iPad Mini

Tablets Trade-Offs And Compromises

 

A couple of hours after landing in SFO from Paris, I find myself setting up two new tablets: a Microsoft Surface and an iPad mini. While on the road, I had read much on both products and felt reasonably well prepared for the tasks.

This proved correct. But the product experience was another thing.

First, the Surface: Unpack, plug in, boot up, no problem. The magnetic touch keyboard and power adapter latch onto the tablet-PC without ado, the machine’s virgin launch is a breeze: I answer a few simple questions, enter my hotmail credentials and I’m in business… sort of.

In order to get a taste for the full Surface experience, I fire up Word 2013 (included with the tablet) to write this Monday Note. Not so slick, the keyboard and touchpad aren’t very helpful. When I ordered the Surface, I chose the slim $119.99 Touch Cover combo rather than the thicker $129.99 Type Cover. Building a keyboard into a protective cover is a great idea, but, as the name implies, the Touch version doesn’t have a real keyboard. Instead, you have to work with an unsatisfying, felt-like surface without tactile feedback. For “real” typing, I need the “real” Type Cover. I’m off to Stanford’s MS Store to correct my expensive mistake.

Keyboard problem solved, I hit another snag. While Word 2013 does a good job zooming using a two-finger touch, the Control Panel and other essential parts of Windows RT are (barely) touch-enabled retreads from Windows 7; they ignore your zoom. I discover this when I need to type accented characters such é or ñ, characters that, of course, don’t appear on the keyboard. Normally, this isn’t a problem; go to the Windows Control Panel, select the English International keyboard as the input mode, and you’re set. You type ~ followed by n to get ñ.

But how does this actually work in the reimagined Windows RT? I fumble around and finally find my old friend, the Control Panel:

From there, I go to Clock, Language, and Region, pop open the Input Method menu… and select the wrong mode. Because of the lack of zoom, picking the right option in a list a game of chance. You need the sanded fingertips Steve Jobs famously derided when asked about smaller tablets.

If I use the Touch Cover trackpad instead of directly touching the Control Panel on the ironically named Surface screen, things improve dramatically: My fat fingers now become delicate. This might explain why Microsoft insists on selling a keyboard with its Surface tablet. Without one, in my admittedly limited experience, it’s not quite useable.

Then there’s the UI formerly known as Metro. In the current state of Windows 8 and Windows RT, it’s only skin-deep: Using Office apps or modifying system settings quickly calls up the old Windows 7 UI. It’s not the end of the world, the UI will evolve with future versions but, in the meantime, the much-hyped Surface tablet cum PC feels far from polished and consistent. And the no-less-touted reimagination of Windows doesn’t go much deeper than the very neat and imaginative UI on its… surface.

At least the vaunted Surface kickstand works quite well… although only in landscape mode, and, even then, only if you’re sitting. If you type while standing or want landscape mode, forget the kickstand.

I’ll keep using the product in personal writing and presentations to make sure I’m not missing some killer feature. In the meantime, I’d be interested to know if Steve Ballmer or Microsoft Board Members use a Surface tablet rather than a MacBook Air running Windows 8, a truly excellent combination in my own paid-for experience.

On to the iPad mini.

Like its forebears — and its current competitors — setup is fast and easy. If you already have an iPad or an iPhone backed-up in iCloud, everything syncs and downloads nicely.

But what about the “mini” part?

I bought a Nexus 7 when it came out and liked the fact I could pocket it, whether in jeans or in jacket. The iPad mini is larger than the Nexus, slightly more than half an inch (14.7mm) wider. Still, the “mini” will fit inside the front pocket of most jeans. Unfortunately, it’s too tall for most shallower back pockets, but it’ll fit nicely in outside jacket and topcoat pockets (as measured in this August 2nd, 2009 Monday Note where I hoped for a pocketable Apple tablet) — and doctors’s and nurses’ lab coats…

Regardless of how you carry it, the iPad mini’s hardware is neatly detailed. It’s thin and light and the “aluminium”, as Sir Jonathan Paul Ive (KBE) rightly pronounces it in the Queen’s English, works well with the white front bezel. The (stereo) speakers sound good although, to my ears, they’re surprisingly no better or louder than the latest iPhone’s, themselves a marked improvement over earlier generations.

Turning to the screen, I agree with the many who are less than thrilled with the mini’s display. I think this is the result of a compatibility decision: The mini has the same number of pixels (1024 by 768) as the iPad 2, but at a higher density (163 pixels per inch vs. the original 132 ppi). With the same pixel count as the iPad 2, all apps run unchanged, their screen rendition is just smaller. The visual experience isn’t as pleasant as on the iPad 2 itself, let alone the iPad “3″ and its higher pixel density display.

When you read a Kindle or iBook novel, a magazine such as Bloomberg Businessweek, or the NY Times on your iPhone, the content isn’t simply the iPad version squeezed to fit into the phone’s tiny display. These applications reformat their content, they adapt to be legible… no squinting, no eye strain. Let’s hope these apps will be updated to make better use of the iPad mini screen, as opposed to offering squished iPad 2 rendering.

(We’ve also read the complaints that the mini isn’t a “Retina” device…but on this topic, I must recuse myself: I’ve twice mistaken an iPad 2 for the higher resolution device. Last Spring, as I had just gotten a new high-resolution iPad, at Soho’s Les Amis bistro, I watched a gentleman at the next table flip through beautiful pictures on his iPad. I leaned over and asked how he liked his new iPad “3″. ‘What? No, it’s last year’s iPad 2…’.

A few days later in Paris, I reset my iPad 2 in order to hand it to my Mother-In-Law, a replacement for the MacBook Air that was giving her — and me — headaches. Oops, I actually reset my new Retina iPad, mistaking it for the older iPad 2. No harm done, the iCloud backup resuscitated my new tablet.)

So, which of these two devices will enjoy the brighter future? The “inadequacy” of the mini’s screen quality is an issue — and could become a problem as both Android and Amazon ecosystems keep improving (and continue to undercut Apple’s prices). But I think the improved portability (size, weight), the elegant design and material quality, plus the instant compatibility with the hundreds of thousands of iPad apps will count for a lot.

As for the future of Microsoft’s Surface, as Peter Bright (a noted Microsoft analyst) concludes in his review of Redmond’s new tablet, it really needs a keyboard and pointing device in order to be usable with Office applications. This makes a good case for Apple’s decision to keep laptops and tablets separate, freeing each to do what it does best.

JLG@mondaynote.com

 

What happened to the iPad?

 

On October 23rd, Apple announced the widely expected iPad mini. The company also surprised most by also introducing a faster “4th generation” iPad, swiftly replacing the one launched on March 7th this year, seven and a half months ago.
That same day, Tim Cook proudly proclaimed a an iPad milestone: 100 million shipped since its April 2010 debut. Impressive.
No less impressively, Wall Street analysts quickly did their subtractions and concluded Q4 iPad shipments — to be officially announced two days later — were going to miss expectations.
They were right.
Where seers expected somewhere between 15 and 16 million iPads, the actual Q4 number was 14 million. Using the Average Selling Price (ASP) we’ll discuss in a moment, a “miss” of 2 million units translates into more than $1B in missed revenue.

Compared to the 17 million iPads shipped in Q3 (ending in June), Q4′s 14 million units look like a steep decline. This isn’t in keeping with the fast growth the iPad had shown since its 2010 beginning. On a “Quarters After Launch” basis, the iPad used to grow faster than the iPhone. Now, we see a decline from the 15.4 million units shipped in Q1 (ending December 2011), and only a modest 26% increase from last year’s Q4. Where are the go-go days of 70% or even 100% year-to-year growth?
Two days later, at the October 25th Earnings Conference Call, Apple’s CEO tried to put a better face on that strangely anemic 26% growth. As noted by Horace Dediu, Tim Cook pointed to a different number: sell-thru, units actually delivered to customers, grew by 44%. Not great, but not as tepid as 26%.
(See Philip Ellmer-Dewitt’s detailed explanation here. In essence, when product ships, it “changes hands”: the channel partner “takes title”, meaning it moves from Apple’s books to the reseller’s. For Apple, the items thus shipped count as revenue, even if they’re not sold-thru, that is sold to end customers. When the volume of products Apple ships to retailers is less than the volume sold-thru, channel inventories decline, more sales out than shipments in. This is how Apple sees revenue go up by 26% while sell-thru increases by 44%. A likely explanation for last quarter’s depletion of channel inventory is making room for the two new iPad models.)
Resorting to sell-thru numbers as a way to put iPad numbers in a better light could be habit-forming, it could force Apple’s management to provide more detailed inventory numbers more regularly.
On the end-customer demand side, Apple execs attributed the low Q4 iPad number to several months of intense and detailed rumors ahead of the iPad mini launch.
So, the iPad story could look this: Last year, the yearly iPhone refresh moved from June to October; as a result, Q4 iPhone shipments disappointed; but fast growth resumed once the new model shipped; the pattern now applies to the iPad as well.

No, the iPhone and the iPad behave more differently than in the above scenario. I went back to SEC filings and extracted data for the following graph tracking iPhone and iPad ASP’s for the past eight quarters:

The iPhone ASP is stable. Carriers keep indulging in (wooden) saber-rattling, complaining about “excessive” iPhone subsidies. Here, subsidy means the difference between the price carriers pay for a handset and the typical end-user price: $199 for the phone with a two-year contract. In such a $199 arrangement, for the past five years, Apple has been able to extract more money from carriers than any of its competitors. Paraphrasing Horace Dediu, the explanation for such an enduring advantage is a simple one: For carriers, the iPhone is a better salesman, it generates more revenue, a higher ARPU (Average Revenue Per User). As a result, carriers pay the iPhone salesman a higher commission, meaning a higher handset price. (And they sound like the grouchy bosses who complain their star sales person makes too much money…)

For the iPad, there is no such arrangement, no two-year contract, no subsidy. For example, AT&T will sell an iPad with a no-commitment, month-to-month wireless data contract. Without a two-year commitment, carriers have no incentive to sell the iPad at a particularly attractive price, causing customers to face the price without a subsidy fig-leaf. (One might argue smartphone contracts lead customers to borrow money, the $400+ subsidy, at usurious rates, but such habits are hard to break. Rare is the carrier that will offer a cure, a lower monthly contract if you pay full price for the phone.)

How do iPad customers react to the cold price truth? All we know is the ASP has been falling for five quarters. And we can also surmise price figures more actively in competitive situations than it does with smartphones. Or, for that matter, with notebooks and desktop computers: ASP for Macs is stable or growing a little, from $1282 last year to $1344 last quarter. These prices don’t prevent Apple from being number one on desktops and notebooks in the US — as Tim Cook reminded everyone on October 23rd.

The surprise iPad refresh can be seen as a reaction to competitive pressures, existing or upcoming ones. And, for the iPad mini, we have an interesting combination: premium price and an avowed lower gross margin, ‘significantly below our cooperate average‘ says Apple’s CFO during the October 25th Earnings Conference Call.

The iPad definitely behaves differently, neither a bigger smartphone, nor a smaller PC, thus confirming it belongs to a new category whose rules are still being established. The next few quarters will be even more interesting than recent ones: Google, Amazon and Microsoft have new products worth watching, they all intend to fight for a dominant role in the new space.

JLG@mondaynote.com

iPad Mini: Wishful Thinking?

Or another killer product? Or, on the pessimistic side, a loser defensive move showing Apple’s fear of competitors such as Amazon, with its Kindle Fire, and Google’s 7″ Nexus tablet?

Recent leaks from purported sources inside Apple’s traditional suppliers have ignited a new frenzy of speculation. And not just from the usual blogging suspects — often better informed and more insightful than the official kommentariat. BusinessWeek and the Wall Street Journal both stuck their august necks out: The so-called iPad Mini will be launched this coming September.

On this matter, my own biases are on the record.

In an August 2009 Note titled “Apple’s Jesus Tablet: What For?“, I went as far as measuring the pocket on men’s pockets. As a result, I posited a 10″ (diagonal) tablet might not provide the same desirable ubiquity as a 7″ one that men could carry in a coat or jacket pocket, and women in a purse.
(Apple once came to a similar conclusion: the original Newton project started by Steve Sakoman in 1987 was a letter-size tablet. After he and I left, the screen size was cut in half and the actual Newton came out as a pocketable product.)
Five months later, on January 27th, 2010, Steve Jobs stood up and changed the personal computing world for the third time with the 9.7″ (diagonal screen size) iPad. The take-no-prisoners price ($499 for the entry model) was a big surprise. Another one, much less obvious, was Dear Leader’s unusually tentative positioning statement: ‘We’ll see how the iPad finds its place between the iPhone and a MacBook’. (I’m paraphrasing a bit but the tone was there.)
The iPad surprised many, Apple included and, at the beginning, was often misunderstood. I recall my initial disappointment at not being able to perform the same tasks as on my laptop. A huge number of normal humans of all ages thought differently. As we know now, the iPad grew even faster than the iPhone. Notwithstanding Microsoft’s clinging to its ossified PC-centric rhetoric, this turned out to be the true beginning of the Post-PC era.

This excited competitors around the world: You’ll find here a list of 76 tablets announced at CES. By the end of 2011, few had accomplished anything. One exception was Amazon’s Kindle Fire, its Xmas season numbers were rumored to reach more than 4M units, even 6M by some rumored estimates. This rekindled, sorry, rumors of a smaller iPad.
In October 2010, Jobs famously dismissed the idea: “7-inch tablets should come with sandpaper so users can file down their fingers.” None of the journalists present at the time had the presence of mind to ask him about the iPhone screen…
Tim Cook, Steve’s disciple put it well at the D10 conference last June when he affectionately (and accurately) called Jobs a great flip-flopper, citing examples of products features his then boss ended up endorsing after repeatedly nixing them.
In an April 2012 Monday Note, I discussed the possible end of Apple’s One Size Fits All for  iPhones and, in particular, iPads. There, I linked to an A. T. Faust III post lucidly explaining how the original 1024 x 768 resolution could easily scale down to a 7.85″ tablet and achieve a nice 163 ppi (pixels per inch) resolution, the same as pre-Retina iPhones. This leads one to believe there is abundant (and inexpensive) manufacturing capacity for such pre-Retina displays.

A few questions.

First, developers. As we saw with iOS apps for iPhone and iPad, size matters, apps don’t scale. That hasn’t dampened the enthusiasm of developers for investing in app versions that take advantage of each device unique characteristics, as opposed to committing the cardinal sin of “It’s like the other one, only smaller/bigger”.
So, if developers believe a 7″ iPad would sell in large numbers, they’ll happily fire up Xcode, adapt their existing app, or write a new one. As for the belief in large unit volume for a 7″ device, the initial reception accorded to Google’s Nexus tablet shows there is potentially a lot of life in a smaller iPad.

(I ordered a Nexus tablet and will dutifully report. Last April, I bought a Samsung Note phablet and promised a report. Here it is: I’ll sell you mine for $50. A respectable product, I could definitely live with it. But, IMO, too big for a phone, too small for a tablet.)

Second, Apple was on offense. Now, competition succeeded in putting it on the defensive. While initial Kindle Fire sales were rumored to be huge, the same “sources”, checking on display supplier suppliers, now claim sales of Amazon’s tablet dropped precipitously after the Holidays. Amazon keeps mum, but is also rumored to prepare a slew of not one but several tablets for this year’s Xmas quarter.
As for the Nexus tablet, it isn’t shipping yet.
Instead of a defensive move, I think a 7″ iPad might be another take-no-prisoners move:

From the very beginning of the iPad and its surprising low $499 entry price, it’s been clear that Apple wants to conquer the tablet market and maintain an iPod-like share for the iPad. Now that Apple has become The Man, the company might have to adopt the Not A Single Crack In The Wall strategy used by the previous occupant of the hightech throne.

If this cannibalizes 10″ iPad sales, no problem, better do it yourself than let Google, Amazon or Samsung do it.

Lastly, the price/cost question. As you’ll see on this video, Todd Schoenberger, a Wall Street haruspex visibly off his meds, contends an iPad Mini is a terrible move for Apple, it would be a break with its single product version focus. Like, for the example, the one and only Macintosh, the one and only iPod. Also, he continues, an iPad Mini wouldn’t allow Apple achieve the 37% gross margin it gets from the bigger sibling.
No. If we’re to believe iSuppli, a saner authority on cost matters, the latest 32 GB 4G iPad carries a Bill Of Materials of about $364, for a retail price of $729. Even with a bit of manufacturing overhead, we’re far from 37% today. And, tomorrow, a smaller iPad, with a smaller display, a smaller battery, a correspondingly smaller processor would nicely scale down in cost from the “new” iPad and its expensive display/battery/processor combo.
To where? I won’t speculate, but Apple has shown an ability to be very cost competitive when using previous generation parts and processes. See today’s iPhone 3GS and iPhone 4 prices for an example.

I have no inside knowledge and quite a few inclinations: I’d love a pocketable iPad as much as I like small computers such as the defunct Toshiba Libretto and the lively 11″ MacBook Air.

If Apple comes up with a smaller iPad later this year, I think it’ll be a killer product.

–JLG@mondaynote.com