Apple's Q4 Earnings Call: Are 7-inch, Android Tablets Really DOA?

Yesterday, Apple announced that it had sold 4.19M iPads in its fiscal Q4 2010, up from 3.27M in Q3. That means it sold more iPads than Macs in Q4, even though quarterly Mac sales were the highest they've ever been: 3.89M,  a 27% unit sales increase from the year-ago quarter. Given that calendar Q4 sales typically account for 35%-40% of consumer electronics sales, we could be looking at 15M+ iPads sold globally for Apple in its first, three-quarter year. I am not the only analyst saying "Wow" right now.

There were tons of interesting tidbits in Apple's earnings call yesterday but I want to focus on a two points that I know are plaguing product strategists in this area. In particular, Steve Jobs attacked:

  • 7-inch tablets, which he called "dead on arrival." It's true, as Jobs claims, that the 9.7-inch iPad screen gives apps plenty of room to strut their stuff. But I've written before and I still maintain that although the iPad screen makes content like magazines and video look great, the device is heavy (1.5-1.6 lbs, depending on the model) and awkward to hold. Even with a case that angles the screen, your neck gets stiff looking down at the device, and it's too heavy to hold up like an eBook reader (eReaders by all the major brands weigh less than 1lb.). I don't know if 7 inches is the perfect size from a usability perspective, but I do know that the iPad leaves room for improvement. Jobs also claimed that developers resented having to modify their apps to fit a 7-inch screen. It's true that many large publishers I speak with, for whom all app development is a relatively difficult process, sigh with exasperation when they think about having to design for multiple screen sizes. But more nimble developers don't seem to mind. Jeff Janer, CEO of Spring Partners, which makes the popular Springpad app, told me that "the Android toolkit actually makes it pretty easy to develop and scale for different devices, including tablets."

What this means for product strategists: Tablets (or slates, in industry parlance) are an entirely new category of devices for consumers. If you're building a competitor to the iPad (or, like Samsung and RIM, you've already built one) there's no reason why you need to conform to Apple's "standard of one" with a 9.7-inch screen. I'm not saying that 7 inches is a winner--I have yet to test the Samsung GalaxyTab or the 7-inch Dell Streak, and I have to say that the 5-inch Streak was very awkward--but success or failure hinges on more than just screen size. It's about the software and hardware integration, the ease of use for the consumer, and your distribution and marketing strategy, among other things. Developers want to be on killer devices regardless of screen size. Our long-term view about screen size is that we're entering a period of computing diversity, also called the Splinternet, and tablets are just one form of many in-between devices to come. Not all in-between devices will be tablets. And not every consumer will have the same assemblage of devices. Some consumers will buy tablets to complement desktop computers and non-smartphones (gasp!)--after all, the data plan on the iPad is cheaper than that of a smartphone. Others will buy tablets and use them along with smartphones and laptops. It's worth noting that according to Forrester's data, 24% of iPad owners and intended buyers also already own a netbook, and in the next year they intend to buy netbooks at twice the rate of the general online population. One size does not fit all.

  • Android tablets, which he called "a mess." Here, Jobs is on to something. Not all devices running Android run the same version of Android. Some connect to Android Marketplace, and some don't. Some have additional app stores and layers of experience developed by the OEM or the carrier. We agree that this is a huge problem for consumers. As my colleague Charles Golvin pointed out in a recent report, there's a lot of consumer confusion about the Android brand and what it means to own an Android phone, and it's only going to get worse with tablets. This is undoubtedly a problem for consumers, but it's not a huge barrier for developers. Springpad developer Janer acknowledges that "carriers do make it a little more difficult to develop and support multiple permutations because of their different UIs, and they also decide on which Android OS versions to support," but the tools that Google provides help overcome these obstacles.

What this means for product strategists: The operating system (OS) is the "secret sauce" for tablets. This is why OEMs like HP and RIM have made strategic acquisitions (of Palm and QNX Technologies, respectively) to own their own OSes. Owning your OS means that you can provide the same kind of software and hardware integration that has been key to Apple's success. If you don't own your own OS, you can choose Android, which is free, or Windows, which is not. Neither is a perfect operating system for tablets. The OEMs we've spoken to see value in working with Microsoft, but Android gives them a chance to experiment with something different with relatively low risk. We don't expect that any Android tablet will be a 1:1 competitor to iPad, but because it's free and is attracting more and more developers, many OEMs will create devices that run Android. In the short term, these devices are likely to be disappointing, but they'll get better. Eventually we expect the tablet market to resemble the smartphone market, with Android devices collectively outselling Apple devices (although Jobs disputes this data).