I’ve come across a couple of interesting pieces today that look at why it seems that only Apple can make a $500 tablet. And the key to being able to bring out a $500 tablet - having a profitable app and media ecosystem.
First up, Jason Hiner of Tech Republic, who suggests that Apple’s success is down to its retail strategy:
I’ve heard a lot of reasons thrown around, from buying flash memory in bulk to Apple’s strength in supply chain management to the fact that Apple now has its own line of CPUs. However, nearly everyone seems to be missing the biggest and most obvious reason: The Apple Store.
More specifically, the combination of Apple’s 300+ retail stores and its online Apple Store means that the company sells a huge chunk of its iPads directly to its customers. While Apple has cut distribution deals with Best Buy, Target, Wal-Mart, Amazon, and a few others, those are mostly market-share grabs and ways to help spread the iPad’s marketing message.
I agree that this helps Apple make a $500 tablet, but it’s only part of the equation.
Wired’s Brian X. Chen chips in, adding some more ideas:
Designing in-house means Apple doesn’t have to pay licensing fees to third parties to use their intellectual property. For instance, the A4 chip inside the iPad is based on technology developed and owned by Apple (not Intel, AMD or Nvidia). The operating system is Apple’s own, not something licensed from Microsoft or Google.
…
On the iTunes media platform, Apple takes a cut of each sale made through each of its digital storefronts: the App Store, iBooks and iTunes music and video. iBooks still has a long way to go before it’s anywhere near as big as Amazon, but the App Store and iTunes are the most successful digital media stores of their kind.
Ahh, now Chen is onto something there. Selling an iPad to a consumer isn’t the last contact the company expects to have with the user. To Apple, the iPad isn’t a tablet, it’s a logical, progressive extension of existing ecosystems. That’s right, not just one ecosystem either. There’s the iTunes entertainment and media ecosystem that Apple has been fostering since the iPod, and there’s the iOS operating ecosystem. Both are ecosystems that millions are already familiar with. And they are ecosystems that bring in stacks of dollars for Apple.
This is a very different approach to the one taken by OEMs over the past few months. Their approach can be best summed up by the following phrase:
“ZOMG, APPLE HAS A TABLET! WE GOTTA HAVE A TABLET, AND NOW!!!!!”
Apple’s strategy creates a product that people want. The approach taken by other OEMs results either in endless streams of vapor, or an overpriced device that has no hopes of success.
A good 80% of all the Android or Windows tablets announced or released to date will very likely die on the bud. And many not because they’re bad devices, but because the pricing is wrong or there’s no discernible ecosystem for consumers to leverage. Consumers now demand a flourishing ecosystem to back up a purchase. And Apple has proven that this ecosystem can be used to generate revenue of the back end and helps keep down the up-front price of the hardware.
Flourishing, profitable app/media ecosystems are key to keeping tablet prices low, and an ecosystem isn’t something that the competitors can throw together in a few months.
Apple once again managed to blindsided the competition.
