The technology world is locked in a battle to the death over the tablet market.
Microsoft, Amazon and Google have recently unleashed new tablets while Apple is expected soon to unveil an iPad mini. Google has even hawked its latest Nexus tablet on its front door formerly untainted by advertising.
The overriding idea behind all of these efforts is that tablets will become the dominant conduit for selling books, movies, music, magazine and other digital media. Once your average consumer buys a table, the theory goes, they become a captive customer for life. An ominous Middle Earth tone accompanies the news coverage.
“He who controls the hardware, controls the platform. He who controls the platform, wins the war,” wrote CNET.
Be not deceived by the one who calls himself Bezos. He drop-ships with the strength of ten men!
But victory may be Pyrrhic. When you think about it, what these companies are doing is racing to become the next Virgin Megastore.
That's a very different approach than in 2002 when Microsoft, Gateway, Acer and others failed to popularize tablets. Then, tablets were multifunctional productivity tools that allowed field employees and others to get away from keyboards.
Apple changed the game, realizing that consumers didn’t want to get more done. They just wanted to goof off more. Going after consumers is probably a better idea: keyboards are tough to replace at work. But as the Virgin example shows, it could become an unhappy ending for many because:
1. Cheaper, Better Hardware Will Be Unstoppable. Tablet manufacturers will find themselves mired in an endless game of one-upsmanship of features. Premier brands like those above will be continually harried by lower-cost specialists like HTC and others will relentlessly drive down prices. Hardware—it’s a vicious business.
If tablets become disposable, so does the customer relationship.
2. Customer Lock-In Is an Illusion. The business model hinges on the theory that consumers will stick with one brand year after year because they will fear losing access to their old media.
But will they really? No self-respecting gadget kook will refrain from upgrading to a 4K high-resolution 7.3-inch tablet with virtual bezel because it would mean not having immediate access to “Game of Thrones 1-4”. The old tablet will take up residence on a shelf next to the Signet Classic edition of “A Separate Peace.”
I mentioned this to a friend. He disagreed, but then admitted his family has two iPads, two Kindles and is looking at the latest Kindle. So much for loyalty.
3. The Customer Base Stinks. Who buys most books, one of the primary uses for tablets? Old people. Even worse, intellectual old people. No one ever confused a trip to a bookstore with a fashion show. This is my social set. I know of what I speak. They are cheap and particular and prefer old to new.
Prediction: heavy-duty book buyers will gravitate to specialty e-bookstores. Victorians will have their own sites. Fans of Herodotus will be able to go to a Classics section with comments from professors and anthropologists.
4. Books Aren’t Music. Songs take three to seven minutes to play, you can enjoy them as a background distraction while doing something else and, most importantly, you want to hear them again and again. A consumer can listen to the same song hundreds of time. A device that lets you carry a record collection makes perfect sense.
Books? They get read once. I loved “The Mayor of Casterbridge” but I don’t need to carry a copy. Subscription services and compulsive buying—the circumstances that helped make the iPod a hit-- remain a longshot.
5. Neither Are Movies. Netflix killed movie buying. Tablets will become a passive vehicle for other people’s services, the same way PCs from Packard Bell and Compaq became vehicles for eBay and Yahoo.
6. iTunes Was an Exception. iTunes represented the first mainstream way to download music legally. But media publishers have now embraced the digital age and all device makers will be able to sell the same exact titles as everyone else. Consequently, price competition will rule. This is one of the primary reasons Apple tried to fix prices with publishers. Now, the race is on to the Nice Price bin.
7. Amazon Isn’t a Bookstore. If retail is so bad, what about Amazon? It’s a good question. But look at Amazon’s history. It grew up in an era when books were still physical commodities. Amazon’s ability to marshal the logistics to serve millions of customers and juggle an ever-widening catalog was the secret to its success.
Amazon has also branched out. You can get a .50 caliber JT Splatmaster paintball shotgun for $39.99 on the same tab as “The Tale of the Genji,” Murasaki’s classic tale of romance and intrigue in 11th Century Japan. You aren’t going to see Apple do that.
So what happens in the end? Tablet makers will find themselves floating on a sea of sales elation from now through Christmas 2014. Amazon will see higher volumes of book sales, but at a lower per-unit price. Apple customers will stay Apple customers. Google defends its turf in advertising but since consumers will gravitate to Google anyway, the overall impact will always remain uncertain: did they really need to do hardware?
Then reality will begin to creep in. Triple-digit increases in sales will moderate and price competition will become more and more relentless. The same thing occurred in the late 90s with cheap PCs and in the early 2000s with LCD TVs, but margin compression might come sooner because of the lower price points. Some (Apple?) may make iconic items, but most will be stuck on the hamster wheel of product releases.
The consistent big winners will be the broadband carriers like Verizon, Comcast and AT&T. Connectivity has joined gas, electricity and water as the fourth utility. (Note to self: “The Fourth Utility” makes a great book title.).
Maybe this explains why Google is building high-speed broadband networks in Kansas City.
