The iPad’s New Strategy

March 15th, 2010

Since Apple released the iPod, mobile has been an important part of Apple’s business. The iPhone, for perspective, accounted for a third of Apple’s revenue in the first quarter of 2010. While mobile devices have played an increasingly important role in Apple’s business, the Mac was still integral to it all. The iPod and iPhone are all “satellite” devices–that is, they rely on Macs (or PCs) to sync content to them. The Mac is the hub.

The iPad changes that.

Apple’s Hub Strategy

At Macworld in 2001, Steve Jobs announced a new strategy for the Mac. Jobs saw the Mac as the hub for people’s “digital lifestyle”–their music, video, movies, and personal data. The Mac would work with their MP3 players, digital cameras, video cameras, PDAs, and phones, and make each of these devices more powerful than they are on their own.

This strategy defined Apple’s products for the entire decade. Apple developed iLife, which allowed users to manage their photo and music libraries, edit video, burn DVDs, and even create music. They created the iPod, so users could listen to their music while away from the desktop.

This treats all mobile devices as “satellite” devices. They have defined functionality (e.g., they take photos, or play music), and that’s it. They depend upon the Mac for syncing media, buying new music, and turning photos or video taken into a usable product. They depend upon the Mac.

The iPhone still followed this strategy, even with its wide range of functionality. The iPhone depends on the Mac in that the iPhone is primarily a consumption device. Users listen to music, watch movies, browse the web, read and make short replies to email, and almost anything else you can think of. But for any kind of work (creating rather than consuming), a Mac is still required because of the iPhone’s small size.

The iPhone pushed the definition of “satellite device,” but it was much closer on the continuum of “satellite” and “standalone” to the iPod than the Mac.

The same isn’t true for the iPad.

iPad Will Stand Alone

This seems a little hard to believe considering at present, the iPad still relies on the Mac to sync media and update its operating system.1

The correct criterion for deciding whether it is standalone or not, though, isn’t whether it will need to be plugged in to a Mac or not at some point; it’s how the device can be used. The iPhone, whether they want to or not, cannot be used by even basic users for serious productivity work. The screen is simply too small to do more than minor editing on documents, spreadsheets or presentations.

The iPad doesn’t have this limitation. For most users, the iPad more than fills their needs. It browses the web as well as the desktop, it plays music and movies (and users can purchase more), it plays games, it has the power to edit photos (and I suspect we’ll see an application for this soon), it has excellent address book and calendar applications, it has iWork, and it has the App Store.

Users can do all of these things without ever connecting the iPad to a desktop. For most users, this functionality is more than sufficient. They will rarely need to use a desktop computer. For them, the iPad can replace the desktop.

The iPad, even more powerfully, is better than a desktop or notebook in many ways. The iPad is a much more elegant device to browse the web on, watch video, or read a book or article. It replaces the desktop for a basic user’s productivity needs, and allows them to do many additional things that a desktop or notebook isn’t very good at.

Mobile Company

There currently are limitations, of course. Users cannot edit photos on the device, for example. But these limitations are, for most users, not inherent limitations of the device (due to its screen size and input mechanism), but rather software limitations that can be fixed.

The iPad introduction in January made clear that Apple intends the device to be seen much more as a standalone device. Before unveiling the iPad, Jobs declared Apple the “biggest” mobile devices company in the world. The iPad demo spent a large amount of time showing iWork in action on the iPad, and their goal was obvious: to show that serious work is not only possible, but easy, on the iPad. Then, after the demo, Jobs encouraged Walt Mossberg to write his iPad review on the device itself.

Apple is, if anything, a strategy-driven company, and chooses its marketing messages very carefully. These aren’t things a company says of a dependent device.

After Apple announced the iPhone 3G, I wrote:

I think what this means is Apple not only still believes in software-hardware integration, and selling devices with high-profit margins, but that Apple’s long-term strategy is to dominate the post-PC market. The “post-PC” is a mobile device that, in Apple’s vision, complements a desktop PC, and is specific in function.

The iPad and iPhone are the first two devices of Apple’s strategy for the next decade–building post-PC devices. Apple knows the PC has peaked; they can’t gain new customers from market growth (they can only gain customers by taking them from their competitors), and the PC’s basic use won’t change. We will still require the desktop for serious work (heavy video and photo editing, for example), but the PC market has reached its apogee. It’s a staid market, both in growth and innovation potential.

We are using the desktop for less as time passes, and are increasingly using mobile devices. Apple recognizes this. The future, as they see it, is mobile devices–the phone, and now the tablet. Apple’s goal is to control this market.

Their pricing strategy for the iPhone and iPad make this clear. Apple’s goal with the Mac isn’t to control a large share of the PC market; if it happens, great, but their goal is to make strong profit from a small percentage of the market. The iPhone, however, was aggressively priced since fall 2007, and especially since summer 2008 with the release of the iPhone 3G2. The iPad has a very low price-point, too, starting at just $499.

Apple is seeking to define these new devices for the future, if not to dominate the market. The former is the most important to them, because a controlling proportion of the market alone isn’t an end–it doesn’t do anything for Apple (and, in some ways, is harmful). What’s important is that these devices, the future of computers, are molded in Apple’s image. This allows them to innovate and create new devices in the future without constraints. Unlike in the PC market, they define the terms.

The importance of defining these devices is already apparent with the smart phone. Just three years after Apple announced the iPhone, nearly all new smart phones are molded around a large touch screen, browse the web, play media, and have an application store. Apple has defined what the smart phone is, and now every other maker has to base their devices on the iPhone. They can try to improve on it, but to do anything inherently different than the basic iPhone model is suicide.

That’s an incredibly good position to be in. Because the market responds to Apple, rather than vice versa, Apple is free to re-define it as they please. Apple, then, is positioned to be the post-PC’s main innovator, the company that will continually re-think it and push the devices forward. As a result, if Apple’s changes are good ones, they can be the sole recipients of the higher profit margins innovating companies can charge before their competitors catch up.

There’s good reason for Apple switching to mobile devices as their primary source of growth. The PC market is a dead-end for the future. Apple will continue to see growth in this market, due to PC users switching to the Mac, but it cannot be their primary means of company growth, because growth potential is limited. Moreover, the developing world isn’t as interested in PCs–they’re buying mobile devices. They’re cheaper and more useful. So mobile devices have the greatest potential for growth, because the market for them both in the developed and developing world aren’t saturated.

Apple is positioning itself for the future, which is coming quickly. We will still use desktops, but only for specific tasks, like editing video, but for everything else–browsing the web, reading, consuming media, the things we do all of the time–we’ll use a mobile device, because they’re much better at doing these things than a computer.

The iPad, then, isn’t just a big iPhone. It’s a new way of computing, one that will enable new applications of computers we haven’t seen, and that could become even more ubiquitous than the PC is today. In a few years, we might not be able to go to the doctor’s office, school, or coffee shop without seeing one.

Or at least that’s what Apple is betting.

  1. I think this will change rather quickly. Using home sharing, the iPad (and iPhone) could update their media libraries whenever the host Mac gets new media, and vice versa. With this arrangement, the iPad wouldn’t be any more of a satellite device than the Mac itself would be. []
  2. Interestingly, when Apple first released the iPhone, they seemed to be using the same strategy as the Mac: sell less, but make more through a higher profit margin. This changed in September 2007, when Apple dropped the 8GB model to $399, and changed even more dramatically with the iPhone 3G, which launched at $199. []