Apple’s Long-Term Strategy for the iPad

A few weeks ago, I gave my initial impressions of the iPad. To quickly sum up my view, I said that the iPad doesn’t make sense in its current incarnation — that it does less than an iPhone, costs more, and definitely can’t fit in a pocket. If you’re going to be carrying around a bag anyway, you might as well throw a netbook in there, since they are less expensive, more capable, and get equal (or better) battery life.

What I didn’t qualify in the article however was that “in its current incarnation” part. You see, I think that this first generation iPad is just the tip of the iceberg. Apple has some big, big plans for the iPad. Remember, they’re trying to create a whole new third category of computing. This is what I actually think is going to happen with the iPad over the long-term:

1. Early adopters are going to pay up front in order for Apple to get the price down and make improvements.
This isn’t saying anything new or revolutionary. Apple always lowers the prices of its products after a while. However, I think that this could be a situation more akin to the price drop of the first generation iPhone, when Apple slashed $200 dollars off the price after only two months (though they wouldn’t be as quick and drastic about it this time, to avoid a repeat of the customer backlash from that move).

Apple knows that they have a number of die-hard customers who will buy whatever they put out right away, and because of this they can charge a premium for their products at launch. In a way, it’s a form of price discrimination, and the revenue from the early adopters helps them achieve greater economies of scale to bring down their costs.

Apple has to realize that it will be hard for them to sell a lot of iPads to price-sensitive people when there are so many competitors and that netbooks appear to be a better value. Because of this, it can’t be too long until they drop the price down to netbook levels (but they can never bring it down to iPhone or iPod Touch levels, because they need to keep the iPad distinct as a third category between phones and laptops).

2. Apple left a lot of features off the iPad both to keep the price low and to save things for future iterations of the product. Wait a generation or two, and the iPad will have all the things that people have been clamoring for.
That 9.7 inch capacitive touch screen is an expensive component. There’s a reason we haven’t really seen large capacitive screens on devices before now — capacitive touch technology gets really pricey as screen sizes go up. The technology will obviously get cheaper over time, but Apple needed the iPad to come in at a reasonable price point now, so that meant cutting costs where possible.

As part of this, Apple is producing the chips for the iPad themselves, which will save a lot of money in the long run (and also makes sense since they can build the chip specifically for the device). Apple also left off a lot of basic features, such as a camera.

Macs, the iPhone, and even the iPod Nano all have cameras — it almost seems weird for an Apple product not to have one these days. The iPhone OS obviously already supports cameras and, if they can engineer a camera into the Nano, they can definitely find a place to put one (or more) on the iPad. This is especially perplexing, because there are so many compelling uses for a camera on the iPad, first among them video calling.

There can only be two reasons for its omission — either it pushed the cost too high, or they want to save it for the next generation to differentiate it and get people to upgrade. Chances are that both are true.

What this means is that all those features people have been clamoring for are likely coming in future generations of the iPad. Remember the first-gen iPhone? It had a camera that couldn’t shoot video, no 3G, no GPS chip, no app store, no MMS, and no copy and paste, to name just a few things. It gained all these features incrementally. People were disappointed with the iPhone at first, and now they call it revolutionary.

The same thing is going to happen with the iPad. A front facing camera, a proper GPS chip, and yes, multitasking will all eventually show up on the iPad (and possibly on the iPhone as well). Apple will just space out its rollout of these features to provide a compelling upgrade path for its customers.

(That said, I’m not sure if and when Adobe Flash will ever make its way onto the iPhone or iPad. Apple really seems to hate Flash. However, once Flash starts making its way onto all the other smartphone platforms, it may be hard for Apple to holdout.)

3. To quote Walt Mossberg: “It’s all about the software, stupid.” Once the iPad gets some really unique, compelling software — and it will — it can transform into the must-have third device that Apple’s hoping it can be.
Apple already reworked some of their standard iPhone OS software for the larger screen, but it’s arguable if any of these changes are providing a new and unique experience. Sure, it’s nice to be able to view the list of your emails alongside the messages or browse the web on a screen that can display the entire webpage, but using the email app or the browser is really not that different from using it on the iPhone. Both email and web are still going to be better on a full blown computer, especially with the lack of Flash on the iPad. The reworked app that comes closest to providing a radically new experience is the photo app, which looks a lot more like iPhoto than the iPhone photo app, and seems to utilize pinching and zooming really well.

It’s only a matter of time until some really compelling software is coded specifically for the iPad to take advantage of what it has to offer. Apple already announced its first attempts at this, iBooks and the with the iWork suite for the iPad.

There’s not much to say about iBooks. Apple recognizes that the iPad is the right size for an ebook reader, and has coded a fancy app to take advantage of that fact. The question will come down how the ebook experience on the iPad stacks up against other ebook readers, especially dedicated ones like the Kindle or the Nook. Really, iBooks is less about creating a new unique experience with the iPad as it is trying to match and surpass the ebook experience found elsewhere.

Of all the things announced recently by Apple, iWork for the iPad baffles me the most. The iPad is clearly a device meant for consuming content, not creating it. It’s portable, has a high-res screen, and has great media software, but what it doesn’t have is easy ways to enter information. The virtual keyboard looks problematic, especially since it apparently requires that the user use two hands, and it will be hard to see the screen if you’re putting the iPad down flat on a table to type on it. Sure, Apple will sell a dock with a built-in keyboard, but I don’t know how many people are going to want to carry that around, and it defeats the purpose of having the iPad as a portable take-anywhere device. So, for Apple’s first real software for the iPad to be focused on creating documents, spreadsheets, and presentations doesn’t make any sense. These uses play to the iPad’s weak suits. Perhaps Apple thought that the software would allow business users to talk themselves into getting iPads, or would sway the person who needs to create the occasional document away from a netbook.

Still, even with Apple’s seeming misstep of focusing on iWork instead of more compelling software, it has an ace in the hole — it’s app developer community. Any iPhone app can be used on the iPad already, but once developers start coding specifically for the iPad, it’ll only be a matter of time until they come up with some really exciting and original software. There are so many possibilities, and I’m sure the best haven’t even been thought up yet. Ideas I’ve heard include medical apps that doctors and patients can use to run tests and access patient histories, remote desktop apps that allow users to log in and run their home computers from the iPad, and magazine reader apps so good they’ll save the industry. This unique software experience is what will make the iPad a “must-have” device.

Apple has laid the groundwork — they’ve built great-looking hardware and created the fundamentals that users and developers needed. Now, it’s up to Apple’s developer community to create the software that will ultimately get mainstream people to accept a third device. Apple has so many great iPhone developers — and so many people hoping to become rich off the app store — that I have no doubt they’ll do it. I’m just excited to see what they come up with.

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