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September 26 2011

Amazon's "Prime" challenger to the iPad

Amazon Kindle logoIf you haven't noticed, creating and executing mobile platform plays is really hard. Just ask HP, RIM, Nokia and Microsoft.

Even Google's Android, which made it look easy to grab dominant market share in the smartphone market, is finding it much harder to secure a footprint in the tablet market, where, let's face it, there's iPad ... and iPad.

Enter Amazon, whose forthcoming Kindle Tablet represents the clearest alternative to Apple's iPad.

Securing the design win

I once co-founded a device management platform company in the embedded systems space (Rapid Logic) where we came to define three core precepts for succeeding in a platform-oriented business:

  1. Secure the design win.
  2. Grow the dollars associated with the runtime (via royalties or new product add-ons).
  3. Get the customer to want to embed themselves more deeply.

Flash forward to the present and we see a post-PC device market emerging that has revealed some interesting attributes.

For one, we see how the carrier-dependent mobile phone segment logically bifurcates between the Apple approach (vertical integration) and the Android approach (horizontal, loose coupling).

Why is this so? For the simple reason that for a large portion of the market, carrier "push" via phone pricing — plus a subsidy combined with a retail presence — dictates buying patterns every bit as much as product positioning and differentiation.

Most fundamentally, this is because regardless of whether the end phone is an iPhone or an Android phone, A) the buyer is already a mobile phone subscriber, and B) either phone represents a step up from traditional feature phones.

However, when we move into tablet-style devices, ebook and media device players, where the alternative is non-consumption (i.e., buying no device), it becomes clear that the breadth and depth of ecosystem orchestration that is required goes up materially.

This is why Android has not yet found a foothold in the tablet market (see also: Android's Missing Leg).

Cloud Street meets Main Street

Now, consider Amazon, the ecommerce company that many have officially anointed as this generation's Walmart (see chart below: Walmart, Amazon, Google and Apple head-to-head over the past 10 years).

Comparison of Apple, Amazon, Google, and Wal-Mart over a 10-year period
A comparison of Walmart, Amazon, Google and Apple from October, 2001 to August, 2011. See a larger version and read related analysis.

Amazon, in fact, just experienced its fastest revenue growth quarter in over a decade (up 51% versus the same period in 2010). It is unquestionably on a roll.

To establish the scale and market presence that Amazon has on "Cloud Street" in about one-third of the time it took for Walmart to dominate "Main Street" is nothing short of amazing.

Simply put, it's emblematic of a company whose ability to marry a clear, disciplined strategy with a pragmatic focus on tactical execution knows few bounds.

Kindle as an entry point for a new tablet design

Amazon's Kindle reading device has catapulted the company into a position where it's now selling more digital books than print books, all at a time when the physical bookstore is on its last legs (Borders is gone, Barnes & Noble is for sale).

Now, having proven that it can execute a hardware-software-service play vis-à-vis the Kindle, Amazon is expected to announce its first iPad competitor in a matter of days.

Such a device will build upon several "unfair advantages" that Amazon has established in the marketplace:

  • Ecommerce and marketplace logistics.
  • Digital media content acquisition, publishing and distribution.
  • Cloud computing platform know-how and a nascent ecosystem.

Just as Apple has leveraged its iTunes as the wedge upon which it established a billing relationship with 160 million users, Amazon has built a differentiated position of its own called Amazon Prime.

Amazon's "Prime Directive"

Amazon Prime illustrationReturning to the start of the article, remember the success mantra that I told you about for my company? You can apply the same logic when looking at how Amazon matches up to Apple.

Apple's initial innovation with iTunes was that it afforded consumers the ability to purchase music à la carte — one single at a time — when up until that point it could only be purchased in record or CD form. Coupled with a $0.99 per song pricing model and the unparalleled convenience of click-buy-play, this was a recipe to change the way that customers bought and experienced music.

Similarly, Amazon's initial innovation with Amazon.com was that it enabled people to discover, purchase and transparently receive a seemingly bottomless wellspring of books, where formerly you pretty much only got what was on the shelves in the bookstore.

Like Apple, Amazon used a disruptive pricing and logistics model to entice customers to change their buying behavior.

That Apple has expanded iTunes into an App Store (and iBooks) and a family of devices bound by a common software platform, and Amazon has expanded its catalog to products and services of all stripes (analog and digital), makes perfect sense in this context.

From the initial "design win" of music buying and book buying, both companies have grown the categories and aggregate dollars of their bases in ways that have made consumers want to be more deeply embedded in their relationships with Apple and Amazon.

The Amazon Prime product has cultivated a base of an estimated five million subscribers (from the company's aggregate base of 120 million customers) that, in exchange for an annual $79 fee, provides expedited shipping on many products.

Why is this a big deal? The friction-free model is enticing some customers to use Amazon for product purchases (e.g., bulk goods, toiletries) that historically have been the parlance of the local Walgreens or Costco.

So, if MG Siegler of TechCrunch is correct in his excellent scoop on Amazon's Kindle Tablet, then Amazon will be bundling Amazon Prime with its forthcoming 7-inch tablet device and pricing the device at a disruptively low price point of $250 — about half the cost of an entry-level iPad.

If you create a superset between Kindle buyers and Prime subscribers, a logical early-adopter user base emerges for Amazon to target for its iPad alternative (in terms of price, footprint and aggregate value proposition).

Plus, from a strategic leverage perspective, it makes total sense. Amazon, after all, is first and foremost a great retailer.

Add on to this value proposition the fact that Amazon has surrounded its Prime offering with an ever-growing free library of bundled video content (i.e., a poor man's Netflix streaming service), and the Kindle Tablet starts to feel like a lifestyle device that can succeed over the long haul.

After all, media is a big differentiator on this type of device. And in terms of sheer economics, there are a lot of people these days for whom a bundled video service with a pay-as-you-go library of premium music, books, video and app offerings feels right at $250.

No less, if we know anything about Amazon, it is that it, like Apple, has the fortitude, focus and sense of purpose to see big ideas through to long-term success.

Amazon, after all, wants to be the only shopping cart you'll ever need, and this becomes another channel back to the consumer.

Plus, from an average revenue per user perspective (ARPU), you can probably subsidize the device a bit more with the Prime subscriber, knowing that Prime customers are already paying $79 a year and are faithful, dedicated, recurrent commerce customers.

Some final thoughts:

Just because Amazon has a logical path to finding a "wedge" in the tablet computing market doesn't mean that it will. There are hard strategic decisions about how to fork Android and how that ties in with Amazon's Appstore strategy, including approaches to competing services (e.g., will Amazon allow Nook or iBooks to be installed?).

Moreover, is Amazon prepared to develop and support a software developer's kit (SDK) and get sucked into a developer tools arms race with Apple?

Similarly, how does Amazon Web Services and Amazon's cloud platform fold into the equation?

Like I said at the start, mobile platforms are really hard to create and execute, but if anyone is in a position to do just that, it's Amazon.

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August 25 2011

Ruminations on the legacy of Steve Jobs

Steve Jobs"It's better to die on your feet than to live on your knees." — Neil Young

"That day has come." Four simple words that signaled that Steve Jobs felt compelled to step down as CEO of Apple, the company he founded, then lost, then saw ridiculed and written off, only to lead its rebirth and rise to new heights.

It's an incredible story of prevailing (read: dominating) over seemingly insurmountable odds. A story that has no peer in technology, or any other industry, for that matter.

That is why even though this moment was long anticipated, and while I know that Steve isn't gone (and hopefully won't be anytime soon), yesterday's announcement nonetheless feels like a "Kennedy" or "Lennon" moment, where you'll remember "where you were when ..."

I say this having seen first-hand the genuine, profound sadness of multitudes of people, both online and on the street, most who (obviously) have never met the man.

Why is this? I think that we all recognize greatness, and appreciate the focus, care, creativity, and original vision that it takes to achieve it.

The realization that one man sits at the junction point of cataclysmic disruptions in personal computing (Apple II/Mac), music (iPod + iTunes), mobile computing (iPhone + iOS), movies (Pixar) and post-PC computing (iPad) is breath taking in its majesty. A legacy with no equal.

The intersection of technology and liberal arts

Apple Store in New York CityIn an era where entrepreneurialism is too often defined by incrementalism and pursuit of the exit strategy, Jobs' Apple was always defined by true husbandry of a vision, and the long, often thankless, pursuit of excellence and customer delight that goes with it.

Ironically, though, Jobs' greatest innovation may actually be as basic as "bringing humanity back into the center of the ring," to borrow a phrase from Joe Strummer of the seminal rock band, The Clash.

Consider Jobs' own words at the launch of the iPad back in January, 2010:

The reason we've been able to create products like this is because we've tried to be at the intersection of technology and liberal arts. We make things that are easy to use, fun to use — they really fit the users.

If this seems intuitive, and it should be, consider the modus operandi that preceded it. Before Apple, the hard truth was that the "inmates ran the asylum," in that products were typically designed by engineers to satisfy their own needs, as opposed to those of the actual consumers of the products.

Moreover, products were designed and marketed according to their "speeds and feeds," checklists of attributes over well-chiseled, highly-crafted outcomes. And it didn't really matter if at each step along the value chain the consumer was disrespected and disregarded.

Ponder for a moment the predecessor to the Apple Store, CompUSA, and what that experience was like versus the new bar for customer service being set by Apple.

Or, think about the constraints on enjoying music and other media before the iPod, or the pathetic state of mobile phones before the iPhone.

Skeptics and haters alike can credibly say that Apple did not create these categories, but recognize that it took a visionary like Steve Jobs to build a new technology value chain around the consumer and make it actually work. To give birth to an entirely new platform play. To free the user from the hard boundaries of WIMP computing. To bring design and user interaction models into the modern age. And to magically collapse the once-impenetrable boundaries between computing, communications, media, Internet, and gaming.

Even today, the legacy MP3 device category is utterly dominated by Apple's iPod, despite every would-be competitor knowing exactly what Apple's strategy is in this domain.

To do this in segment after segment, launch after launch, takes true conviction and a bit of chutzpah. But then again, Apple, under Jobs, has never been a company that embraced or felt beholden to conventional wisdom (see "Apple's segmentation strategy, and the folly of conventional wisdom").

iPad as the signature moment in a brilliant career

iPad 2Time and again, investors, competitors and industry pundits have dismissed Apple, most recently when the company launched the iPad. Then, the conventional wisdom was that Apple "blew it" or that it was "just a big iPod Touch," nothing landmark.

Truth be told, such dismissals are probably the barometer by which Steve Jobs knows that he's played the winning hand.

I wrote in 2010, in anticipation of the iPad launch:

The best way to think about the iPad is as the device that inspired Steve Jobs to create the iPhone and the iPod Touch. It's the vaunted 3.0 vision of a 1.0 deliverable that began its public life when the first generation of iPhone launched only two-and-a-half years ago ... it is a product that is deeply personal to Steve Jobs, and I believe the final signature on an amazing career. I expect the product to deliver.

Well, it did deliver, and 30 million iPads later, the ascent of post-PC computing seems irrevocable as a result.

The moral of the story in considering the wonder and beauty of Steven P. Jobs, thus, is two-fold.

One is that most companies wouldn't even have chanced cannibalizing a cash cow product like the iPod Touch (or the iPhone) to create a new product in an unproven category like tablet devices.

Not Apple, where sacred cows are ground up and served for lunch as standard operating procedure.

Two is that the mastery required to create a wholly new category of device that could be dismissed as "just a big iPod Touch" takes a very rare bird. Namely, one that pursues non-linear strategies requiring high leverage, deep integration and even higher orchestration.

.

Exactly the type of complexity that only Jobs and company could make look ridiculously, deceptively simple.

In his honor, may we all be willing to "Think Different" in the days, weeks and months ahead. That's the best way to pay tribute to a legacy that will stand the test of time.

Apple Store and Steve Jobs photos from Apple Press Info.



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July 20 2011

Smartphones and spheres of influence

This is part of an ongoing series suggesting ways to spark mobile disruption. We'll be featuring additional material in the weeks ahead.


Though the mobile space is rapidly expanding, some may argue that the space just isn't disruptive enough. In the spirit of disruption, I've reached out to several people across the tech and publishing industries to answer one question:

If you were going to build an app that fully harnessed mobile's capabilities, what would it do and how would it work?

I recently posed this question to Tyler Bell (@twbell), director of product at Factual. His answer follows.

TylerBell.jpg Tyler Bell: I'm keenly interested in the idea of the phone as a universal telefactor-cum-sensor platform. To effect something you must know its status, so I would note that this would entail it's being a universal monitor also. I'm not certain I could choose a single app to develop, but I would be most interested in accelerating the phone's development in several ways:

  • As a universal interface — Moving us away from proprietary devices and a multiplicity of interfaces. I would first include obvious next-steps like house and car security and automation. Generally these devices will go hand-in-hand with monitoring tasks — energy consumption, charge levels, and security status are all base-level statuses that can be monitored and effected from a single device.
  • As a sensor suite — Phones now are packed with devices that can create data from the world around us. It gets most interesting when their use deviates from their original intention. For example, the camera has migrated from a novelty to become an input device, the microphone and accelerometer — my favorite sensor; everyone has one, surely — are used to determine proximity, and the Wi-Fi chip is used to aid in location determination. I'd like to see the phone continue on a similar trajectory, especially with regard to personal health monitoring.
  • As a swarm — Phones are still built around one-to-one thinking. Sensors and collective inputs are more valuable when part of a massive collective. I would expect that this hypothetical app would ensure that my phone worked together with millions of others, reporting data on civic infrastructure, the weather, traffic, and other aspects of our shared existence.
  • As an agent — The phone remains a synchronous device, though push-based mechanisms have begun to move us away from this as the norm. I would expect my preferred app to become more autonomous, "spinning up" agents to satisfy my requests and reporting back when complete.

Phones allow us to expand our influence to other things, people, and places. Any app that facilitates and enriches such interaction can only be a good thing.

This interview was edited and condensed.

Android Open, being held October 9-11 in San Francisco, is a big-tent meeting ground for app and game developers, carriers, chip manufacturers, content creators, OEMs, researchers, entrepreneurs, VCs, and business leaders.

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  • July 12 2011

    Is the enterprise dead as a tablet strategy?

    In "HP's Tortured WebOS Positioning," Jean-Louis Gassée makes the assertion that the consumerization of IT renders the "enterprise-only" pivot null and void.

    I disagree, but first some clarity for those who aren't familiar with the term "consumerization of IT."

    When the enterprise lost its mojo

    Once upon a time, large enterprises (think: Fortune 2000 companies) were widely perceived to be the ideal customer, owing to their large size, well-defined and massive IT budgets, wide range of solution needs, and target-ability from a sales perspective.

    All sorts of hardware, software, hosted services and consulting services companies — not to mention a significant chunk of the venture capital industry — fed off of this massive ecosystem, the impact of which meant that innovation began in the enterprise, and then trickled down to the consumer.

    However, when the dotcom bubble blew up at the end of 2000, coinciding with the end of the over-hyped Y2K project "pig trough," enterprises lost the impetus to spend aggressively on IT.

    In parallel, they began to (rightly) question the return on investment for the many projects they had funded. In broad terms, this led to a reclassification of IT from being a strategic asset, and core differentiator, to being a liability, and a necessary evil.

    Basically, the CFO trumped the CIO going forward.

    The neutering of the enterprise from an IT perspective coincided almost perfectly with the second coming of a consumer-focused Apple (which frankly, has never grokked the enterprise).

    Now suddenly innovation began originating in the consumer realm, and then trickling to the enterprise after it was proven to be a safe investment.

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    Is the enterprise dead as a player in tablet devices?

    Call me naive, but speaking from the perspective of an iOS developer (and someone who used to sell a bunch of hardware and software solutions to enterprises), I think an opportunity exists for some tablet maker to penetrate the enterprise.

    Why? Apple's model of controlling both the value-add hardware channel and the software distribution channel is a decided anathema to enterprises, which typically prefer working with and through VAR channels (i.e., Value-Added Resellers) and System Integrators (SI).

    Similarly to VARs and SIs, the Apple model heavily complicates the types of solutions that vendors can provide, the pricing that vendors can achieve, the ability to not broadcast key customers to competitors, and the like.

    And don't even get me started on Android as an alternative. Here, Google's focus on free, loosely-coupled, "good enough" and ad-supported is a distinctly different set of sales and support assumptions than the enterprise, which is all about high-touch, custom and deeply integrated, has come to expect.

    Thus, in the bigger picture the open questions are two-fold. One, is whether there exists a vendor in the tablet space other than Apple that is going to properly set and meet market expectations, as opposed to perennially over-promising, and under-delivering.

    This, of course, requires an actual product discipline, inclusive of coherent evangelism, a clear roadmap and release strategy, and a culture of focused execution and iteration — especially on the software side of the equation.

    Here, the litmus test is actually kind of easy. Until one of these manufacturers stops talking about Adobe's Flash as a feature (versus a bug, until it works caveat-free); or touting Snapdragon processors and their clock speeds (customers buy outcomes, not attributes), Apple is going to remain the only credible player in tablets.

    There is just too much of a halo effect working to Apple's advantage, and the company has high execution credibility in this domain.

    By contrast, RIM, the long-time enterprise leader of mobile devices, has clearly (so far) screwed the pooch with their confused PlayBook strategy. And Gassée's piece covers HP's early tablet missteps.

    Attacking undefended hills

    HP, IBM, Oracle and Microsoft all have logical entry points, from a solutions perspective, into the enterprise via tablet computing. But they must get focus and religion on attacking the "undefended hill" (to use an HP axiom) that is the enterprise tablet.

    Simply put, no one is credibly focusing on this customer and its surrounding eco-channel.

    Which brings me to the second question: Does there exist even one enterprise with sufficient vision to be "greedy" from an investment and innovation perspective while every one of their peers is acting scared (to use a Warren Buffett axiom)?

    After all, it only take one serious proof point to ignite a market, and if HP, et al are really serious, proving out the enterprise should be a core focus.

    Netting it out: It's too early to proclaim game over when the stakes are measured in the billions of devices, the budgets are measured in the billions of dollars, and a sleeping gorilla lies naked, unfed and uncared for in the enterprise.


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