Next-gen Apple TV: How integrated?

Recent speculation about the next-generation of Apple TV is making its way around the blogosphere. What Steve Jobs once called a hobby, Apple TV continues to be sold with little marketing support. The second-generation device reduced the size of the product dramatically, but it also made the hockey-puck-like appliance basically invisible. Sure, the on-screen interface is all Apple, but the company likes the whole experience to be about its design and execution. With Apple TV, the device is so small and naturally out of the way that the physical product and its brand isn't seen. With this version of the hardware, product placement, a favorite pastime of Apple marketing, can't happen.

So, with rumors about the next version of the device being built into a high-defintion panel, let's examine the pros and cons of three possible courses for this under-marketed product:

• Status quo: An updated, separate, plug-in box. The benefit of this approach is that the device is cheap. Apple TV can be had for just $99. This solution also doesn't compete with existing TV brands -- any modern TV can support an Apple TV box with just a standard set of plugs. Also, the device is basically like a screen-less iOS device, so the engineering is relatively simple. Drawbacks include a lack of brand on the attached TV panel, the fact that the product is hidden (no brand exposure on the physical device), and that the TV experience is not Apple from end-to-end. Apple never likes to cede experience, and in this world, old-school TV brands and cable/satellite set-tops are front-and-center with consumers (startup screen, main guide, settings, etc).
• The leading rumor: An integrated Apple TV device and panel. This idea allows Apple to deliver a full Apple experience, keep hardware and software combinations to a minimum (good for support), and to display an Apple brand on the physical device. The main problems are: 1) it will be expensive, as the large panel cost is part of the required investment; and 2) consumers might be wary of adopting a combined TV-computer solution (previous efforts of this have failed in the market, including Google TV).
• A new concept: A slide-in hardware box. We've haven't heard of this concept outside our own internal conversations, but it makes sense given that it builds off the successful iOS device accessories model. Essentially, a compatible TV panel would support an Apple designed interface, including a slot for physically attaching the new Apple TV box. For Apple, this means the brand would be front and center, but consumers wouldn't have to buy only Apple panels (just those that support the interface/slot). Importantly, initial acquisition cost would be low, as the expensive panel would be a separate purchase. Would panel makers bite? Some would, especially low-cost providers like Vizio. In time, just as the speaker manufacturers adopted iPod interfaces en masse, the panel makers would all come around if consumers embraced the approach.

That's fine, but, really, it's still -- and always has been -- about the content
No matter what the physical device looks like, certain issues with content will continue to hobble any Apple (or Android/Google) TV approach. Key issues include:

• Filling the gaps in critical programming. Content providers still are tied to cable and satellite providers, not offering their full-range of programs to consumers using any Net-connected device for a la carte pricing (content stores like iTunes or Amazon Prime don't count; e.g., you can buy the HBO series True Blood, but you can't subscribe to full HBO broadcast streams). What could solve this situation? Either CableCARD (independent set-top box hardware) finally takes off, which is unlikely, or renegade programmers begin to break their current deal mentality. Critically, live sports needs to be available. We have seen cracks emerging, as sport leagues offer limited video over alternative devices (e.g., MLB.TV and the NHL app), and cable companies themselves are streaming content to devices (e.g., the Xfinity iPad app).
• Settling the issue of competing interfaces. While Apple likes to deliver the whole experience in one device, users and customers of YouTube, Netflix, Hulu Plus, iTunes, Amazon Prime, and other services must navigate differing interfaces. For a full, next-generation TV experience, Apple will have to offer it all, or it will have to provide a shell for delivering content that preserves enough of third-party branding to appeal to those companies but not so much that consumers are confused with the interfaces and overall look-and-feel.

E-readers versus tablets: Pew data seems off, but the overall e-reading trend is what's important

I'm a big fan of the Pew Research Center, particularly the Internet & American Life Project surveys and reports, but I'm wondering about its most recent report about e-book readers. According to Pew, 12% of US adults now have an e-reader of some kind, such as Amazon's Kindle or the Nook from Barnes & Noble. In contrast, the organization says that tablet purchases -- think Apple's iPad -- have been relatively flat.

• E-reader growth: 6% to 12% of US adults from November 2010 to May 2011.
• Tablet growth: 5% to 8% in the same time period

Why the skepticism? The numbers just don't seem right. First of all, it's tough to get good numbers for the e-reader market, as the company that dominates, Amazon, refuses to divulge sales numbers (though it does say "Kindle is the bestselling e-reader in the world"). Second, almost all tablet sales are from Apple, and it reports strong growth. For example, reporting its results for the quarter that ended 12/25/10, the company said it had sold 7.3 million iPads. For the quarter that ended 3/26/11, the company reported selling 4.7 million iPads. While it looks like the drop was from lack of demand, it really had to do with the transition from the original product to the iPad2 and the inability to manufacture enough of the second-generation devices. Even with the hiccup, iPad sales should show greater consumer adoption in the Pew data.

For the e-reader market to verify and sustain the dramatic growth over tablets as seen in the Pew data, the only two viable candidates (Kindle and Nook) would have to sell way more devices than seem reasonable and the iPad would have to tank in sales. Yes, the price point for e-readers is much lower than tablets (think $130 versus $500), but estimates of sales of both devices don't seem to support the trend in the survey data. Some estimates of Kindle sales:

• 7.1 million Kindles in 2010 ... according to Barclays (via an All Things D article).
• 17.5 million Kindles in  2011 ... according to Citi Investment (via a TechCrunch article)

Compare that to estimates for iPad shipments:

• 32 million iPads for Apples 2011 fiscal year (9/10-9/11) ... from Needham (via this this Computerworld article)
• 14.4 million iPads in Q311 (calendar) ... from CLSA (via this Business Insider article)

Whatever numbers you believe, it doesn't make sense that e-readers have grown that much more than tablets in the time period reported by Pew ... or that the supposed trend will continue.

So what is the possible issue with the data? When asking about relatively new technology, survey questions can often be misinterpreted by consumers. I'd guess that (mostly) dedicated eReaders, such as the Kindle and Nook, and the e-reader capability of the iPad tablet is confusing to consumers. If, for example, a consumer uses iBooks on the iPad to read an eBook, will they answer the survey question about an e-reader accurately? Probably not.

All this may be moot in the end, as eBooks are taking off and the device will not matter so much in the future. Dedicated e-readers are adding a broader set of non-book functions, and tablets are likely to come down in weight, increase battery life, and drop in average selling price (ASP) price. In the end, the increasing popularity of reading electronic books is the key for authors and the publishing industry, not the type or brand of the device.

Window Phone 7 Series makes Microsoft look weak to some, but it shows strength

It's fascinating to look at the technology world and Microsoft's role in it through the lens of the battle for control of the smart phone market. This struggle illustrates both how Microsoft is trying to take a leadership position with aggressive new offerings (while breaking with many products and strategies of its past) and how far behind the company has fallen.

In this context (and in this market segment instance), Microsoft is like IBM in the 1980s and 90s -- an industry titan trying to regain relevance despite what once seemed like insurmountable technological, market, leadership, and financial advantages. IBM re-invented itself as a services giant. Microsoft may reinvent itself as a cutting-edge leader in smart phone technology (among other things).

If Microsoft's smart phone efforts turn out to be a powerful and alluring Phoenix rising from the ashes of Windows CE/Mobile, its success should be applauded and copied, like all good strategies. After all, this is the very path that has made Apple so successful.

Things look bleak for the underdog from Redmond ...
Microsoft is in the midst of rebooting its phone offerings with the Windows Phone 7 Series (WP7S) technology and brand (see the Windows Phone site here; the WP7S developer site here).

Looking at the main developer page of WP7S, someone who had been asleep for the last few years would be shocked at how the company has moved to a position of reacting to the market. Two items stand out:

• The WP7S phones seem a lot like Apple's iPhone. WP7S apps will be screened by Microsoft and the device itself will be loaded and synced using specialized PC software (relying on the Zune desktop program). The official ways to get apps will be through this method -- it's unclear if there will be "backdoor" to get apps on the phones (see this Engadget article for more details on the Marketplace and how the phones will operate). Will this result in blogger/commenter backlash due to inevitable app rejections/delays as Apple has been? Microsoft says the approval process will be much more transparent from Apple's, but a rejection is still a rejection. Will it result in the desire for a segment of users to "jailbreak" their WP7S phones? While the answers are not known yet, it looks like Microsoft is adopting many Apple strategies and will face many of the issues that its rival must deal with today.
  
• The social networking feeds highlighted are all non-Microsoft properties. On the main WP7S page, there are links (badges) to three social networking sites: Facebook, Twitter, and YouTube. Pragmatic? Absolutely. Does it say something about Microsoft's inability to dominate, or even have significant share of the social networking market? Yes. Hopefully, for Microsoft's sake, the success of the WP7S platform will be much better than its social networking efforts to date.

Love, hate, or feel ambivalent about the new user interface (UI) for WP7S phones and the hardware limitations (approved form factors), the new platform, with its abilities and limitations, demonstrates exactly how much Microsoft is following mindshare leaders like Apple and Google's Android. Despite limited numerical success in penetrating the smart phone market, Apple has forced nearly everyone to follow its lead. With better, second-generation Android phones, Google is now helping dictate the market's direction. Will the WP7S platform become a leader, too?

Microsoft may yet turn its phone platform misfortunes around, but it is clear that the company, once assumed to dominate smart phones with Windows CE/Mobile as it did with Windows on the desktop and server, is currently one of the weaker market players. That's great for the competition, but not so great for Microsoft. The company must rely on its own offerings to attract followers and deal with the impact of the wildly successful iTunes Store and the open allure of Google. That doesn't mean Microsoft is doomed, but it is not an envious position for a company that once seemed on the verge of dominating mobile experiences.

Add to this reactionary pattern in the phone market the continued need to move towards standards and standards-adhering offerings, and things look very tough for Microsoft in terms of control of their own destiny.

... but imitating the competition isn't lame -- it's smart business
Fanboys and girls of every company and brand like to point out their favored company/product is all about innovation, but there really isn't much in the tech world. Apple is usually held up as the poster child of new thinking, but the interface for the Mac was originally created by Xerox. Its iPod was a better digital player than many others that had been on the market for years. Even the iTunes software was not originally made by the company -- its core was bought from a small developer. How about the Sony PlayStation (PS1 and 2)? They were better, not totally new, consoles from what was on the market. Yes, the interface for WP7S phones is different compared to many of the iPhone-knockoff devices, but the text and hub strategy changes the phone's look and feel, not reinvents the smart phone experience (and its consumer appeal is far from known despite pro-WP7S bloggers and commenters).

Pure innovation is rarely the way to create great products. Something innovative takes years to achieve success simply because it is so radical. Usually, seeing what has worked and making it better leads to the best products. Only so many true innovations, like the original mouse, can claim to be amazingly special and to radically effect a huge chunk of the industry. The rest? Solid improvements and advancements. Evolution over revolution. Knocking Microsoft for WP7S looking like Apple offerings is silly. Criticizing the platform if it doesn't work or feel better is legitimate, but praising it for doing things right should trump any discussion about copying, reacting, or other negative comments.

Effectively starting over with WP7S looks like Microsoft weakness to some, but it is actually an excellent sign for the company and the market. Competition is good for buyers and users -- consumers and IT -- and good for competitors. Even Apple lovers should be happy for Android phones and the forthcoming WP7S products -- they will only make Apple engineers and marketers work harder to deliver better solutions.

A WP7S phone may or may not be for you, but everyone will benefit from Microsoft taking the leap.