Apple unveils the iPad

Steve Jobs and the iPad of hope

Apple's innovation machine churns out another game-changing device

Jan 27th 2010 | SAN FRANCISCO | From The Economist print edition

EPA

“HEROES and heroics” is one of the central themes of the current season at the Yerba Buena Centre for the Arts in San Francisco, which prides itself on showcasing contemporary artists who challenge conventional ways of doing things. On Wednesday January 27th the centre played host to one of the heroes of the computing industry: Steve Jobs, the boss of Apple, who launched the company’s latest creation, the iPad. Mr Jobs also has a record of showcasing the unconventional. He did not disappoint.

The iPad, which looks like an oversized Apple iPhone and boasts a ten-inch (25cm) colour screen, promises to change the landscape of the computing world. It is just half an inch thick and weighs 1.5 pounds (680 grams). “It’s so much more intimate than a laptop, and it’s so much more capable than a smartphone,” Mr Jobs said of the device, which will be available in late March. With a host of other touchscreen “tablet” computers that are expected to reach shops over the next year or so, it could also revolutionise the way in which digital media are consumed in homes, schools and offices. The flood of devices is likely to have a profound impact on parts of the media business that are already being turned upside-down by the internet.

The move from print to digital has not been easy for newspaper or magazine publishers. Readers have proved reluctant to pay for content on the web. Companies are unwilling to pay as much for online advertisements as paper ones—hardly surprising, given the amount of space on offer. The iPad will probably accelerate the shift away from printed matter towards digital content, which could worsen the industry’s pain in the short term. Yet publishers hope that tablets will turn out to be the 21st-century equivalent of the printed page, offering them compelling new ways to present their content and to charge for it. “This is really a chance for publishers to seize on a second life,” says Phil Asmundson of Deloitte, a consultancy.

It does not come as a surprise, then, that Apple has already attracted some blue-chip media brands to the iPad’s platform. During his presentation Mr Jobs revealed that the company had struck deals with leading publishers, such as Penguin and Simon & Schuster. They will provide books for the iPad, to be found and paid for in Apple’s new iBooks online store. The iPad will carry electronic versions of newspapers such as the New York Times, which presented an application at the launch. More agreements ought to be signed before the first iPads are shipped in March.

Apple’s media partners no doubt have mixed feelings about dealing with Mr Jobs. Apple is now widely demonised in the music business for dominating the digital downloading business with its iTunes store. The firm has been able to control the price of music, boosting sales of iPods but not bringing the record companies a great deal of money. That said, Apple did provide a way for the music business to make a profit online, which had hitherto eluded it. Apple’s sleek iPhone has also given plenty of content producers a platform on which they can charge for their wares.

The firm’s record suggests that it will be able to make one of the computing industry’s most fervent wishes come true. Technology companies have repeatedly tried to make a success of tablets or similar devices. But the zone between laptops and mobile phones has been something of a Bermuda Triangle for device-makers, points out Roger Kay of Endpoint Technologies, a consultancy. “Products launched in there have usually disappeared from the radar screen,” he says.

Among them are previous generations of tablet-style computers. In the 1990s various companies experimented with the machines, including Apple. When its Newton personal digital assistant failed to take off, Mr Jobs killed the project. Tablets were once again briefly in the limelight when Microsoft’s Bill Gates predicted they would soon become people’s primary computing device—powered, of course, by his company’s software. That did not come to pass because consumers were put off by tablets’ high prices, clunky user interfaces and limited capabilities. Instead the devices, which cost almost as much as proper PCs, have remained a niche product used primarily in industries such as health care and construction.

Why are tablets causing so much excitement now? One reason is that innovations in display, battery and microprocessing technologies have slashed their cost. Apple’s iPad is priced at between $499 for the basic version and $829 for one with lots of memory and a wireless connection, bringing it within the reach of ordinary consumers. Another reason for optimism is that interfaces have greatly improved. The iPad boasts a big virtual keyboard, which pops up when needed. It also features multi-touch, meaning for instance that two fingers can be used to change the size of a photo. Furthermore, tablets will benefit from the fact that people have become used to buying and consuming content in digital form.

All this explains why other firms are eyeing the tablet market too. Dozens of prototypes were on show at a consumer-electronics trade fair in Las Vegas earlier this month, including ones from Motorola, Lenovo and Dell. Jen-Hsun Huang, the chief executive of NVIDIA, a maker of graphics chips, reckons this is the first time he has seen telecoms firms, computer-makers and consumer-electronics companies all equally keen to produce the same product. “The tablet is the first truly convergent electronic device,” he says.

That is why the iPad and other tablets could shake up the computing scene. There has been some speculation that they could dent sales of low-end PCs, including Apple’s MacBook. But a more likely scenario is that they eat into sales of netbooks, which are essentially cheap mini-laptops used mainly for web surfing and watching videos. The netbook market has been on a roll recently, with global sales rising by 72% to $11.4 billion last year according to DisplaySearch, a market research company. That makes it a tempting target.

The iPad also poses a threat to dedicated e-readers such as Amazon’s Kindle, though these will probably remain popular with the most voracious bookworms. Apple’s long-expected entry into the tablet market has already forced e-reader firms to consider making their devices more versatile and exciting. “You will see more readers using colour and video over the next five years,” predicts Richard Archuleta of Plastic Logic, which produces the Que proReader. And more makers of e-reader may mimic Amazon’s recent decision to let third-party developers create software for its line of Kindles.

The gospel of Steve

Book publishers are quietly hoping that Apple’s entry into e-books will help to reduce the clout of Amazon: the Kindle has a 60% share of the e-reader market, according to Forrester, a research firm. They are also excited by the opportunities that tablets offer to combine various media. Bradley Inman, the boss of Vook, a firm that mixes texts with video and links to people’s social networks, believes the iPad will trigger an outpouring of creativity. “Its impact will be the equivalent of adding sound to movies or colour to TV,” he says.

Newspaper and magazine publishers are also thrilled by tablets’ potential. Their big hope is that the devices will allow them to generate revenues both from readers and advertisers. People have proven willing to pay for long-form journalism on e-readers. But these devices do not allow publishers to present their content in creative ways and most cannot carry advertisements. Skiff, a start-up spun out of Hearst, is a rare exception to this rule. Its 11.5-inch reader is large enough to show off all elements of a magazine’s design and accommodates advertising too.

Apple’s arrival in the tablet market also means that publishers will have to develop digital content for these devices, as well as for e-readers and smart-phones. Many will prove unable or unwilling to do so. That may boost firms such as Zinio, which has developed a digital-publishing model called Unity. This takes publications’ content, repurposes it for different gadgets and stores it in “the cloud”, the term used to describe giant pools of shared data-processing capacity. Users pay once for the content and can access it on various Zinio-enabled devices, increasing the chances that it will be consumed.

It makes money, too

Apple has other ambitions for the iPad. It hopes it will become a popular gaming machine and has designed the device so that many of the games among the 140,000 apps available for other Apple products will run on it straight away. The company has also revamped its iWork suite of word-processing, spreadsheet and presentation software for the iPad in an effort to ensure that the new device will catch on with business folk.

Apple’s shareholders are also hoping that the iPad will live up to its billing as a seminal device in the history of computing. They have seen the company’s share price soar. Defying the recession, on January 25th Apple announced the best quarterly results in its 34-year history with revenues rising to $15.7 billion and profits to $3.4 billion—an increase of 32% and 49% respectively over the previous year. They will be keeping their fingers crossed that the iPad turns into another billon-dollar hit rather than a flop like Apple TV. Whether or not that turns out to be the case, Mr Jobs has already proven heroic enough to merit a portrait on the Yerba Buena Center’s walls.
JANUARY 26, 2010

Apple Tablet Portends Rewrite for Publishers

By JEFFREY A. TRACHTENBERG

Book publishers were locked in 11th-hour negotiations with Apple Inc. that could rewrite the industry's revenue model after the technology giant unveils its highly anticipated tablet device Wednesday.

Apple's new multimedia tablet device, with a 10-inch touch screen that is expected to deliver video, text, navigation and social-networking applications, is trying to change the way much of traditional media is delivered.

For the book industry, the Apple tablet is bringing to a head a brewing battle between Apple and industry heavyweight Amazon.com Inc. over how e-books—seen as the future of the book industry—will be priced and distributed. The version of Adobe Flash Player required to view this interactive has not been found.

To enjoy our complete interactive experience, please download a free copy of the latest version of Adobe Flash Player here.Apple has approached publishers with an offer to set their own book pricing, a policy that counters that set by Amazon's Kindle, Jeffrey Trachtenberg reports.

More on the Apple Tablet

Apple's business model for books, which the company has kept under tight wraps, shifts the focus away from the bargain-basement prices Amazon has made popular, according to publishers that have met directly with the company. Apple is asking publishers to set two e-book price points for hardcover best sellers: $12.99 and $14.99, with fewer titles offered at $9.99. In setting their own e-book prices, publishers would avoid the threat of heavy discounting. Apple would take a 30% cut of the book price, with publishers receiving the remaining 70%.

Apple's vision is at odds with Amazon.com, which has shaken the book industry by slashing prices of e-books on its Kindle reader and making the $9.99 e-book bestseller a fixture.

The Apple tablet aims to reshape many corners of the media industry, just as Apple's iPod revolutionized the music business when it made its debut in 2001. Apple has been in discussions with television networks, magazines and videogame publishers about featuring their wares on the device. On the eve of the launch, it wasn't clear to some people briefed on the matter whether Apple had made a final decision about wireless connectivity or the carriers involved.

Many television networks remained skeptical of Apple's proposal to sell a "best of TV" subscription service under which customers would pay a monthly fee for access to programs. The networks are concerned about disrupting their relationships with cable and satellite-TV companies, which pay billions of dollars in annual fees to the networks.

Among major publishers, News Corp.'s HarperCollins Publishers was in serious negotiations with Apple late on Tuesday to appear in the starting lineup for the tablet, set to be unveiled at a news conference in San Francisco Wednesday morning. News Corp. also owns The Wall Street Journal.

In the newspaper and magazine industry, several executives were in the dark about how their content would be distributed and priced. Without much detail, some publishers have been readying electronic editions that could be adapted for the tablet.

Many media executives said they expected to get more clarity in meetings with Apple executives after Wednesday's presentation. While some of the largest publishers may not be up on stage Wednesday, their books could appear on the device when it is shipped in March.

Harold McGraw III, chief executive of textbook publisher McGraw-Hill Cos., said on an analyst call Tuesday: "In the near future you will undoubtedly see a McGraw-Hill e-book for the college market running on an Apple tablet." McGraw-Hill isn't expected to be part of Wednesday's unveiling.

Apple declined to comment on its pricing model or any aspect of the new device.

Publishers will likely have to choose between Apple and Amazon. While Amazon has established a dominant position in e-books with its cut-price titles and popular Kindle, publishers are anxious that consumers have come to expect such prices. By allowing publishers to set their own prices, Apple is enabling publishers to re-set the rules and reach a broad audience.

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Workers apply the Apple logo to the exterior of the Yerba Buena Center for the Arts in preparation for an Apple special event in San Francisco.

Journal Community

Aware of the threat, Amazon has been on its own offensive. In series of meetings in New York last week, the online behemoth made it clear to publishers that it is opposed to the Apple pricing model, according to people familiar with the situation. "This is as intense a situation as the industry has ever had," said one publisher.

Amazon typically pays publishers about half of the cover price of a new hardcover book for e-book bestsellers. For example, Andre Agassi's recent memoir, "Open," has a hardcover price of $28.95, which means the publisher likely received about $14.50 for the e-book edition. Since Amazon today sells that e-book for $9.99, the bookseller is losing about $4.50 on each sale—a hit Amazon has been willing to take to build a dominant market share in e-books and power sales of its Kindle reading device. An Amazon spokesman declined comment.

The Apple model would bring in less revenue per title for publishers and authors. Since Apple will take a 30% fee on sales, a $14.99 e-book will generate $10.49 for publishers. That publishers and authors stand to make lower revenue per book sold on the Apple model is one reason some are hesitating about signing up with the tablet.

But there is nevertheless a strong draw: In adopting the Apple model, the balance of power would shift at least partly back to publishers, which regain control of pricing. In setting higher prices, they could provide a level playing field for all e-book retailers. The potential for publishers is that the device may generate greater volume for e-book sales. "The reason why publishers will consider this is to bring in Apple as a major distributor of e-books," said the publishing executive. "The gamble is if Apple comes to the table with their sexy device and their millions of customers, will they dramatically increase the e-book business the way that Kindle did?"

Amazon has unsuccessfully battled Apple before on pricing in the music industry. Even though Amazon has consistently undercut Apple on prices of digital music, it has made little headway in building market share.Since Apple's iTunes store, software and iPod work seamlessly together, few users see a reason to involve a third party retailerIn publishing, however, Amazon has had the advantage of being first to the game.

Michael Serbinis, CEO of Kobo Inc., an online e-book retailer, said that the new pricing model could add significant profitability to the e-book retail structure. "A good chunk, at least 20% to 30% of your e-books, are sold at a loss. This could bring up gross margins closer to those on physical books."

Whether publishers will be willing to risk a breach with Amazon is unclear. "Amazon is a dedicated book channel, a longtime retail partner," said Arthur Klebanoff, co-founder of New York-based RosettaBooks LLC, an e-book publisher. "Is there tension between the major publishers and Amazon today? Yes. But there are many overriding reasons why they will find resolution."

—Russell Adams and Shira Ovide contributed to this article.

Write to Jeffrey A. Trachtenberg at jeffrey.trachtenberg@wsj.com

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2010年1月27日星期三