Netbook sales negative, laptops down 50%

Silicon Alley Insider is reporting on the iPad Effect: netbook sales are negative as of August. Also, the Best Buy CEO says the iPad is cannibalizing laptop sales by 50%. Seems that people like the tablet idea.

An important technology shift is happening, and this is especially challenging for commodity hardware companies like Dell and HP, and their operating system vendor, Microsoft. The Windows PC market isn’t going away anytime soon, but the lightweight, instant-on tablet model is proving to be a winner for people who don’t need a device that does a thousand things — and there are millions of people in that category.

I’m interested to see what this shift will produce in the next couple of years. We can expect a surge of technical innovation like we haven’t seen in a long time, and the competition should be great for individuals and businesses alike: improvements in hardware and software engineering, industrial design, user experience, device performance, networking, application development — it’s about to get interesting.

iPads are changing the PC industry

This morning Silicon Alley Insider published an article titled Now Apple’s iPads Are Cannibalizing The Whole PC Industry (Sorry, Microsoft), which looks at the iPad’s effect initially on netbook sales, and on the PC industry generally.

Sales of traditional notebooks appear to be feeling pressure from the iPad, causing a scramble by vendors to launch iPad-like tablets… We believe that a majority of this impact is occurring on the lower end of PC sales as the iPad is priced close enough to this range that it becomes attractive to consumers looking to make purchases within this segment. We are not sold that the iPad is purely cannibalizing PC sales, as the functionality of the iPad can not yet fully match the functionality of notebook PC’s. However, consumers who purchase iPads may be more willing to delay purchases and upgrades of existing PC’s.

I recently worked with the CEO at a company here in the Houston area to get him set up on the iPad. He wanted something to replace his laptop for short business trips, mostly for email and calendar but also casual web browsing. His Windows laptop is slow to start up, and the two things he immediately noticed and liked about the iPad are (1) the instant-on status, and (2) long battery life. You push the home button and the machine is ready—there is no boot-up, no waiting.

Netbook sales since the iPad’s introduction

H.264 video: royalty-free forever

The outlook just got a lot rosier for the adoption of HTML5.

MPEG LA has announced that the h.264 (MPEG-4 Part 10) video coding standard will remain royalty-free forever, as long as video encoded with the standard is free to end users. This means sites like YouTube and Vimeo will never be charged licensing fees to serve video on the web. It also means that a huge hurdle has been removed for companies who had concerns about moving away from Flash video to HTML5 and the h.264 video standard.

Up to now MPEG LA’s position on licensing had been that h.264 would be royalty-free through 2015; after that, who knows. So prior to today’s news it was possible that licensing fees would kick in within a few years, and it’s difficult to promote a standard with that kind of uncertainty around a key technology. The uncertainty is now gone.

I think HTML5 will be good for the web and mobility, so I’m glad to see this decision.

Link to MPEG LA’s News Release (PDF)

RIM to release the Blackpad

According to this Bloomberg article, Research in Motion (RIM), the maker of Blackberry smartphones, plans to release a competitor to the iPad this November: the Blackpad.

Pricing for the device will be in line with the iPad, which starts at $499, the person said. RIM is focused on reaping additional profits from the tablet effort, rather than competing on price to sell a large number of devices, the person said.

In the tablet market, RIM will have to demonstrate how its device can stand out against products including the iPad, which has attracted buyers because of its integration with Apple’s iTunes service and many software applications, or apps. More than 225,000 apps are available for Apple devices, the company said in June. RIM said in April it had more than 6,000 apps.

So they’re going to launch a new device with far fewer native apps, to compete against the iPad which has a mature app store containing tens of thousands of titles and huge brand awareness right now, and they’re going to demand the same price as the iPad? Good luck with that strategy. I have a few questions:

• Where’s the mobile OS to compete with Apple’s iOS4? RIM still hasn’t delivered anything close to the touch capabilities found on the iPad/iPhone today. This is not a trivial point and I don’t know that RIM has the engineering chops to do it.
• What’s RIM’s answer to the App Store/iTunes ecosystem? Easy integration is critical to the adoption of a new device like this.
• What’s the retail strategy — is there a store people can walk in to and get their hands on the Blackpad when it’s released? This has been huge for Apple, and RIM needs a response here.
• What’s the differentiator? Is there anything about the Blackpad that says better than iPad?

I can see RIM getting some limited traction in the enterprise just due to brand recognition, but I don’t know if that’s enough to take the Blackpad very far considering they’re already late to a game they probably don’t even want to be in. And Blackpad is an awful name.

Hewlett-Packard Co., which bought smartphone maker Palm Inc. this month, said it plans to produce a tablet device that runs on Microsoft Corp’s Windows operating system.

HP bought a company with a strong mobile operating system (Palm’s webOS) and tons of valuable patents, and they’re going to put Windows on their tablet instead?

Microsoft Chief Executive Officer Steve Ballmer said yesterday the software company plans to increase its focus on tablets.

Translation: The software company plans to increase its focus on what the innovative companies are doing and attempt to duplicate that somehow.

What I think is likely to happen with these companies scurrying to jump into the ‘tablet’ space is something akin to the commodity PC market: A race to the bottom.

Innovation & Leadership: Apple in 1997

I got my first Mac when I was in college in 1988, and have followed Apple pretty closely since then. Today I was reading through some of Dave Winer’s old articles and I came across this September 4, 1997 piece about Steve Jobs’ return to Apple. Jobs had been ousted by the Apple board in 1985, and in the intervening twelve years Apple had been through several CEOs, the stock was trading at around $5 per share, there was little product innovation going on and the future for the company was not bright.

Apple stock in 1997

Reading Winer’s article and looking at what the company has done since 1997, it got me to thinking about what a strong leader and an innovative culture can accomplish.

From the article:

Now Steve is back, and gradually renovating his old company. He’ll do it his way, and it will once again express his Art.

These things I can guarantee about whatever Apple makes from this point forward:

1. It will be original.
2. It will be innovative.
3. It will be exclusive.
4. It will be expensive.
5. It’s aesthetics will be impeccable.
6. The influence of developers, even influential developers like you, will be minimal. The influence of customers and users will be held in even higher contempt.
7. The influence of fellow business artisans such as Larry Ellison (and even Larry’s nemesis, Bill Gates) will be significant, though secondary at best to Steve’s own muse.

But will it succeed?

Points 1-5 are spot on, although the notion of ‘expensive’ is relative – Apple’s products have historically cost more than many of their Windows-based counterparts, and have been worth every penny, in my opinion. When talking about costs there’s also a value equation to consider.

A few Apple milestones since 1997:

• iMac (1998) – Introduction of a redesigned and dramatically slimmed-down product line. This was Apple’s return to profitability.
• OS X (2001) – A complete migration from the old Motorola RISC-based Mac OS to a more powerful, stable and secure Unix-based operating system.
• Apple Retail Stores (2001) – Many predicted the retail ‘experiment’ would fail. As of May 2010 there are 287 stores around the world and it’s one of the most profitable retail operations in the world.
• iPod (2001) – Over 250 million iPods have been sold.
• iTunes Music Store (2003) – The first large-scale delivery of legal (paid) music downloads, and today the largest music retailer in the world. By early 2010 over ten billion songs had been downloaded.
• Transition to Intel architecture (2006) – No small feat to change the core CPU technology of a platform across a range of machines, get developers on board to re-engineer their applications for the new chip, and avoid the Osborne Effect on sales of the ‘old’ machines. This was a huge transition that set the stage for future growth of the company.
• iPhone (2007) – Revolutionized the cell phone industry, and set the precedent for taking control of handset quality away from carriers who aren’t any good at it. Now practically every mobile phone maker is building touch-screen devices with downloadable apps.
• iPhone SDK and App Store (2008) – Creation of a Software Development Kit that allows independent developers to build iPhone apps, and an online store for them to be distributed and sold.
• iPad (2010) – It remains to be seen whether the iPad represents another revolution in computing, but there are already strong signals that the tablet class of device is finding a market. One million iPads were sold in the first 28 days since its introduction.
• Stock trading as high as $270. As of March 2010, Apple’s market cap was $208 billion, making it the fourth-largest company in the US behind Exxon-Mobil, Microsoft and Walmart.

Apple stock in 2010

Whether you like Apple’s products or not, that’s a pretty impressive body of work in a little over a decade.

The Advantages of a Small Company

Small companies sometimes have an unlikely advantage over larger ones with more resources. The article “Why Big Companies Sometimes Lose Out to Startups“ spells out a few reasons why this happens. Sometimes the opportunity exists for smaller organizations to succeed because the “big guys” are:

• Busy protecting their turf — established companies with a big market share usually need to hang on to that position for their survival. Rather than innovating they worry about maintaining leadership status.
• Focusing on the short term — public companies are pressured to show performance every quarter to keep the stockholders happy. This short term view can prohibit them from taking risks or investing in new ideas that may not yield results right away. This is an open door for everyone else.
• Lacking entrepreneurial drive — if a market leader is protecting turf and focusing on short term results, they may not have the resources to commit to growing in new areas or moving quickly enough when new opportunities present themselves. In most big companies, new projects typically move slowly — a business case has to be made, executive sponsorship and funding secured, staffing pulled from other initiatives — this is where a smaller, more flexible team can move in and score some quick gains.