Posted by: Peter Burrows on January 28, 2010
Okay, so Steve Jobs didn't save journalism as we know it when he launched the iPad on Jan. 27. The company unveiled no sweeping partnerships, and didn't introduce any new revolutionary-sounding business models.
But don't dismiss Apple's ability to help publishers just yet, with this intriguing new device. Let me be clear: I don't know for sure what Apple plans to do (who knows, maybe Apple doesn't either). But it seems to me Apple said enough for us to make some assumptions about general direction, that could bode well for print news organizations that want to create iPad versions of their publications.
So here are my predictions:
1. A More Hands-Off Approach: Apple could have announced an iNewstand (or somesuch name) wing of the iTunes store yesterday, along with the new iBook Store. But it didn't. Instead, it had the New York Times get up and show off an App it is building specifically for the iPad. So it's no leap to assume Apple plans to adopt the App Store model used by iPhone developers, which would give publishers far more control of their own businesses than music labels and Hollywood studios have had (and come March, book publishers). All of those media types are sold straight from the iTunes store, enabling Apple to set pricing, choose what promotions to run, and essentially own the relationship with the consumer. "It looks like Apple is not trying to position itself as a middleman [in the journalism business]," says a relieved Roger Fidler, program director for digital publishing at the Donald W. Reynolds Journalism Institute. “That opens up far more opportunities for newspapers."
2. A Rising Tide Of Apps, And Increasingly Lucrative Ones: If I'm right about this Apps-based approach, then of course there was little blockbuster news at the launch. Only a handful of developers had even seen the iPad before launch day. The situation isn't that different from what happened with the iPhone. When it was launched in 2007, there were zero apps--of course, since the App Store wasn't launched until a year later. But it didn't take long for the apps to begin piling up after that, to more than 130,000 today.
That's a tough act to follow. But if the iPad gets off to even a decent start, you can bet most major pubs will be creating iPad versions in short order. Their content will look great on that big screen, and will be more enjoyable to navigate using the multi-touch screen. And if they don't do an app, the only other way of reaching readers through the iPad is through its super-fast browser. That's not much help; it's just a more convenient way for readers to get to the free content that has undermined or at least complicated the viability of so many of their businesses in recent years.
Customers are more likely to pay at least something for an App--say, $9.99 a month for a monthly subscription (Amazon, for example, charges $13.99 for a month of the New York Times). They offer convenient one-click access, faster performance and can be useful even when there's no 3G service (not exactly an unknown occurence). As Apple rolls out new software tools, publishers should be able to spice up their iPad apps even more, to further differentiate them from websites. And once people get used to using a pub's App, they're less likely to spend as much time on the Web sipping articles for free via Google News or other aggregation sites. Which brings me to the topic of...
3. Advertising: As we reported in our cover story, Apple vs. Google, earlier this month, Apple plans to add technology to let publishers and other developers include new kinds of ads in their Apps--ones that are more fun, more useful, and possiby more targetted to your particular interests and location. For example, you might have a notification pushed to you that tickets for your favorite band have just gone on sale. Rather than be linked to Ticketmaster.com or the band's home-page, you could potentially be prompted to simply buy them through iTunes--to grab your seats before they sell out, using the credit card you (and 100 million other people) already have on file with Apple. That's just one of the ideas mobile ad experts have suggested to me. To the extent Apple succeeds with this plan, publications might even be able to take back some of the ad revenues they've lost to Google and others on the Net in recent years.
4. Apple Could Use Content As a Competitive Weapon Against Amazon, Google And Others: Let's face it, Apple can do just fine without putting the screws to its content partners. The company’s core business—selling computers and mobile devices—has never been healthier. On Jan. 25, the company announced a 32% increase in sales for its most recent quarter, with 41% gross margins that are the highest in any quarter in the company’s history, according to Piper Jaffray analyst Gene Munster.
That's not to say Steve Jobs is going to cut a cushy deal with anyone just because it can afford to. Fat chance. But he may choose to do this because it could give him an advantage over key rivals such as Amazon and Google. While he makes his money on the hardware, Amazon makes money by selling content--so would be less likely to willingly give up as much margin on newspaper and magazine sales as Apple. Google makes its money on advertising, so I wouldn't be surprised to see Apple offer better economics to publishers that use its ad-serving technology rather than Google's. After all, the iPad's success depends in large part on Apple's ability to get the most compelling Apps on the device. If making it worth Old Media's time to do so makes life more difficult for Amazon and Google, so much the better.
Posted by: Peter Burrows on January 28, 2010
I'll admit it: when Phil Schiller began demo-ing the new version of iWork at the iPad launch today, I began checking e-mail. Why would anyone want to do use spreadsheets or a word processing program on a device on such a device. That's what laptops are for.
But after the event was over, a number of analysts mentioned iWork as a critical differentiator. Given the lack of apps right out of the gate (that will take at least some time, regardless of how good the new SDK is), iWork would give people a reason to choose an iPad rather than a netbook.
I'm not so sure about that. If anything, it may eliminate a reason not to buy an iPad.
To me, iWork's importance would become clear if the iPad becomes a hit based on its strenghts as an entertainment and communication device. If that happens, millions of people who currently own Windows PCs and use Office would be exposed to iWork. And if they like it, the next time they went shopping for a PC they'd be more likely to buy a Mac.
But maybe I'm overthinking it. What do you think? Does the new, improved iWork for the iPad matter at all to you?
Posted by: Cliff Edwards on January 27, 2010
Does Apple's tablet computer, the newly announced iPad, live up to the
hype? There's no doubt Apple fans will flock to the device, with
its svelte build and 9.7-inch color screen. But Steve Jobs' confirmation of the long-rumored device was more striking for what wasn't announced than what was.
The iPad is designed to access the same applications available for
iPods and the iPhone on Apple's popular App Store. There's even
software that will automatically re-size existing applications for
better viewing on the larger screen.
But even Jobs, during his presentation in San Francisco, wondered
aloud whether Apple has what it takes to establish a third category of
products between smartphones and laptops. He says yes, but it's not that clear.
One reason is because there was no immediate word on any of the
rumored subscription content deals with Hollywood and other content
providers that might make the iPad a must-have gadget that moves beyond niche
markets such as education, health and graphics arts.
Much has been made about Apple's attempts to revive the markets for various forms of media, but little was said at the Apple event to clarify just how the iPad will do that.
Jobs' announcement of Apple's foray into the electronic book market also
left questions about the price of the books and whether consumers will
be able to seamlessly sync them among Apple devices.
The challenge for Apple is whether it can convince the millions of
consumers who already own an iPhone or iPod Touch, or are content with
their notebook computers, that it's worth shelling out at least
$499 -- the base price for six model categories -- for a larger
touch-screen machine. The iPad offers 10 hours of battery life even
when playing video, which should help. And the touch display helps distinguish the iPad from Apple's MacBook notebook computer lineup as well as Windows-based notebooks and netbooks.
Apple did strike what should be a consumer-pleasing deal with its
wireless carrier partner AT&T to offer two data plans, one for $14.99, the other for $29.99 unlimited monthly data. Combined with built-in Wi-Fi and free access to AT&T's national Wi-Fi hotspot network, the plans could make the iPad an all-around mobile device.
As expected, Apple announced it had struck deals with five of the major
book publishers to create its own store for downloading books in
electronic form. But many rival makers of mobile devices, including
Amazon's Kindle family and Sony's Reader ebooks, include mobile
broadband connections in the purchase price.
Early adopters enamored with all things Apple will flock to the iPad. But until Apple gets developers to create more iPad-specific applications that showcase the hardware, it may face the same mainstream consumer apathy that has plagued other tablet-specific devices created over the past decade by its rivals.
Posted by: Arik Hesseldahl on January 26, 2010
In case you've not seen them, this week the Doonesbury comic strip has been making light of the hype surrounding tomorrow's Apple event. Of course ace reporter Roland Hedley is on the scene, and as usual, charmingly confused by what's going on around him. Start here with Monday's strip , and then proceed to today's installment. On the eve of the debut of another Apple handheld product, it's worth remembering that a Doonesbury series in the 1990s went a long way toward killing the Apple Newton. Egg Freckles, anyone?
Posted by: Arik Hesseldahl on January 25, 2010
Apple's earnings conference call just ended, and as you've probably read by now, the results are impressive. A significant accounting change allowing Apple to book revenue sales of iPhones immediately instead of over two years sales as before. This propelled revenue to nearly $15.7 billion and a per-share profits to $3.67. Both numbers blew away the estimates of analysts. To give you a sense of proportion, consider this: Apple reported more revenue in the first quarter of 2010 than it did for the entire fiscal year in 2005.
To me the most notable number that emerged from the earnings report is Apple's total cash holdings: Having produced $5.8 billion in cash from operations, Apple finished the quarter with $39.8 billion in cash and short-term investments, or about $44 in cash per share. That figure is sure to re-ignite criticism that Apple may not be putting its considerable cash resources to the best possible use.
As usual Apple CFO Peter Oppenheimer said that the goal of Apple's cash management is "preservation of capital." Apple invests its cash in what Oppenheimer described as "short dated, high quality investments."
When it uses that cash it's usually for only two things: Buying small companies and locking up supplies of components. Apple has been a little more acquisitive in recent months. Apple recently bought the Web music service Lala, the wireless advertising concern Quattro Wireless, and location software company PlaceBase. These are textbook examples of the kind of acquisitions that Apple likes to do: Small companies run by smart people.
And that cash pile continues to serve as a strategic hedge for buying needed components that tend to suffer from occasional shortages. For instance, Apple spent $500 million each for long-term supply agreements on LCD display panels from LG and flash memory from Toshiba. Apple's large cash pile has served as a crucial strategic hedge against markets for important parts that sometimes run short as supply and demand fluctuates. Apple could reduce its cash considerably and still have plenty of money to hedge against future shortages. And when those shortages occur, Apple is assured of a steady supply. That's good thinking.
But both of those activities could be carried out largely with the cash generated from operations. The $5.8 billion generated this quarter is 61% more than the $3.6 billion generated from operations in the year-ago period. That amount is more than enough to fund any acquisitions that Apple may wish to do: $5.8 billion would buy 72 Lalas. (That's assuming the reports that Apple paid $80 million for it are correct. Apple has never confirmed the price it paid.) It's also enough to handle any supply shortages that may come up.
Over the years as this hoard has grown, creative ideas about what to do with it have been many. In the past I've suggested creating $1 billion venture capital fund, buying back the stock, while others have suggested returning to paying a dividend as Apple did between 1987 and 1995, or even a special one-time dividend like the one Microsoft paid in 2004.
There was during the conference call with analysts a brief suggestion by Oppenheimer that maybe it's time to consider doing something other than "preserve" that cash. Asked by UBS analyst Maynard Um about the exorbitant sum and Apple's plans for it, Oppenheimer said "I've told you our philosophy, and I have no changes to announce." But then he said something else: "Nothing is forever."
Nor should it be. The time has clearly come for Apple and its board of directors to take a long hard look at its cash position consider doing something more than just "preserving" it. Technically that money belongs to Apple's shareholders, who could certainly find better things to do with it were it returned to them in the form of a stock buyback or special dividend. And happy as they may be with Apple's stock price, it's time for Apple's shareholders to speak up on the matter.
