Man is Meant to Act and Not be Acted Upon

In “Steve Jobs and the Tablet of Hope,” The Economist argues that the iPad will have a profound influence on the electronics market. As people already move away from newspapers and magazines that are stodgy and unwilling to compete, and as they move more toward digital distribution online and through their computers, they will no doubt be willing to migrate to magazine-sized computers. Those newspaper-shaped computers will no doubt be run by the powers that be—the media conglomerates, who, by the way, are big Macintosh fans. “This is really a chance for publishers to seize on a second life,” says one industry consultant.

As such, the media conglomerates, who have fought digital content since its inception, are supporting the iPad. They see Apple, with its history of obtuse and shackling rights-management, as their savior. Penguin, Simon & Schuster, and The New York Times signed on quickly to provide some sort of content through the iPad format. The iPad is being released with no support for any filetype standards like PDF, no USB input—no input at all. All content must be purchased through Apple, perhaps eventually through a subscription model, and can be deleted remotely at any time.

Jobs runs high margins. That means however tight his grip on digital rights management and his unparalleled history in music sales, the music industry and the artists have not made large amounts of money from iTunes. Granted, Apple was the first company to make any real money in online music—but none of it was passed around.

The iPad is entering an undeveloped market. Before the iPod, MP3 players were not terribly common. Before the iPad, ebook readers and tablet PCs are scarce. Steve Jobs thinks he can fix that with a little marketing (redesign of the box, flip around a few features, bless it with his name); and for as crazy as that is, it’s hasn’t failed before.

The iPad is about to hit $120,000,000 in pre-order sales in its first week. This is the magic of Steve Jobs. He has created a religion where fans will buy his product without knowing what it is, the media will give it good reviews without seeing one, and financial analysts will give him the benefit of the doubt. As a marketer first and foremost, he needs to guard these demographics jealously.

Because this sounds exactly like most every textbook case you will ever see—a charismatic leader is so good at what he does that he gets funding. Funding brings a new board; they kick him out and replace him with MBAs who make a stronger leaner company the extant customers don’t like. Companies can go through some form of this cycle when they first hit the market, when they get VC funding, when they go public, and when their core products first saturate their historical niche. Apple is at multiple of these maturity cycle transition points at once, because of their wide range of products, and the iPad is just another straw on that camel’s back. However they ride these rollercoasters, they need to be sure not to alienate each segment’s fanbase.

Steve Jobs knows the money is in the subscription models and cloud-computing of electronics. And his high margins allow him to gamble. But this isn’t another iPod, because when the iPod came out college students either had or were dreaming of an MP3 player. This isn’t another iPhone, because demand clamored for an iPhone for years. This is Steve Jobs “creating a market,” because ebook reader sales don’t significantly exist yet. Everything that the existing tablet PC users are looking for (power, ports, a keyboard) is conspicuously absent; everything the existing eBook users want (a low-contrast screen, low-power consumption, support for standards), it doesn’t have.

But Apple knows its generalized market, and it’s making this for them. Apple employs a Niche Quality Strategy, making expensive machines for right-brained artists that don’t break down. These artists are loyal in return. Everything Apple builds has comparatively strong graphics processors, high-gamma monitors, are very friendly to the non-technical. It is not designed for people who want a number-crunching machine, a lot of buttons, or a lot of customization. So limited and “intuitive” are its offerings that no Apple product comes with a manual.

I employ many artists. Every one of them has an iPod, an iPhone (with the required $300 upgrade to their phone bill), and multiple have already pre-ordered an iPad. They all believe Steve Jobs basically invented the MP3 player, the graphical user interface, laser printers (à la Postscript/HP), computer graphics (à la Pixar), now the book reader, and is in the process of inventing the world’s first tablet PC. These are Apple’s carefully groomed demographic.

Yet the iPad and other moves are made largely on the assumption that the PC market is saturated and that profits can be more easily made in electronics. This is true, but Apple needs to be careful not to neglect the Mac users. I would postulate that, as a rule of thumb, the maximum US adoption rate of the Macintosh follows the percentage of right-brained people out there. 70-85% of the population are left-brained, and yet 92% of the population chooses to buy a PC. Rather than accept that the growth market for Macintoshes is closed, it would be wise to look at the discrepancy between those numbers and realize that there can be another 7-22% market share gained within Apple’s core niche.

Reports are excited to call Apple a marketing company (much the same way they describe Disney or McDonalds); and in many ways this is true. It is quite visible in their profit margins as well as their offerings. But they need to watch lest their efforts be spread too thin among their core niche. Its core markets now include computers, software, cell phones, electronics components, music, PDAs, MP3 players, laptops, movies, ebooks, and now tablet PCs and eBook readers. If they cancel a product line I recommend an overt and possibly subsidized upgrade path to a current product. I have owned or used every computer in this article (including the Lisa), but will always see Apple as the guys who stole the GUI from Xerox and betrayed their own licensed clones (which I also owned). Likewise each of these segments will have something they don’t forget if betrayed. So go ahead and drop the iPod Touch, just make sure every feature on the iPod Touch is available on the iPhone by the time you do it.

In the end the iPad will succeed is because the people will it so. That’s it. And if Steve can pull it off again, he will have secured the faith of millions toward next year’s whim.

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Tags: Apple, IPad, iPhone, iPod Touch, iTunes, ITunes Store, Steve Job, Tablet PC