Forrester published a new report today making the call that the iPad challengers that have been announced so far—Android Honeycomb tablets from Motorola, Toshiba, and others, as well as the BlackBerry PlayBook and HP TouchPad—are solid products with fatally flawed product strategies.
In short, competing tablets are too expensive, and can’t match the Apple Store as a channel. These two claims are related: Forrester’s research has shown that consumers attribute more value to Apple products because of the in-store service. Consumers are not only comparing feeds and speeds; there’s also a human factor. The humans working in the Apple Store will have a huge impact teaching consumers about the iPad and how to use it. Compare the experience of walking into an Apple Store, where the iPad is front and center, to walking into a Verizon store where the Samsung Galaxy Tab is collecting dust at the back of the store and the sales reps don’t quite know what to make of it. Or walking into a Best Buy store, whose shelves will soon be lined with similar-looking tablets with similar functionality.
Starting with CES in early January and through the Mobile World Congress last week in Barcelona, the mobile industry has been in a feeding frenzy of announcement activity. At CES, it was centered on Android-powered tablets. During the Mobile World Congress, it was about the big Microsoft/Nokia deal and vendors scrambling to differentiate their Android handsets.
But behind all these announcements, there is a broader shift going on to what Forrester calls the mobile app Internet and the accompanying broader wave of app development and management. We have just published a report that explores the different vectors of innovation and sizes the mobile app Internet from an app sales and services opportunity.
The report looks at the three factors beyond hardware that will drive the market:
Even at $2.43/app, the app market will emerge as a $38B market by 2015 as more tablets and smart phones are sold and the number of paid for apps per device increases due to improvements in the app store experience.
A perfect storm of innovation is unleashed by the merger of mobile, cloud, and smart computing. I see innovation coming from the combination of apps and smart devices like appliances and cars, improved user experience around the apps by better leveraging the context from the sensors in the devices, and enabling the apps to take advantage of new capabilities like near field communications (NFC) for things such as mobile payments.
The Motorola Xoom went on sale today, the first tablet to ship with the Android 3.0 "Honeycomb" operating system. I've been testing the Xoom for the past few days, and here's my take:
The Xoom is a solid, sexy product. If the Xoom were a guy, he'd be the quarterback who occasionally flashed a GQ-style fitted suit and pocket square. The device is plenty powerful and has some nice design flair. When you use the camera, for example, it anticipates that you'll be holding it in landscape mode with your right thumb on the screen, and it simulates the radial control dial of a real camera under your thumb. There are no awkward moments, as there were with earlier Android tablets like the Samsung Galaxy Tab and Dell Streak--it's slick and fast and feels like a tablet rather than an oversized smartphone. It has all the features you'd expect from an iPad challenger (cameras, ports, Flash support, etc.).
The most important outcome of this week’s emerging tussle between Apple and Google is that we are about to have an intense and financially difficult conversation about what a fair price is for delivering customers to developers, publishers, and producers. Economically, this is one of the most critical issues that has to be resolved for the future of electronic content. Very soon, a majority of consumer experiences (that which we used to refer to as the media) will be digital. But not until the people who will develop those experiences have unambiguous, market-clearing rules for how they can expect to profit from those experiences.
The question comes down to this: Is 30% a fair price for Apple to charge? I must be clear about my intentions here. I do not employ the word “fair” the way my children often do. I am not whining about Apple’s right to charge whatever it wants. Apple may do whatever is best for shareholders in the short- and long-run. I argued yesterday that Apple’s recent decision does not serve its shareholders in the long run. Google announced One Pass yesterday – hastily, I might add – in order to signal to Apple and its shareholders that monopoly power rarely lasts forever. But none of that questions the ultimate morality of Apple’s decision or its rights.
I use the word “fair” to refer to a state of economic efficiency. A fair price is one that maximizes not just individual revenue, but total revenue across all players. Such revenue maximization cannot be achieved without simultaneously satisfying the largest possible number of consumers with the greatest possible amount of innovation.
Yesterday Apple announced its intention to tighten its hold on the payment for and the delivery of content through its successful iTunes platform. (I’ll leave off the I-told-you-so; oops, too late.) Apple will require that all content experiences that can be paid for in an Apple app must be purchasable inside the app, with Apple collecting its 30% fee. The app can no longer direct you to a browser or some other means for completing a transaction. Crucially, the in-app purchase offer must be extended at the same price as the same offer made elsewhere. Though the announcement of the subscription model was the triggering event, the policy extends to all paid content.
I do not believe this is where Apple will stop – I personally expect them to eventually deny the delivery of content paid for outside of the app without some kind of convenience charge. But my personal expectations are irrelevant here, because what Apple has done already is sufficient to make providers of content aggressively invest in alternative means to reach the market.
Subscription content services are the lifeblood of the content economy. A full 63% of the money consumers spend on content of all types comes through a renewable subscription (I’ll be publishing this data from a survey of 4,000 US online adults as part of a bigger analysis next month, hang tight). Most of that subscription revenue goes to pay-TV providers, but 17% of it goes to newspaper and magazine publishers, including their online or app content experiences.
Today’s deal between Microsoft and Nokia acts as a temporary lifeline for both companies. It gives Microsoft access to the largest handset provider, and it allows Nokia to defray some of its operating system development costs. I have just finished a report, “Mobile App Internet Recasts The Software And Services Landscape,” that will hit the Forrester site on Monday, February 28.
In the report, Forrester states, “The explosion of app innovation that started on the iPhone and then spread to Android devices and tablets will continue to drive tech industry innovation and have far-reaching pricing and go-to-market implications for the industry. Three different vectors of innovation that have been percolating under the surface will combine over the next 3-5 years. Mobile, cloud, and smart computing together will foster a new set of 'intelligence everywhere' apps.”
And based on that research, I believe that deal does not address the biggest issue for both companies – attracting apps and app developers. For Nokia, it now sends the message that Symbian and MeeGo platforms are no longer the long-term app focus. For Microsoft, it creates an eight-to-twelve month void/pause as developers wait to see what the new Nokia hardware looks like.
At the current rate that Apple and Android are recruiting third-party and enterprise app developers, this could mean a gap of 100,000-200,000 applications by the time the first Nokia Windows Phone device ships. This is likely a lead that even the combined resources of Microsoft and Nokia could not bridge.
There were two important pieces of Nokia news of interest to mobile platform developer partners leaked today. First, Nokia’s MeeGo platform, designed to replace Symbian, will likely be killed before ever reaching the market. Second, Nokia’s CEO Stephen Elop purportedly sent a 1,300 word memo to all Nokia employees that includes key sections such as: “We poured gasoline on our own burning platform. I believe we have lacked accountability and leadership to align and direct the company through these disruptive times. We had a series of misses. We haven't been delivering innovation fast enough. We're not collaborating internally. Nokia, our platform is burning”; and “The first iPhone shipped in 2007, and we still don't have a product that is close to their experience. Android came on the scene just over 2 years ago, and this week they took our leadership position in smartphone volumes. Unbelievable.”
This dovetails with what we predicted in a November 2010 report, “The Feeding Frenzy Over The Mobile Developer Channel,” in that it would not be the quality of the underlying platform software (Nokia has remained strong there), but the ease of development, viability of the platform, size of the market, and availability of distribution channels that would settle the mobile platform battle. In all of these factors, Nokia has been steadily falling behind its competitors, led by Apple (iOS), Google (Android), and Microsoft (Windows Phone).
Today The New York Times is reporting that Apple is changing its policy for allowing apps to deliver content that was paid for somewhere other than in the app where Apple would get a cut. This came to light when Sony was forced to explain why its iPhone and iPad apps were not being released as promised. This is important to illustrate clearly because this is not just about Sony. In fact, it is expected that Apple will apply this same policy to existing apps over the coming months. The most obvious target is Amazon.com's Kindle store, but we have no reason to believe it will stop with eBook retailers; instead, this policy should also affect magazines, newspapers, even videos and games.
This represents a shift for Apple. Going back to the iPod days, Apple only sold music because it helped sell iPods. When Apple added the iPhone app store, it allowed Amazon to add a Kindle app because it would only make iPhones more valuable to potential buyers. The same held true for the iPad. But now that the company has built such a powerful ecosystem of devices, content, and consumers, it appears Apple is eager to ensure it can collect any and all tolls along its proprietary highways. I note this with some irony because it was just three weeks ago that I praised Apple's surprising openness in a report explaining the iPad's rapid growth:
Two words were on everyone's lips today when it came to tablet talk: Honeycomb and LTE, the next-generation much faster network billed as "4G." Honeycomb is Google's first tablet-optimized version of its Android operating system, which will run on tablets like the Motorola Xoom, LG G-Slate, and Asus Eee Pad Transformer. Honeycomb isn't fully operational yet so it's hard to say how well these tablets will perform; early demos show a user experience that looks similar to the Palm WebOS "deck of cards" metaphor for switching between applications.
The Honeycomb tablets have features the iPad doesn't (yet) have, like front and back cameras for video chatting and HDMI outputs for connecting your tablet to your TV. Add in the superspeedy LTE capabilities, which we'll see in tablets in the second half of 2011, and here's what you get: better video and better gaming experiences. Think Skyping and G-chatting with less latency, watching videos with less stuttering, seeing more and more video on sites like Facebook. Not to mention more complex, real-time gaming: Nvidia demoed a concept for cross-platform gaming where you could play a game on your Android tablet with a friend on a PC or Sony PS3 game console.
Today Forrester published its revised US consumer tablet forecast, updating its previous forecast from June 2010. When Apple's iPad first debuted, we saw the device as a game-changer but were too conservative with our forecast. Since then, we've fielded additional consumer surveys and an SMB and enterprise survey, conducted additional supply-side research, and seen more sales numbers from Apple. We've had briefings from many companies that will release new tablets at CES. All of these inputs have led us to revise our US consumer tablet forecast for 2010 upward to 10.3 million units, and we expect sales to more than double in 2011 to 24.1 million units. Of those sales, the lion's share will be iPads, and despite many would-be competitors that will be released at CES, we see Apple commanding the vast majority of the tablet market through 2012.
Forrester's US Consumer Tablet Forecast, updated Jan. 4, 2011: