the iPad), I am nearly 100% sure that no one has got what it takes to make it happen. LEM

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