Apple’s iPad – Jumping the Shark?

Posted February 1st, 2010 by admin

I loves me some Apple.

The iPod and iPhone are honest to goodness game changers.

The iPod was the main course to Napster’s appetizer in the last meal for the traditional music industry business as a whole. Similar in spirit to the genesis of United Artists – it was a transformational, and legal, way to unbundle cool things from clunkers, and let consumers cherry pick only what they wanted.

With the iPhone, they went even further.

Apple now makes more money on iPhone than they do on Macs. Two reasons for this are:

a. They get a piece of the subscriber’s AT&T payment pie.
b. They own the software distribution, and make 30% of each app sold.

So in two significant ways, they’ve found the fountain of quarterly report youth for hardware manufacturers – recurring revenues.

And here’s something that would have seemed altogether unbelievable ten years ago. Apple’s more powerful than Microsoft.

Over the last ten years (Jan. 1000 – Jan. 2010), Apple’s stock has gone up 830%, while Microsoft’s has gone down 57%.  As of the latest quarterly reports, Microsoft has $36 billion in cash, and Apple has $25 billion. They’re catching up. Doesn’t seem like all that long ago when Microsoft gave Apple a critical cash infusion.

Now look at their businesses. Microsoft is largely protecting an increasingly archaic business model – proprietary client software.  The world is moving to open source and clouds. (EZ Numbers is too, slowly but surely.) Apple is innovating entirely new businesses and distribution models.

The App Store on the iPhone has been phenomenally successful. It has led to well over a hundred thousand third party apps – which is mind blowing.  But now Apple may have stumbled.

As many have remarked, the iPad, at least Gen. 1, is basically a large iTouch. The problems are that the totalitarian and what many see as arbitrary decision-making process on what apps get accepted worked on the iPhone due to just how hot it has been, but is wearing thin in the development community. Add what’s perceived as important iPad platform deficiencies such as the lack of Flash, a camera, and a friggin’ USB port, and toss in the fact that if developers just increase the size of the graphics on their iPhone apps they’re going to have pixelated messes. Apple and Adobe, not exactly best friends, are now in an increasingly bitter and public war of words over Flash.

Look at a recent salvo from Adobe about Apple:

“It’s about a disturbing trend where Apple is starting to inhibit broad categories of innovation on their platforms. On the iPad, it looks like developers won’t be able to write applications in Java, .net, Python, Ruby, Perl, or any number of other languages (including Flash). And users won’t be able to install Firefox, Opera,IE, or any third party browser. There are countless other examples of applications and technologies that Apple doesn’t allow. Why? Apple won’t say.

And innovation isn’t just about technology, it’s also about business models. Developers on this new platform aren’t able to innovate there either. At best, developers targeting the iPad are subject to a 30% Apple Tax in the App Store. And at worst, developers invest time and money building a product that can never be brought to market, because the only channel is one that is centrally controlled and entirely opaque. In every case, Apple is a gatekeeper on how developers are able to deliver content to their consumers.

Over time, restrictions on technology and business opportunity have a chilling effect on innovation on closed platforms.”

This isn’t your father’s Apple, or even your big sister’s.

Because Apple has eschewed focus groups and analysis and just gone for insanely great products, they’ve gone from a minor computer player to a major media titan. But now that they’ve gotten so big, they’re starting to act like Microsoft, wanting to control everything and protect what they already have. Future success in technology won’t come from more intellectual property and hair trigger attorneys, it will come from disruptive efforts that nobody saw coming. Apple’s getting too big to want to be disrupted, and the first glimpse of this is the iPad.

Once you shift from not caring how 1984 style Orwellian corporate lemmings do things, to instead wanting to control and protect what you have, you’ve become what you’ve been fighting against. In the immortal words of Pogo, “We have met the enemy and he is us.”

Watch out Apple – in this topsy turvy world, it’s not hard to foresee Microsoft coming up with a truly innovative endeavor. With them minting less and less millionaires, and their stock going down, they have less and less to lose. Nowadays, the rebel just might be in Redmond.