Justified

Back when the iPad mini debuted, many people criticized the device’s $329 price tag (for the base model), saying that it was too expensive compared to other tablets of similar size that were on the market. I thought the same thing, until I pulled back a bit and looked at the mini from a longer-term perspective.

See, for most companies, they can get along fairly decently creating products for the right now, adjusting their products, pricing, and features according to market whims. It’s a way of interfacing with the market that has always seemed reactionary to me. Look at what the public is slathering over and give it to them, riding the wave until the notoriously fickle populous decides they want something else. Alternatively, you can just create a smattering of different products with arbitrary and marginal variations, designed to cater to fractionally different subsets of popular culture, and hope that people gravitate towards one product or another, or perhaps just make them enough money to offset the cost of developing, manufacturing, and marketing who knows how many different iterations of a given product.

For Apple, however, the view is longer. The timeline extends 5–10 years out, and is driven internally by the desire to deliver really incredible products into peoples’ hands. That places the locus of control squarely inside the company, instead of vesting that power in the whims of a population that worships reality TV and Hollywood drama. As such, Apple looks at supply chains and forecasts their production costs far further ahead than most companies do, and is thus able to deliver better products over time than their competitors because they’ve had the wherewithal to cultivate and maintain a stable, consistent base (referring simultaneously to supply, production, and consumption). Thus, while the $329 price point may not have made sense for the iPad mini given the original permutation of components, an iPad mini with a Retina screen, which will undoubtedly cost more to manufacture, can still provide Apple with healthy margins since Apple has already been able to account for the decrease in price of Retina displays over time and has been able to invest in battery research to drive the new displays. That, in concert with the other inevitable improvements that Apple has made to the hardware and software of its new iOS devices, will allow Apple to manufacture a better product while still maintaining margins and trying to keep investors happy (a notoriously difficult thing to do). From one angle, it’s very difficult to see the justification for that price point. But, given time, it becomes clear that Apple never priced the iPad mini for the market when it was introduced, it was looking many years down the line.

If that’s what they can do for pricing when looking forward, imagine what they’ll be doing for products.

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A Wolf In Sheep’s Clothing

There has been a long-running narrative in tech writing about the downfall of, or the necessity to bring about the downfall of, cable companies. Recently, I was discussing the merits and drawbacks of cable with a friend of mine, and ended up at an interesting predicament. We agreed that cable was expensive, yes; we also agreed that people who subscribed to the services that companies like Comcast provide walk a thin line between freedom (otherwise known as net neutrality) and tight, restrictive control; but, we ended up agreeing that, based on what we’re getting from the “evil empire” of Comcast, it’s not a bad deal.

The discussion started with HBO Go, a service that HBO provides its customers that allow them to stream HBO programming on demand to a large number of connected devices. It’s a great way for members of the same household to watch their favorite shows and movies without having to fight over the TV. The downside is that HBO Go is not purchased as a standalone service, it’s a part of HBO. While that seems ridiculous, someone recently asked me how much I’d be willing to pay for HBO service if it meant I could watch the shows anywhere. Considering what I was paying for Netflix and Hulu, I said I’d probably be ok with paying $8–10 a month. When I got home, I checked the price of HBO, and, to my surprise, it was only $10 a month (I was assuming that it would be much higher, since it’s a premium cable channel, and cable is controlled by “evil” media companies). It was then that I considered what I was getting for my monthly offering at the Altar of Comcast.

For my monthly fee, I get a whole heaping pantload of data, combined with a paltry offering of standard-definition TV channels. The most common narrative I hear is that people feel like they’re bullied into paying for channels they don’t need in order to get the ones they want. “Just let me pay for the channels I want!” everyone seems to say. And I agree with them! Why should someone be charged for something they don’t use and didn’t really ask for? After all, when you walk into a store and pick out the items you want, the store clerk doesn’t start shoveling unwanted merchandise into your basket. The same should go for programming and media, right?

Well, we’re actually a lot closer than we think, in my opinion. In addition to the base fee for my cable, I pay $8 per month each for Netflix and Hulu, which allows me to access a great deal of TV programming and movies for just under $20/month. I can add HBO to my cable package and get HBO go for “free” on my iPad and Apple TV, which accesses the content through…the same cable connection that I’m already paying for. So it’s…not really free, is it? In fact, it’s almost like I’m being charged double…and yes, that’s frustrating. But the same parallel can be drawn with merchandise. Sometimes you don’t want the “free” stuff that gets bundled with your popcorn, or the tchotchke that is shrink-wrapped your deodorant. In this case, I think of the stuff I don’t use as “bonus” features.

The structure I painted above makes sense when you look at it vis-à-vis the type of relationship that most people have with their cell phone carriers. Really, it’s very much the same – a person pays a monthly fee to be able to use that carrier’s network and pipe data to their device, the amount of which is allowed each month varying by user. Any other dues and subscriptions that the person pays are completely separate from the carrier. To carry the analogy even further, look at what’s happened to the precious airtime minutes and text messaging packages – they’ve all been ditched so that carriers can charge users for what they’re really hungry for: data. The airtime minutes and texting is almost a throw-in now.

The example of the carriers, however, should also serve as a cautionary tale. While most people are used to the fee structure now, there was a time when tiered data plans were met with hatred and anger because people realized they were being taken advantage of. Then, when the mighty marketing machines that drive these carriers went to work convincing people that they would save some money every month if they forfeit their right to an unlimited amount of data, people caved left and right…and they did this just as streaming media was entering the spotlight. It was the perfect one-two blow to the American consumer.

Now, the fear is that terrestrial data providers will repeat the same behavior that their wireless brethren got away with. That they’ll introduce tiered data plans, bandwidth caps, and heavy throttling to ensure that they can strangle every last nickel out of the American populace. This all assumes, of course, that net neutrality laws remain in place. While net neutrality laws are supposed to protect the Internet and the free flow of information around the globe, I have a feeling that terrestrial data providers will use net neutrality against consumers, making the argument that they can provide open pipes so long as consumers pay for the privilege.

At any rate, the current situation of à la carte channels and pricing is almost kinda not-really-but-sorta here…if you know where to look.


No Good Deed Goes Unpunished

I’ve been reading a significant amount of backlash agains the iPad mini event focusing specifically on the lamentable lack of the “one more thing” moments of old. The typical banter has something to do with leaks coming from places that Apple has a hard time monitoring (China), and that it does everything it can to keep things hush hush in a world in which money talks, and loudly. My main point of contention with this sentiment is that it implies that Apple can’t keep anymore secrets about its new products.

I think that’s a silly idea.

Consider, for a moment, the scale of manufacturing that has to be brought to bear in order to manufacture products for Apple on the scale we are currently seeing. It has to be massive, and requires the coordinated efforts of millions of people, literally. From product inception, design, fabrication, and manufacture, there are literally millions of people involved, taking care of everything from the actual design and sourcing of raw materials to the shipping to your doorstep. Truth be told, their job isn’t even over when you have the product in your hands; they still have to support it and continue developing new software. The human life energy devoted to the manufacture and support of a single iPad is immense.

As such, consider the original iPhone, first introduced in January of 2007, but released in June of the same year. That’s a 6-month gap from introduction to purchase. In contrast, iPhone 5 was revealed on September 12, went on pre-sale two days later, and was available for retail purchase one full week after the introduction, on September 19th. The full implication of that is that Apple’s manufacturing machine has to be at work for months before the device truly sees the light of day. In short, more human beings (see above) are aware the device exists for more time before the general public can purchase the device.

With the original iPhone, Apple had the luxury of producing prototypes and testing them in relative seclusion. Apple no longer has that luxury because it works on some of the tightest schedules a person can conceive of.

Think about it; If Apple wanted to prototype a totally new product using in-house fabrication today, they could do it. They could show a working device to a room full of awed spectators who had no idea that such a thing existed, but they wouldn’t be able to put it in your hands until months later, and that isn’t something that Apple wants to do–they want you to make a decision and strike while the iron is hot.

So when you’re done watching the reveal of a new Apple products from another Apple device that’s barely a month old, remember that things weren’t always this way. You can’t manufacture your cake and be surprised by it, too.


Embarrassed

There’s something strange that’s been happening in the world of tech as hotly anticipated products (primarily of the Apple variety) near launch: the world finds out about them long before they’re unveiled.

I think the entire phenomenon is so strange. When kids are young and looking forward to a hot new toy, they sometimes try to approximate its presence in their lives by creating an ersatz model to take the place of the real thing until they can actually touch, hold, and use the real thing. Strangely, this is happening with increasing frequency to the iPhone. The tech world is so hungry for anything iPhone that they will contract graphic designers to create 3D models of the new gadgets, and even go so far as to build full physical models.

The noise is deafening.

Post after post featuring blurry component photos hits the interwebs, and the tech press gobbles them up like bacon-stuffed donuts. Most folks don’t follow tech blogs, don’t really have a pressing desire to know the internal layout of new gadgets, feel no need to really seek this stuff out. They read what falls in their lap and, usually, are better and more sane because of it.

Then the device hits, and it elicits “yawns” from the peanut gallery because they’ve already seen it all. They make sweeping (often literally global) statements about the reception of the product, about the excitement it’s generated, etc. Their actions are, again, childish, just like the kid whose favorite team gets eliminated from the playoffs really early and starts claiming that no one likes [insert sport here] anymore, anyway.

Ultimately, they’re embarrassed.

Who wouldn’t be? Their phones are either knock-offs or faked. The real deal is just that, and consumers know the difference. Companies will try to illustrate how their products “stack up” against Apple’s iPad, or iPhone, or whatever, but it ultimately just makes them look, again, juvenile. I can make a checklist that makes me look like the best human being ever compared to random people on the street. I could create a checklist of the features of a raw, uncooked potato, and compare it to all the features of a slice of deep-dish Chicago pizza, but comparing those two things would make no sense. “Grows in the ground”, “Has eyes”, “Will sprout if placed in water” are all “features” of the potato that the pizza doesn’t have, but who really cares? I’ll take the pizza thankyouverymuch.

Which leads me back to my point. The leaked specs, the feature parity, the checklists, etc. are all meaningless in the face of true user experience and the whole package.

A guy I know had his iPhone run over by a car. It was absolutely destroyed, which was sad for him. He was contemplating purchasing a replacement, but decided to wait it out until his contract was up for renewal so he could purchase a new iPhone 4S. In the meantime, someone gave him a Motorola Droid RAZR (or whatever it’s called…these things have the weirdest names). He ditched the Droid in favor of an iPhone 3G. You read that right. He disliked the Droid user experience so much that he went with a molasses-slow (comparatively) phone, simply because the overall user experience was so superior. When you’re on the losing team, shouting really loudly and making a lot of noise is still fun, sure, but it doesn’t win you ball games. Just ask Cubs fans.

At any rate, it’s clear that people are jazzed about the iPhone 5, and all these “yawn” reactions are just the tech news equivalent of Cubs fans getting uppity. People will choose good design and a fluid, beautiful user experience over checklists and noise.

As they say, it doesn’t take a genius.


The Groupon Poop-on

I’ve had the pleasure of taking part in a couple of Groupon deals, and I’m really happy I did. I was able to get some delicious food for relatively cheap, and I’ve seen lots of good stuff on the site for meager amounts of money. This is both a good and bad thing. It’s great for me, because I eat food, and I like it when food is both good and cheap. I like supporting local business by eating at non-chain restaurants and cafés, and I thought I could do both through Groupon. What I am discovering, however, is that Groupon can actually be very damaging. This is bad.

From a recent post on TechCrunch:

Groupon can clearly deliver customers. But in order to know if it makes financial sense as a customer acquisition tool, merchants need to know two key numbers:

  1. The proportion of Groupon customers who are already their customers
  2. How often new customers come back.

That second metric is key. I’ve seen a lot of businesses have record drives of customers after running a Groupon deal, but I’ve wondered how many of those customers will actually come back. I’ve always thought that seeing a packed house of people whom I know have Groupons waiting in their pockets resembled a swarm of locusts- they consume everything they see and just move on to the next cheap thing. I’m not so sure I want to be a part of that.

Then there’s this whole idea on the back end:

Why is Groupon not merely a tech-bubble datum but a Ponzi scheme? Simple: Groupon has found that you can get local merchants to try anything once if it brings them new customers. A few local merchants in Chicago get them started, and Groupon shows good revenues. In fact, Groupon immediately remits half of those “revenues” back to the local merchant — they were never Groupon revenues in any meaningful sense of the word. But, optically, Groupon revenues look high — which they use to raise a financing round at a high valuation. Then they use the proceeds to hire vast armies of salespeople to dig deeper into Chicago’s local merchant community and repeat the trick in other cities.

This is so bad! I never considered this take, but it really does make total sense. I’m not a big investor, and when I do put my money in companies, I’d like to know that they’re actually good companies and not killing off local business, which have a hard enough time surviving on their own.

We all vote with our dollars every single day, and it’s a sad day when we tell small, local businesses that we won’t buy from them unless they gut themselves in front of us. I refuse to be a part of that, and I think you should, too.


The Reason for the Season

Feel the love.

I’ve been trying to digest the Apple news over the past few days in a way that would be meaningful, and it’s been difficult. Amidst all of the noise regarding unrevealed iOS 5 features, unrevealed Lion features, unicorns flying and granting wishes, and the future of all three, I was able to come up with a coherent thought that I think captures what I actually think about the future of mobile.

When Apple started getting serious about iOS, Google also started getting really serious about Android, and the divide that grew between the two has been significant. A lot of people get Android phones now because they’re “just like iPhones”, until they realize that their Android-powered device can’t do X (very rarely do I ever run into a situation that’s the other way around), or needs 20 steps to do Y. A few people get Android-powered phones because they want to do things that they “can’t” do with an iPhone. There will always be things that Android devices will be able to that iOS devices won’t be able to do and vice versa, but that’s not the key metric here. What we have to be concerned about is whether or not those things actually make sense and are “doable” by the majority of users. In my opinion, they’re not. Most people don’t have the ability to or desire to root their phones, don’t want to dig into firmware files, don’t want to jailbreak their devices, don’t want to do all the stuff that the advanced users (who tend to be the most vocal) use as ammunition against the competing platform. In the end, most users want to pick up the phone, send a few texts, make a few calls, hop on Facebook, and have fun doing that. Oh and play games. That tends to be about it. Does this make me upset? Yes, sure. I tend to use my stuff a little more, but hey, not my phone.

As mentioned in the past, Apple is doing some neat stuff with their product reveals as of late. Apple is telling people how they work. This is important because yeah, it’s about the user experience (UX), but the reason you’ve got such a killer experience is because of all this hardware underneath, because of this glass, because of this epic battery. Apple is communicating that there’s a lot that goes into the design and production of each device, and that should make you feel good. You should look at all this stuff and feel like they made it for you, to fit your lifestyle, your aesthetics, your pocketbook.

So, that brings us to now. Apple unveils all these new things that are a part of its new iOS, and some people1 looked at all that and had a very meh response, saying that this release was more of a parity release, that it wasn’t really breaking any new ground. I continued to look at this iOS release, however, and I think I figured out why I feel so excited about it. Whenever Apple has released a new product or new version of their OS, Android users have always held it over Apple users’ heads that they’ve been able to do this for months or years or millennia or whatever. Now, they can’t do that. Now, a person deciding between iOS and Android is going to have to choose between The Real Thing and a knockoff. This is where we’re at, folks.

People used to walk into a store and have the sales associate give them a weighted assessment of iOS vs. Android which probably included that ridiculous “open” buzzword in there somewhere. What does “open” mean for the end user?2 I’ll let that one percolate for a bit.

Ultimately, “open” is just a word, a marketing tactic that has no meaning for the customer, for the actual user of the product. “Open” is only meaningful to the developer (and marginally, at that). For the customer, it’s meaningless, but it sounds good, like you’re sticking it to the man or something. For the baby boomer generation, this is great because they used to stick it to the man, and maybe it makes them feel good. But let’s extrapolate that out a little bit. Let’s say a person hears “open” and buys the Android phone because they think it farts rainbows or something. Now they think that everything they do is better, the perceived benefits of using an “open” phone start to shine through. Until they see something running iOS. All of the things they thought were so great are also clearly on iOS, but look better, respond better, feel better. Where’s “open” now? Where’s Android now? It’s just another cheap imitator.

A new iPad owner will be able to pop the top on their new iPad and start using it right away as his or her primary computer. There will be little to no configuration, and all iOS devices will be kept in sync. Apps will use iCloud, people will love the experience, and the whole thing will grow its own. The Apple club is getting bigger, and the cost of entry is dropping like a rock. As highlighted by other writers, Apple is re-stating its devotion to being a hardware company, a mobile devices company, not a software company. Sure, Apple writes software, but only because its software sings on its devices.

For any other company, a software release that brings in features that others have had as “standard” for a little while would be “just” playing catch-up; for Apple, which designs software that is already powerful to the nth degree, “catching up” means creating almost unstoppable inertia.

___

1 I’m counting myself among those people.

2 I’ve been in carrier stores before, and listening to these floor guys try to explain it to the customer is hilarious. Listen in sometime and you’ll see what I mean.


I Don’t Buy It


On the verge of the announcement of iCloud, Lion, unicorns, iOS 5, and magic fairy dust, there’s an issue I wanted to dig into a little bit, something that the increasing use of cloud services is going to come into direct contact with: bandwidth.

I came across this article on TechCrunch and felt like I was in some sort of twilight zone. Here are a couple highlights:

The report encourages mobile networks to offer integrated rate plans, while “providing a wide range of segmented postpaid and postpaid tariffs”. It also puts stress on the potential for escalating revenues in the cloud, machine-to-machine, and mobile financial services where networks can leverage their existing assets

and

The cause of the impending crunch? The report indicates that the dire situation is caused by market saturation and falling average revenue per user, which is causing core revenues to flatline, while the cost of handling mobile data traffic is skyrocketing. As one might expect from the growing use of smartphones (Nielsen predicts there may be 100 million by the end of the year), cellular data traffic doubled in 2010. And it’s expected to increase thirteen-fold by 2015.

If you’re half as confused as I am, then you’re plenty confused. What is all this jibba jabba? The rhetoric pitched to us by data providers (I’m lumping everyone together here, not just the mobile providers) is that “Bandwidth is getting more expensive, guys! You’re using a lot of data, and that’s really expensive! I don’t buy it. The thing is, all these internet providers, whether they’re mobile or otherwise, have seen this coming for a long time. The writing was on the wall back when WAP was the only way to get up-to-the-minute weather and MOVIE TIMES IN YOUR AREA. All these carriers and ISPs knew that people were hungry for more information, and so they started developing new ways to deliver bits and bytes to people’s eyeballs. The problem is that, as the number of subscribers grow, they aren’t making as much per person because people are getting wiser. Coffee shops offering free wifi and libraries with computer access have become the de facto standard. Even grocery stores offer free wifi these days. As in, I walked into a local Jewel and was greeted with a giant sign telling me that the whole store was blanketed in sweet, sweet 802.11b/g. That’s fantastic! I got the same thing when I walked into Nordstrom’s. If offering internet access was so expensive, you can bet that these businesses wouldn’t be offering it for free to anyone who wants it. “Come in and get you some interwebs here” has become this decade’s “FREE TOASTER” promotion. The toasters, as we all know, were cheap. Dirt cheap. People felt like they were getting a good deal because, hey, free toaster. Who doesn’t like toast? I don’t know of anyone. Who doesn’t like free wifi? *crickets*

Then there’s this regarding a recent dig into internet pricing in Canada:

Assuming an inflated cost of 10 cents per gigabyte, it means that Bell, Shaw and Rogers are charging consumers between 10 and 50 times what it costs them to deliver data. This on top of their regular monthly Internet pricing! While I agree that heavy users should be prepared to pay more once they have reached their bandwidth caps, a fair price would be much closer to 10 cents per GB than the inflated $1-to-$5-per-gigabyte charge sanctioned by the CRTC.

followed by:

The argument that the exponential growth in Internet usage as the primary reason for higher prices is a seductive one. However, it ignores the fact that the technology that drives the Internet has become more powerful and much cheaper in the past decade.

So, exactly what I’ve been saying. Our infrastructure is evolving incredibly rapidly, and companies continue to use outdated arguments and backwards-facing data to justify rate hikes and consumer-hostile practices. Now, this isn’t a problem. I talked to a friend recently about mobile internet usage, and how my internet usage is astronomical each month. He couldn’t understand it. Read my previous post “The Cap’s the Limit” on one of the possible models for Apple’s “music locker” service, and you can see how this is incredibly consumer-hostile. Not on Apple’s part, mind you, on the carriers and ISPs. They’re the ones that see the future of media being cloud-centric, and they want to sink their teeth into more money, despite the fact that they’re already making plenty. Correction: they want more profit. Even so, I have a hard time believing that ISPs will be hurting from the profit angle.

At any rate, this is going to come to a head sooner than later, and I hope we have some strong government officials on our side to help us fight off the behemoth businesses that clearly see themselves as big enough to make whatever rules they want at the expense of the consumer.