Bezos is On Fire

December 3, 2011 by · 2 Comments
Filed under: Business, Technology 

Well, the race is on.  Finally a product that can challenge the iPad’s # 1 spot: The Kindle Fire.  But is it really?  Analyst predict the Kindle Fire to be the #2 selling tablet in the market.  But it is not a tablet – said Bezos – it is a portal to the cloud.  The main difference between the iPad and the Kindle Fire is the business model.  Yes, my loyal reader (singular) let me explain:

Apple’s business is simple.  Make a kick ass product for $x and sell it for $x+y.  They make money by making cheap things (yes, I said cheap things referring to Apple) and selling them for more.  iTunes is only a way to keep you from buying something else.  Amazon’s business model is making a good product (sorry Jeff, the iPad has you beat) for $x and selling it for $x or even a little less.  They will make money selling you content, you know, books, apps, movies, music, etc. I know what you’re thinking: “so does Apple, have you heard of iTunes?”  hmmm, let’s see.

Apple reported Fiscal 2011 revenue of roughly $108B and a net income of $26B.  This was made of $21B in Mac sales, $7B in iPod sales, a mind boggling $47B in iPhones, $20B in Ipads, $2.3B in peripherals, and a meager (for Apple standards) $6B in iTunes.  On the other hand, Amazon who reported its third quarter a week later has sold $30B in the first 9 months, almost $12 of them in what they call “media”.  In percentage, 6% of Apple’s revenue is iTunes, whereas 40% of Amazon’s is media.  Although the numbers are not directly comparable and Amazon doesn’t distinguish digital from physical media (CDs, DVDs, Books), it is clear that Amazon’s business is heavily weighted in media, whereas Apple’s is mainly hardware, at least for now.

Another way to look at it is that Amazon’s “store front” is the Kindle in all its forms, more comparable to Apple’s stores that to the iPad itself.  Charging $200 for the Kindle Fire is like charging cover to enter an Apple store (kind of what Costco does).  So it is logical to expect that Amazon will not make money on the store front alone since it is really designed to attract customers to by its media products.

Now this is just the beginning of a new Tech rivalry, kind of when Android launched caused Apple to unfriend Google.  iCloud is a direct competitor to Amazon’s media store and Kindle Fire is kind of a competitor to the iPad.  The movie gets more intriguing with all the rumors of Amazon launching free smartphones, again as portals and Apple doubling down on iCloud in iOS5 and beyond.  How will it unfold? don’t miss 2012 – 2015, where 2 of the most revered tech companies go at it cloud to cloud.

But, my dear reader, if you accidentally stumbled upon this blog for investment advice, be forewarned that you’re not getting it.  Apple (AAPL) has$82B in cash and is trading at 14 times earnings. Amazon (AMZN) has $6.5B in cash and trades at around 103 times earnings.  You tell me where would you rather put your money?  Of course, don’t forget one of tech’s fave companies: Google (GOOG) with $42B in cash trading @ roughly 21 times earnings who is about to close the acquisition of Motorola Mobility (MMI) with one of the most impressive IP portfolios in the industry and the capability to develop state of the art hardware and kind of the “inventors” of the cloud.  In other words I’ll wait it out.   I would sell a share and a half of Apple to buy an iPad and a share of Amazon to buy a Kindle Fire and use my free Google account to access both.

The media battle, in this blogger’s humble opinion will be won outside the cloud; on a desk negotiating with media companies that are old fashion and do not understand or particularly care about technology. Better content will win and getting the right terms for the producers is what will be the key.  All 3 have done it and have done it well.  It might just come down to who executes best …

Enjoy.

 

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Exhume the Xoom Soon

February 26, 2011 by · Leave a Comment
Filed under: Business, Technology 

After much anticipation the Xoom is out.  Motorola Mobility’s Android based tablet that won best in show at CES.  But is it really out, you know, like the iPad, with no strings attached?  No, my fellow reader (singular).  It seems to have launched in a way that is difficult to understand.   It is arguably the most anticipated device this year and it managed to beat Apple’s iPad2 by a couple of weeks.  And what do they do?  Force users to get a contract with Verizon!  What the …?

I rushed to Costco to get mine (well not really, I went there after lunch).  They had those fake cardboard packages typical of warehouse clubs and I picked one up, went to the register and paid $780 big ones plus tax and ran to the little cage where they store these things. I was told I had to go to the Verizon counter to activate it.  “OK” I said, even though I’m convinced that WiFi is the only way these devices really make sense. So I don’t need a contract. I just don’t want to wait until the WiFi only comes out.  The guy there tells me he will open a contract for me that I could cancel after a month.  The activation had a rebate and I’ll have to pay $20 bucks for the first month of service.  Irritating, but OK, OK, I really want the device. So they proceeded to open a contract and they ask for my SSN.  “What, for 20 bucks? No way!”  to what the guy responded: “Yes, otherwise we can’t sell it to you.”  Weird.  So I said I wanted it without the contract. and he said “no can do”.  “I’d like my money back, please.”  Costco, without hesitation proceeded to a full refund.

Now what kind of a ridiculous go to market strategy is that?  When your main competitor is not only $300 cheaper than you, and one year ahead of you but has a brand so powerful that can sell millions of phones that don’t work if you grip them the wrong way!  What in you mind will possess you to tie your product to a carrier?  Subsidies? I’m sorry, $800 cannot have a subsidy.  Unless Verizon is paying for the 4G-LTE upgrade which will be not only useless but painful.  We all know how that’s going to go:  Erase everything, make sure you back it up, ship and wait a couple of weeks for your devoice to come back.  And, oh, by the way, the 4G-LTE contract that works in 3 cities in the world is $50 more a month. You know what?  Keep your upgrade and your device!  I’ll keep my money.

Jobs and every employee in Apple must be laughing so loud that you can hear them across the US.  Let’s hope Motorola Mobility will back pedal quickly and get it off contract.   Otherwise I anticipate dismal volumes for the 2 weeks Xoom is ahead of iPad2.  Such a shame for such a good looking piece of technology.  The good news is that everybody else that will have an Android Tablet in the next few months will know not to do that.  I guess I’ll have to wait until someone makes one that has no ties.

Or please, exhume the Xoom soon from Verizon’s death grip.

Enjoy.

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The Year of the Tablet

January 23, 2011 by · Leave a Comment
Filed under: Technology 

Well, apparently the whole world decided that it was about time for everyone to carry a 3rd device: a Tablet. You may know them by their more colloquial name “iPad”, which, as you know represents only 1 of the 100’s (I do mean hundreds) of such devices that will be in the market by the holiday season 2011. I had written before that I didn’t think there was a need for such a gizmo since people are already carrying too much technology with a laptop and a smartphone.  I was obviously wrong and the world does need those devices.  In fact I myself have 2 and are waiting for the third one, hopefully very, very soon.

The question is how many will survive in 2012 and how will they all differentiate among each other?  There are really 2 camps:  Consumer tablets (iPad and Android based), and everyone else.  I know, I know, RIM has one (the Playbook), Cisco (Cius), and Avaya (Flare) have one too, and maybe HP’s WebOS will be like these too.  But, I’m sorry, they fall in the “everyone else” camp.  Let me explain:

iPad and most Android tablets (Dell Streak, Motorola Xoom, Asus Slate, Samsung Galaxy, etc.) are designed primarily  for media consumption.  In other words to watch videos, read books and blogs, listen to music, etc.  The difference between iPad and all Android tablets is the obvious, but the uses are pretty much the same.  The “other three” are for communications.  All three companies have a great history of selling product to the enterprise and want to capitalize on the Tablet buzz. So they are tailoring them to be best for video communications, email, and those kinds of apps for people that are on the go.  BTW, where is Microsoft in all this?

Now, there is also a sub categorization of the consumer devices in iPads, “good” Androids, and 100’s of cheapo devices.  During CES, Motorola Mobility (one of the 2 siblings that came out of the mother ship Motorola, Inc.) introduced the Xoom, whose main allure was the introduction of Google’s new version of Android, Honeycomb.  Reviews were amazing, Honeycomb looks fabulous.  But every non Apple manufacturer in the consumer space will have access to it, so there will be competing head to head, the same way Android Smartphones do today.  But there will be 100’s of cheap ones too, based on Android, but not necessarily good.  When you take away the complexity of the phone, almost every manufacturer can build one, but few will be worthy of the Android seal of approval.  Those are the ones to look for.

By any measure, this is great since it will drive lots of product innovation, lots of choices, in a market with iDevices has been the only true alternative, but it will also drive commoditization.  Good for consumers, bad for the companies that will be competing.  Particularly great for Google who will see it’s new OS proliferate like the corn subproducts.  And more and more users will access the internet using a mobile via either Google’s Android or Apple’s iOS with infinite income potential for both.  And the competition between them will only get more fascinating.

How will everyone differentiate remains to be seen, but with the clever ideas on this post there will be room for plenty.  One more thought: Will this be totally incremental to the 600M smartphones supposed to be sold in 2012 or will it cannibalize it?  Quite frankly who cares?  There is plenty of pie for both.

So, my faithful reader (singular) wait for Honeycomb and run for your tablet or go buy an iPad now.  You will be glad you did.

Enjoy.

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Who needs a tablet?

January 26, 2010 by · Leave a Comment
Filed under: Technology 

Amidst some of the most spectacular speculation in the history of electronics (even for Apple) every manufacturer is launching some kind of a tablet device, a keyboardless computer with a big screen.   This is not a new concept.  I was recently playing around with a Compaq Concerto – that incidentally had a keyboard, a pen and a mouse, courtesy of a colleague, that was build 17 years ago.   Since then the allure of using the most common way of written communication (a pen) has been just a promise.   This year Steve Balmer, Microsoft CEO announced HP’s “slate” back in the Consumer Electronic Show in Las Vegas in a setting that looked more like the Mac commercials than a new category launch.  Dell, Lenovo, and others will soon have one too.  The big question is why?

Acording to ABI Research the world will consume a staggering 450 million laptops in 2012 and [gasp] 650 million smartphones.  If you take into account replacement cycles, that is how fast people buy a new one the results are pretty revealing.  A laptop, on average get replaced every 3 years, which means that roughly 1.35 billion people will buy one within 3 years.  A smartphone, thanks in part to carrier subsidies, is replaced every 2 years, meaning 1.3 billion people will buy one.  Of course, they are both the same people!  The question is, are those 1.3 billion geeks (what an amazing number buy the way) ready for a 3rd device and all the annoyances (chargers, accessories, batteries, breakage, data plans, network connections, etc., etc.) that come with it?  Not so much.

Unless: a) It substitutes a device you already carry.  b) enhances a device you already carry, c) it changes the way you interact with technology or d) it is so damn amazing that you have to have it.

A)  Substituting a device you already carry is kind of lame.  In order to do that it has to do everything the old device did and more.  Kind of what smartphones did for the cellphone.  But it comes at a price.  That is the approach Microsoft and partners in crime are taking with teh “convertible” laptop.  Ever since the Concerto, that approach has failed miserably.  The enhanced user experience that touch brings does not justify the extra cost.

B)  This may be the key to the tablet success.  What if you could share your smartphone’s dataplan but have access to a bigger screen when you need it?  Charge it and use the same accessories and apps your smartphone or your laptop uses but the experience is so much better due to touch, weight, a better screen and better interaction with your media.  In other words, your laptop becomes your “content creation” device and your tablet a “content consumption” alternative with much, much better experience.  The question still remains, how much is that worth and will manufacturers and carriers make money?

C)   Changing the way you interact with technology needs a huge amount of disruption.  One approach, suggested here, is to just make it part your your life and go after the time people spend with media in a different way.  That is all good, but IMHO, it will still limit the penetration.  As I have suggested in previous posts, the internet is desigend for a screem, a keyboard, and a mouse.  Last I checked, there are no plans to change that any time soon.  Be that as it may, media convergence – your pics, videos, blogs, magazines, books, news “papers”, etc. – in a single point may make sense, but again , at what price?

D)  Lastly, an amazing device will drive some crowds, especially from the Silicon Valley sweethart even if there is no use for it, like the Newton or Apple TV.  This unfortunately is very nichy and I doubt Apple, Microsoft, HP, and others will be making such a splash for a niche.

One could argue that the Amazon Kindle, by far the most successful of these form factors (which by the way is expected to sell some 6 million this year, puting it in the category of niche for geeks), has it right.  Mainly because it is designed to read books.  Anyone that has played with it can see why.  Great battery life, great form factor, light, and a brilliant eInk display that is the closest thing to paper that is powerd by a battery.  But the key genius of Amazon is not that the device is brilliant, is the business model.  Buy a book and voila, it gets delivered to your Kindle without having to worry about a data plan, a monthly bill, or extra charges.  It is still a 3rd device, but it substitutes the book, magazines, and newspapers we used to carry around.  THe lesson here is subsitute something you carry today and make it simpler, better, and cheaper (at least over the long run).

The question is what will the tablets strategy be?  It is tough to say, but as geeky as I am, I will wait before I splurge for the $500 – $1000 tablet plus an extra data plan.  For once, a “revolutionary” gadget does not excite me that much.  Is it a sign of aging or just a sign of the times?

Enjoy.

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