Racing to the Middle
An amazing thing is happening right now in the world of consumer goods, though I’m sure almost everyone has seen or heard something about it by now. Companies are converging from all sides to fill gaps in product lines, thanks in large part to the creation of a few fantastic portable handheld devices in the past few years.
As I’m sure most of you can recall from just a few weeks ago, Apple was once again in the spotlight as it finally lifted the curtain on its long awaited tablet computer. Unfortunately, the device was not everything it the hype had claimed it would be: the device is large, thick, heavy, and lacks some very useful features such as an internal camera; its entry level price of $499 is also wildly outrageous with only a 16GB internal hard drive, and it does not include the almost-mandatory 3G feature (which will also run you at least $15/month to use). Furthermore, the reliance on the stripped down iPhone OS places the device in a precarious position. Now, it is not feature-rich enough to perform the same tasks as a $200 netbook–streaming Flash-based video, running multiple applications at the same time, using Office, etc.–and it is actually being handicapped by limitations that, on a 3.5″ iPhone or iPod screen, would seem perfectly reasonable.
Basically, by creating what many are simply referring to as a “big-screen iPhone,” Apple has filled a gap in its product line with something that is both easily replaceable (jumping to a MacBook or iPod touch) and utterly lacking in terms of iconic appeal. Whereas the slick aluminum casing of a MacBook or the glossy black shell of an iPhone immediately inform the user of what type of device it is they are handling, the mish-mash of aesthetics in the iPad is a sign of Apple’s own uncertainty as to whether this creation is more of a handheld (big glass screen accompanied by that one little Home button) or portable computer (aluminum casing on the back, keyboard attachments, etc.).
iPad: Digital Readers Face New Threat
Now, let me also say that this device is incredibly important for other reasons. First, it is attempting to unite several unrelated consumer markets under the Apple banner. Just as Apple used the iPod as a Trojan Horse for the iTunes store, so too is it attempting to use the iPad to enter a new market, eBooks. Now, until this point, the eBook market was easily divided into four parts: Google offered a wide selection of free books that have entered the public domain on its website and through other companies’ online stores; Sony, the first to actually enter the market, has its own store which it recently revamped to become more appealing and competitive; Barnes and Noble made a brave foray into the battle with its Nook reader last fall, and is seen as the strongest challenger to Amazon, who has controlled the eBook market with an iron fist thanks to its excellent Kindle reader and the easy-to-use, low-cost, ubiquitous Amazon.com eBook store.
What has occurred now, however, is something quite sinister. Eager to not make the same mistakes as the recording industry (but ultimately ignorant of the fact that all media will soon be digital and commoditization of entertainment is inevitable), the publishing world has, with Apple’s entry into the market, seen fit to give the dedicated eBook reader market the snub. At the same time as Apple was preparing to reveal its new wunderkind, Amazon and Macmillan, one of the largest publishing houses in the book world, were in a very public spat over the future of book prices. Basically, MacMillan wanted to raise the price of new release eBooks to be closer to those of the actual hardcover, since the hardcover book is where the company usually makes its money on a book release. Long story short, Amazon asked MacMillan to kindly go fuck itself (apologies for the language, dears) and pulled all Macmillan books from its store, and then a few days later doubled back on its stance and asked if the two could still be friends.
See, Amazon believed, like Apple once did, that $9.99 is the sweet spot for a new book to be priced at. But most publishers don’t care about that. They want to have discretionary pricing, somewhere between $12-17, to vary between books depending on how popular they are. Now, I know you got to this point and you’re thinking, “Great, dude, but seriously I couldn’t give two shits about book prices and company bickering. What does this have to do with me?” And you’re mostly right to be thinking that. But here’s the thing: while it’s important that we don’t sink the price to fast on the publishing industry and make the paperback the next CD, we also want to be able to sink prices for digital content, because everyone agrees that lack of a physical copy ultimately reduces the value of a good by a considerable margin. Especially since when you buy most things digitally nowadays you’re just buying a license to use that good, not the actually good itself. But that’s a whole different post about digital rights that I am not going to be writing. Let’s finish up with the books and then move on.
Bottom line: Amazon was trying to be the only game in town for publishers and consumers, much like Apple. It wanted exclusive or highly restrictive control of digital publishing rights to books, and it wanted to set the prices for the publishers. In other words, it was taking the pie and telling the publishers how many slices they could have. Now, thanks to the new agency model almost every major book publisher will be switching to (and that is being endorsed by Barnes & Noble as well as Apple), publishers can set prices wherever they want, and the seller will get a flat 30 or 35% cut from that selling price. This means that while prices may start high, we will actually be able to see classic economic theory play out here: the price will fall for a book and as it does the sales will increase. This gives maximum profitability to the book industry, and ultimately everyone wins. Sure, we consumers don’t profit as easily from it as before now that Amazon has lost its death grip on the market, but in the long run, provided you and I can wait a bit after a book comes out, you will still get a good price on that digital copy. Better yet, now it won’t come at the cost of bankrupting the businesses and authors you’re trying to support.
That’s it for me on eBooks for now. I actually don’t own one, but am very interested in the prospect. If you have one or know someone who does, I’d love to hear about it. Send me a line and tell me what your thoughts are. For now, though, if you’d like to read more on how pricing is hurting the book industry, I suggest this blog post as a good place to start.
What Lies in Between
I mentioned earlier that the iPad is important not for what it does well or does poorly, and there are certainly plenty of things that can be listed for both categories, but for what its affect will be on other devices. In the run up to the device’s announcement, we say several new tablet computers be revealed by Dell and HP. These are quite similar to the tablet in that they are touch-only slates, but where they actually surpass the iPad in terms of usability is that they run a fully functioning Windows OS. That means multitasking, Flash video (hello, Hulu!), Office, the works. Just as the iPhone brought out the heavy competition from Sony (Xperia), Google (Android OS and Nexus One phone), HTC (Windows and Android-based phones), Palm (Pre), and even BlackBerry (Storm and Storm 2), so too will the iPad bring with it a flurry of imitators and also-rans. Only this time, the also-rans have a chance to surpass the mighty Mac: they do not operate under the same self-imposed restrictions as Apple, who consciously limits the utility of its devices by denying certain features or applications from being run on it. This race for that middle market is actually the most competitive of all. For once, Apple’s prices and willful indifference may be its undoing. Which is all well and good.
See, as much as I love my MacBook Pro and my iPhone, I do believe that they’re too expensive and I do believe they could be better devices. If Apple wasn’t so concerned with preserving its brand value as well as its insane, 40% profit margins on everything it sells, it could be the most crushing company in the world. Instead, it opts to play the niche, exclusive supplier card, letting consumer interest and fervor boil up and over until we’re all champing at the bit, white froth foaming from our mouths, begging to given a chance to buy their product, no matter the price. Lucky us, eh?
I’ll leave with one more thought. The only reason any of the above things have occurred is because of the creation of the netbook market. These devices, little 8-10″ laptops that originally ran off of Linux or Windows XP and sell from $200-500, are now the biggest growth category in computer sales. In the late 1990s, we saw the rise and peak of the desktop PC. Nowadays, people don’t want to buy a big old box system that often because there are so many parts and its not portable; to use it, you become rooted to one spot. (Actually, this is why the iMac is such a brilliant device, but I won’t rant about Apple anymore today.) So then we moved down: desktop-replacement laptops with big old 15″ or 17″ screens came into vogue. They weren’t big on portability, but they did just about everything a desktop could do (other than play video games well, which is slowly changing). Then, about three years ago, the laptop market started to get saturated with cheap computers. Suddenly, a nice 13″ or 14″ laptop, perfect for web browsing, video viewing, and word processing, cost somewhere between $400 and $800. A 15″ MacBook Pro at that time still cost $2000, but it was eventually lowered to $1699. This was a critical time for computers. Dual core processors, cheap RAM, ever-increasing hard drive sizes… we were really hitting our stride back then and shifting the course of computer development from the push for making everything as fast as possible to making two or four or six of everything as fast as possible and as small as possible. Which is why we have the netbook. Using a small, energy efficient Intel chip called the Atom, these devices became the student’s and professional’s choice for on-the-go computing. With a USB 3G modem to gain access to AT&T, Sprint, or Verizon networks, a netbook transforms into exactly what an iPad is attempting to be: a large smartphone which enough screen space to actually get productive work done on it.
So while Steve Jobs is convinced that the netbook is a piece of garbage and that Apple will never make anything so small and uncomfortable and ugly, let the others sit back and laugh. The iPad has attempted to define where there in between actually lies, but that space is a dangerous one. Pressure from both sides may soon see the middle market flooded with an odd array of laptops and tablets and super netbook hybrids. As history has shown us, the computer world is never as cut and dry as it originally may seem, and I suspect that this market is where a great deal of innovation will soon be found. And as a consumer, I’ll be right there waiting to see what’s next.