Everyone has remarked on the success of the iPad. Now we have (slightly credible) evidence of other product success, and with that optimistic predictions for 2011.
By all accounts, the iPad was a strong seller this Christmas season, but the official results won’t be available until Jan 18, when Apple releases earnings and sales for the quarter ended Dec. 26.
However, intrepid Fortune columnist Philip Elmer-DeWitt contacted 27 analysts for their estimated sales for this quarter, and got estimates ranging from 5.0 million to 7.5 million iPads sold. (The mean was 6.35 million). That’s on top of 7.5 million sold in the first two quarters (4.2 million of that in the quarter ending Sept. 25).
So Apple has sold at least 12.5 million of its $500-800 iPad, and maybe as many as 14 million. Meanwhile, Apple is preparing to announced the iPad 2 (although predictions vary wildly as to what that is.)
Apple is not the only game in town, but it’s still the market leader. According to Forbes, analyst Craig Ellis notes that with 69+ tablets for sale, Asian suppliers expect 40-60 million tablets sold 2011. He predicts 53.6 million (not 53.7?) sold, and 36.1 million (67.35%) of those to be iPads.
Update 3pm: Similar figures come from analyst Robert Cihra (via John Paczkowski): 54 million tablets in 2011, 36 million (67%) from Apple — up from 14 million in 2010.
Craig’s guessestimate on e-readers is 20 million in 2011, up from “around” 10 million this year. Forester puts the numbers at 11 million and 6.6 million respectively (but those might be US-only).
Such estimates are impossible to check since the category king, Amazon, is evasive and non-transparent when bragging about Kindle sales. Sure enough, this week, both Amazon and Barnes & Noble this week issued meaningless press releases that say their Kindle 3 and nookColor are its best-sellers ever.
A Bloomberg report claims internal leaks from Amazon place 2011 estimates at 8 million sold, vs. 2.4 million in 2010; most of the former are presumably the $139 Kindle 3 Wi-Fi. Analysts believe B&N sold about 2 million Nooks — most of those nookColor and most in the past 6 weeks.
One difficulty in comparing tablets to e-readers is that the Amazon and certainly the B&N sales are primarily in the US, while tablets are a worldwide phenomenon. Samsung’s hoping to sell 9 million tablets in 2011, and from its tepid US results, most of those are likely to be outside the US.
So by the numbers, it appears that 2011 will be the year of the tablet. Next week’s CES in Las Vegas will bring a flurry of Android tablets, as well as Microsoft’s latest effort to compete in the category.
Still, so far everyone expects the tablet category to remain dominated by Apple in 2011, even if its market share slips in the face of product proliferation by its rivals. Using Craig’s estimates, Apple still retains 2/3 of the combined tablet & ereader category, while Amazon would be limited to about 20% at a much lower price point. (The What-me-worry? folks at Amazon also noted that many iPad owners are also buying the Kindle.)
I predict Amazon will introduce black & white Kindle this summer at the magical $99 price point, but will it be enough? More importantly, will people continue to buy into its proprietary media format? Or will the entry of the Google eBook store — with files that can be read on everything but a Kindle — finally start to nudge the industry towards a more open format?
Personally, the most interesting question is leadership of the non-Apple tablet market. Perhaps the HP webOS tablet will catch on, but most likely the leader will be an Android tablet, such as the one I own — the nookColor.
The nookColor has already been hacked to run Android apps, including (as long predicted) even Amazon’s Kindle reader for Amazon. B&N promises to introduce its own Android download shop in Q1, presumably excluding Amazon products from the subset of apps provided. At its aggressive $250 price point, it seems to be the early leader among 7" Android tablets — at least in the US market.
Friday, December 31, 2010
Everyone has remarked on the success of the iPad. Now we have (slightly credible) evidence of other product success, and with that optimistic predictions for 2011.
Monday, December 27, 2010
A particularly trenchant analysis of the faulty logic of “stimulus” came this morning in a Wall Street Journal op-ed entitled “Confessions of a State Stimulus Czar.” (The original title was Confessions of a Stimulator.)
Industry veteran Tom Evslin tried to spend Vermont’s stimulus funds wisely but found it was mostly a futile exercise. One highlight:
The acceleration of government projects that had already run the approvals gauntlet—primarily the paving of roads—worked. But the building of new infrastructure failed. Due to the time required to apply for grants and receive permits, none of it was done during the recession, and only a little will be done in the next few years.In other words, we needed pork barrel spending to fix the problems caused by government regulation, but in the end regulation won out over pork.
Nothing is "shovel ready" in the U.S. We've created a wall of regulatory obstacles—environmental, historical sites, etc.—that blocks doing any major project on a predictable or reasonable schedule. Not even all the king's men with all the people's money can build tunnels, railroads, wind turbines, nuclear plants or anything else significant without years or even decades of delay. If permitting were speedy, we wouldn't need government money to have a construction boom.
Even the good short-term effects were cancelled by the worse long-term effects. As predicted, Evlsin noted that the spending made things worse, because “the federal money came with strings attached” to prevent state governments from becoming more efficient by cutting costs — and thus the funding worked to “prolong the overspending.”
Despite being CIO of the most socialist state in the union, Evslin was blistering in his criticism of subsidies for renewable energy:
An industrial policy based on government grants and tax credits is an oxymoron at best and a disaster at worst. As an example, tax credits for solar photovoltaic systems have stimulated the solar industry in China. The Chinese don't install them there, they just sell them to us. More generally, these grants, tax credits and the like just mean higher-cost electricity.Finally, he disputes any net job benefit from the stimulus spending:
The stimulus failed to keep the national unemployment rate below 8%, as had been promised. Overall, the stimulus had a negligible effect on overall unemployment, although it saved government jobs (temporarily) at the expense of private employment. Counts of "jobs created or saved" are meaningless. Jobs lost due to higher taxes, national debt or government crowding-out were not counted.Driving home tonight, I heard one talk show host quote this “bureaucrat” with glee. Clearly this was a pundit too lazy to spend 2 minutes throwing Tom’s name into Google and reading what was readily available, including the biography at TomEvslin.com.
I knew Tom (and his wife Mary) when the were running Solutions, Inc., a fax modem company. After that he ran server products for Microsoft BackOffice, launched AT&T WorldNet and cofounded a wholesale VoIP company that IPO’d in 1999. Not my definition of a bureaucrat.
It’s too bad that we don’t have more people like Tom in ”public service”: these are people who’ve had to manage the bottom line, including cutting spending if revenues are inadequate to cover expenses.
California briefly had someone like this in statewide office — Democrat Steve Westly, who gave up his job as state controller in a futile run for governor against career politician Phil Angelides. Westly’s failure to win election — along with that of Al Checchi, Meg Whitman and others — will certainly discourage other qualified business leaders from trying to enter politics directly from private industry.
Wednesday, December 22, 2010
Qualcomm has pulled the plug on FLO TV, its attempt at terrestrial broadcasting to cellphone (later dedicated device owners). It sold the spectrum to AT&T (so that LTE iPhones will have better Internet access than the 3G phones have today) and is refunding the purchase price paid by buyers.
I’m not sure what it means for Qualcomm’s future, but I offer some thoughts on my San Diego Telecom blog. Certainly it hurts its batting average under its second CEO, Paul Jacobs, son of the original CEO Irwin Jacobs.
On the other hand, Intel has been through multiple CEOs since its founding, and basically makes all its money from the 1980 decision to source IBM’s PC cpu and then later to pull out of DRAMs. So while Intel is un-sexy and no longer is seen as a growth company, it’s not in trouble, desperate or in danger of going away any time soon.
In some ways, it suggests second acts are very hard to pull off. Intel Microsoft and Motorola moved beyond their original products to another cash cow, but Oracle and SAP have not. (eBay may eventually make more money off of PayPal than auctions, so it’s too soon to call that one.) RCA and the original AT&T were once technological powerhouses that eventually died. Once-great pharma companies are also in great trouble nowadays.
Of tech companies, Apple and IBM have pulled off multiple re-inventions, but is there anyone else in that league? Google might get there someday, but they’re not there yet.
Tuesday, December 21, 2010
When I started the professor gig back in 1998, I had a smug sense of superiority: I’m a tech strategy guy, and I didn’t worry about the dinosaurs and dying industries and boring stable mature industries.
Since that time, we’ve had the dot-com crash, the NASDAQ crash, a decade of sideways tech stocks (some still below all-time peaks) and in general a mature, commoditized IT industry, including once-great companies like HP and onetime high growth companies like Oracle.
This is not just IT, but also the onetime epitome of high R&D/sales ratio and science-based differentiation, i.e. big pharma. Reflecting declining returns to R&D, big pharma has underperformed the S&P 500 for 15 years — even before the dot-com crash — and has responded by budget cuts, layoffs and offshoring.
In other words, all industries grow up someday. Light bulbs and transistors and telegraph wire were once cutting-edge too. Masked (slightly) by mergers and acquisitions, companies like Oracle and SAP lost the ability for organic growth almost a decade ago. Today the tech products — like PCs or phones or tablets (or proprietary pharmaceuticals or PV panels) have to worry about cost-based competition and the perennial threat of substitutes.
Given that, I’m now convinced that every would-be high-tech MBA needs at least a half-semester (or one-quarter) course on strategic marketing in mature consumer industries. We have a lot to learn from selling autos and soap and sugar water — despite what Steve Jobs said about selling sugar water almost 30 years ago.
Yes, we’d like to think (thanks to Moore’s Law) we’re not peddling tail fins but instead an ongoing stream of incremental improvements. Still, well-run companies in mature industries have a lot to teach us about product proliferation, cost engineering, consolidation, and buying/selling companies, not to mention maintaining and leverage brand equity in the face of commoditization.
In fact, I just got through reading final exams about soft drinks in the late 20th century. From 1975-1995, the two major cola companies squeezed out the smaller companies as they grew their share from 45% to 73%. (Does anyone remember drinking 7-Up? Of being able to buy it in a restaurant or on a plane? I do.) This growth occurred as they also grew the pie, with per capita soft drink consumption almost doubling during this same period.
Sure, New Coke is right up there with the PC Jr. (what?) or Lisa, Apple /// and Newton (huh?) as great marketing flops. Still, while all the growth this century will come from developing markets, both KO and PEP stretched their run out for another decade through a variety of product, marketing, supply chain and corporate-level strategies. The US auto makers haven’t done so well — Ford better than most — but the Europeans and Japanese have coped well with a maturing market.
Of course, high-tech marketing people need to learn how to do real consumer marketing. Intel and Qualcomm have grown their own, while Apple’s top marketing execs came from Macromedia (a software company) and Target. (The difference between Jobs I and Jobs II was the intervening experience building a consumer brand at Pixar.)
Ideally, the course on strategic marketing would be combined with a course on consumer marketing. However, the reality is that at most business schools, these are two separate skill sets not found in the same person.
Once upon a time business strategists studied Sun Tzu or Civil War battles. In the 21st century, they should study the cola wars, diversification efforts by the Japanese auto makers, franchising by Ray Kroc, the re-invention of water and coffee, and the branding of generic acetaminophen and ibuprofen.
Sunday, December 19, 2010
AP says that shopping is better than this year than last. (Certainly it’s better than the England, where unfamiliar snowstorms are preventing stores from restocking.)
We ran out to the major Santa Clara mall this afternoon to buy a couple of items, and what I saw was signs that retailers were desperately discounting because traffic was lower than expected. Bath and Body Works had a number of 50% discounts and pretty much everything seemed to be 25-33% off. Abercrombie sold my tween a sweatshirt for 10% less than what we were charged on the morning of Black Friday — usually the day of deepest discounts.
Perhaps this was just the stores we went to — one for silly luxuries, one for stylish teen clothing. Other stores selling more basic goods could be doing great. Or it could be the Bay Area, or California more generally. After all, our statewide unemployment rate is 12.4%, or one-fourth higher than the 9.8% national figure.
In any event, this data is dissonant with the all-smiles-and-cheer view being presented by retailers.
A final possibility is that retailers underestimated how quickly demand would shift to online stores — which, as the WSJ notes, can now be consulted by smartphone-wielding shoppers as they stroll down the aisles. Given Silicon Valley has always had the highest penetration of e-commerce awareness and now has a relatively high smartphone penetration, this could explain the local desperation. After all, distribution is just another service that’s been commoditized by the Internet.
If I’m right, luxuries/frills/non-necessities will be heavily discounted on Dec. 26 — a great bonanza for those who have birthdays in January (or are willing to exchange gifts on Twelfth Night.)
Saturday, December 18, 2010
I’ve now had the nookColor for four weeks, enough to draw observations about the product and tablets more generally.
I carry the nookColor to work, to home, to Starbucks, to the airport, on several airplanes. I’ve used it for wardriving (well warwalking) down a city street with more than a dozen hotspots. I’ve loaded PDFs and RTFs and DOCs, bought a magazine and tried to buy a book (but it wouldn’t let me).
The use cases I’ve found so far:
- paid media (for me, more likely magazines than books)
- PDFs (which for a college professor is the format for professional journal articles)
- web-surfing at home (the WiFi at work is too user-hostile)
- (someday) viewing/listening to online media.
I believe I’ll own a tablet for the next few years (until tablets merge with laptops or smartphones or both.) There’s no way I’d ever buy a single-purpose device like the Kindle, no matter how cheap. And unless Apple ships a $300 7" iPad next month, I’ll not have any regrets about my purchase, despite some significant problems. (B&N promised money back until Jan. 31, but my wife or tween will grab it if I give it up.)
The hardware is pretty good: yes battery and weight could be better but I suspect they’re close to the state of the art. (And being priced half that of the 7" Samsung Galaxy, I’m gonna be realistic). The hardware gripes:
- Lack of a hardware brightness control (I use the hardware volume control about 2x/month vs. 2x/day for brightness)
- A case better designed to use as a (landscape) easel for watching video
- The @*!#%& charger: a nonstandard cable and a non-standard (1.9amp) brick (try carrying a single brick for all USB devices; try grabbing a spare microUSB cable when you left your charging/upload cable at home).
- Nonstandard microSD cards: my Class 4 microSD card doesn’t work and tech support was useless; the manual is ambiguous but implies the nookColor requires a Class 6 microSD, but I can’t find anyone who sells them.
The frustration comes from the software. This is a portable tablet computer, implemented as a hodgepodge of apps cobbled together to ship in time for Christmas.
Several basic functions are different depending on where you are: paid book, paid magazine, your own PDF, a .RTF file or a web page. The device (not applications) need a consistent and standard interface for:
- zoom in/out, and auto-zoom to width (set for HTML but not PDF)
- brightness control
- browsing/page turning in a hundred or thousand page document (except HTML)
- finding specific text
Someday it will be a good media device. With WiFi and a good UI, it would be great for podcasts — except that today it only streams .MP3 files and not .PLS files (a simple 10-line text file with embedded URLs). Once I thought I got it to play YouTube videos, but today the YouTube preflight proves that it fails both the MP4 and H.263 tests. (sigh).
The tablet desperately needs apps for email, calendar, address book (editable) and Twitter. The AJAX-based UI of Google Maps fails miserably, because it’s never clear whether the zooming/scrolling is for the NC or for the app. (The iPad solves this with a dedicated app, something the nookColor badly needs.) My luck entering text into Facebook has been similarly spotty.
I’m guessing most of these are known problems. Certainly getting YouTube working and some of the zooming quirks are going to be high on any gripe list. (If you call 1-800-THE-BOOK, nookColor is the first tech support option offered).
And then there’s that tech support: inexperienced and not very good. I was unable to buy any books, or even browse books free in the B&N store. I finally got through to tech support (dialin hours are biased towards East Coast customers). After being told that the way to fix the problem was to reset my computer — wiping out all settings, preferences, bookmarks and documents — I had to point out to tech support that the problem was probably that I had no valid credit card on file at BN.com. (Sure ’nuff, that was it.)
Finally, there’s that business model issue. Apple thinks it’s selling me a general purpose hardware device for me to use as I see fit, while Amazon wants to pay me to take its e-reader in hopes that I’ll be locked to its file format in perpetuity. B&N is trying to appeal to the Apple market, but its TV ads emphasize the color Kindle angle, hoping to get me to buy hundreds of dollars of locked content. (Ain’t gonna happen.) Meanwhile, Samsung TV ads promote the Galaxy as a ubiquitous 7" Internet tablet — without the content cross-subsidy and without the reasonable price.
As the first one on my block, in my building, on my train/plane to own a 7" color tablet, I get a lot of envious stares. People look closer and realize it’s not an iPad, but are intrigued by the smaller size (and even more by the smaller price).
Still, it’s at the bleeding edge of technology — even before the early adopters. Things may get better with the app store, the claimed update to Android 2.2 (or, better yet, 2.3) and an improved browser. In the meantime, it’s an interesting way to avoid doing my real job.
Thursday, December 16, 2010
E-Book readers (and to some degree tablets) are locked in a chicken & egg standoff with e-book content when it comes to user adoption: no one wants to buy books in a format that doesn’t work on the reader or a reader that can’t read the content they want.
Amazon’s solution is that you can read their proprietary format on Kindle, computers, some smartphones but not their competitors’ e-readers. Apple and B&N have the same approach, except they also support ePub.
A worker asked me last night (at a bar) what book format he can buy that will be readable 20 years from now. I told him ePub, which might actually be true. Certainly ePub is like the MP3 format of digital books — when it’s DRM-free everyone can read it and thus the least common denominator of e-books. (Amazon doesn’t read it but obviously could if they weren’t concerned about undercutting their proprietary format.)
However, the iPod/iPad MP3/ePub analogy breaks down pretty quickly, as Forbes blogger Chunka Mai points out:
I’d like to have an e-reader that would let me read the paper books on my bookshelves, plus the ones that have been consigned to assorted stacks and (gulp) boxes as my kids’ books crowd mine out. …This is a flaw in the adoption model that (AFAIK) no one is pointing out. The MP3 caught on explosively because it provider a graceful path from the CD installed base.
This is important because much of my reading is spent on books I already own, not just new purchases. Have you, for example, ever stumbled across an old favorite and found yourself immediately consumed? Or rediscovered a book that you bought and never got around to reading? Have you gone searching through the stacks for that reference that suddenly became timely? Those are the kinds of experiences that I want my e-reader to support.
In concept, I want to make the same transition as I did from CDs to digital music. Once I ripped the CDs that I owned into iTunes (thank you, gracenote, for filling in the track names), I packed away the CDs and the CD player and never looked back.
In my case, about 10 songs are DRM-infested AAC from iTunes, and perhaps 100 DRM-free from Amazon. The rest are DRM-free version of CDs, including CDs I bought in 2008, 2009 and 2010.
So MP3 players were useful immediately, long before consumers made a large financial investment in electronic-only content. It’s not like the record companies wanted to make this easy: I’m sure they were hoping that I’d repurchase all my music again, just as I repurchased about 20% of my cassettes as CDs (and then abandoned the rest).
Mai also wants an open transfer of annotations and other content around the content:
These are, of course, not original cravings. They fit the vision famously laid out by Vannevar Bush in a 1945 Atlantic Monthly article describing his Memex system. They are fed by the aspirations that underlie much of the development of the World Wide Web.Again, this is an angle not covered by others. I looked up this bio, noted that it included yet another book about dot-com success and also that truly inspirational book, Billion-Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years.
Mai offers an entertaining (if somewhat preposterous) way out of his dilemma:
Amazon is perhaps best-positioned to pull off what I want. I’ve been buying books there since 1997 and, as is the case for all their customers, Amazon has a detailed history of every book I’ve bought. This solves the question of whether I already own a book. If Jeff Bezos offered me the chance to upgrade to digital library with even just those books, he’d have me locked up in the Kindle’s proprietary format for life.This assumes that publishers will let Amazon re-license the book on reasonable terms; Apple charged 30% to upgrade to DRM-free songs, presumably with most of that going to the record companies.
This also assumes that the publishers are stupid enough to slit their own throats. (Who knows, it could happen). If Amazon upgrades its print customers to its proprietary format, Mai and millions of other customers will be irrevocably locked into the company and its format. Pretty soon, the publishers will have only one distribution channel and a monopsony buyer who dictates the margin split with the authors and editors.
Absent such a clever solution, e-book adoption is going to be slow and gradual. And all the cute TV ads in the world won’t be enough to convince buyers that they should cast their lot perpetually with Amazon and its locked format. (If/when Amazon gets out of readers and allows others to read the format, it could be a completely different story.)
Wednesday, December 15, 2010
Silicon Valley and the VC world are-a-twitter about the $200m venture investment in Twitter that leaked today. The number is mind-boggling on several levels.
First, this is a Series F round when most companies would have IPO'd by now. We can’t really call it a mezzanine round if no IPO is in sight.
Second is the huge bet by Kleiner Perkins, which seems to be moving away from its recent dalliance with cleantech and a certain VP-turned-VC. I was being interviewed by a reporter on this topic and my planned response ended up on the cutting room floor:
In funding Twitter, Kleiner Perkins is going back to its roots -- the sort of information technology companies that Gene Kleiner and Tom Perkins knew best, and the ones that created its reputation.Finally, there’s that $3.7 billion valuation. I’m a regular Twitter user, and recognize it success in building network effects and an installed base. Even so, I haven’t seen evidence that its planned revenue model is going to work (which must be why it needs expand via dilution rather than retained earnings).
One might read this as a repudiation of the Al Gore-led foray into cleantech. Certainly the venture industry -- as well as those of us who study it -- have figured out that the scale and timeframes of building energy companies or car companies aren't going to work for venture investors.
Apparently I’m not the only skeptic. Business Insider quotes Series B/C investor Union Square Ventures as not being interested in this round due to the valuation. As Fred Wilson of USV wrote:
One thing I've seen many VCs do wiith their initial investment in a company is invest more when the valuation gets expensive. They are ownership driven, not valuation driven. So if they originally wanted to invest $4mm at a $20mm post money valuation and buy 20% of the company, they talk themselves into investing $8mm at a $40mm post money valuation so they can still buy 20% of the company.This is yet another example of herd mentality among VCs, and the disconnect between VC risk and limited partner risk as VCs make these huge bets.
I have never liked this approach. When the price of an initial investment goes up, I prefer to invest less, or nothing at all.
Investing more when the price is too high makes no sense to me. If you are overpaying by 2x, doubling down feels like overpaying by 4x.
I think the root of this "doubling down on the overpay" issue is that many VCs manage large funds of other people's money and they really don't care so much about how much they invest in each deal. They are looking to buy large stakes in companies and hope that one or more turns into a big winner.
So instead of being ownership focused, I prefer to be valuation focused. And the key figure I look at is average valuation of our entire investment. We take the total amount of capital we have invested in a company and divide it by our total ownership. We like that number to be as low as possible relative to the current value of the business. I believe that is the recipe for the best returns and that is what we seek to deliver to our investors.
Thursday, December 2, 2010
The FT reports this morning on Verizon Wireless’ plan to unveil its LTE network this Sunday. By covering 39 markets and 60 airports, the footprint is equivalent to a POP of 110 million — slightly less than 40% of the country. It’s bad news for AT&T: it will have to stop bragging about the “fastest” data network in the US, and pundits say the iPhone LTE is just around the corner.
Although the ITU says LTE and WiMax are no longer “4G” standards — even though they were clearly developed as same — this will be the second major carrier to offer 4G service in the US and the first (unlike Sprint) to follow the global 4G standard. At "up to" 12 Mbps, the new service is 10x as fast as existing 3G service. So perhaps we can call these 4G- as opposed to T-Mobiles faux 4G that is 3G+.
What’s strikes me is the pricing of the data plans. On the one hand, Verizon is offering 4G data bundles at the same price as comparable 3G ones. The VZW LTE plans are $50 for 5gb/month or $80 for 10gb/month. Each additional GB (or fraction thereof) is $10. On the other hand, the new rollout marks the long-predicted end of Verizon’s $30/month unlimited 3G plan, following AT&T’s lead. Now $35 only gets you 3gb/month.
This is both a threat and opportunity for Sprint. Sprint surcharges owners of 4G (WiMax) by $10/month over its 3G users, and that surcharge may no longer be sustainable. On the other hand, Sprint still is promising unlimited voice and data services with its $100/month plan ($110 for 4G).
Today the $40/month unlimited 3G data for the Virgin Mobile hotspot or USB modem is now looking pretty good — a real market opportunity for the Sprint division. If I were sending a college student away to college, that would be the no-brainer option.
Update, Friday 7am: InfoWorld offers an overview of the strange anomalies in the pricing of the various carriers’ data plans.