Apple is up to something. The stars are slowly aligning and the anecdotal evidence points to something very interesting on the horizon.
First there are the semi-confirmed rumors via SmartHouse that LG has agreed to supply apple with 10” OLED (Organic Light Emitting Diode) displays that will be both brighter and more energy efficient than traditional LCDs. There is also a mentioned possibility that these displays may have touch capability. Then there’s the rumor that Quanta has recently won a contract to assemble some new kind of product for Apple. Then there screenshots of recent builds of Snow Leopard, OS X 10.6 that contain WWAN references in the network settings panel. Finally there is Apple’s recent announcement that no new touchscreen apps for the iPhone or iPod Touch will be approved unless they’re fully functional under the new iPhone OS version 3.0. Was this done simply for consistency or is there more going on here?
Taken in a larger context, it seems more and more likely now that Apple is cooking up some kind of 3G enabled device with a 10” high-efficiency screen which may include touch capability. If even half of this is true, I think we’re looking at a new form factor, most likely a tablet and not a shrunken version of a traditional laptop. Why do I believe that? Because unique form factors have traditionally been a means for Apple to differentiate itself in an already established market segment. Imagine a jumbo 3G enabled iPod Touch with a 10” screen. It’s thin, it’s wireless and it runs the same kinds of apps that the iPhone does, only bigger. Right now, the iPhone OS is optimized around a single screen size. Could multi-size support be something baked into v3.0 and set to debut in the first non-handheld device to run the iPhone OS? Something like that would not only be a potential netbook killer, it would also take direct aim at another product set to debut this summer, the Amazon Kindle DX.
That may sound a bit absurd at first, but think about it. The Kindle DX will offer a 9.7” greyscale screen. It will have access to thousands of books as well as a growing selection of magazines and newspapers from the Kindle store. The DX will have a built-in web browser and an updated interface centered around several prominent buttons and a reworked directional pad. The Kindle DX will offer free downloading of content over 3G included in its $489 price tag.
What can present Apple Tablet
Now think about how Apple might position a tablet to compete with this. Where the Kindle offers 9.7 inches of black and white screen, an Apple tablet can offer 10 inches of full OLED-driven color. The Kindle store offers thousands of titles, but the iTunes store is already a one-stop destination for many other kinds of digital content and this could easily include books and magazines. The Kindle will have a web browser but displayed on a black and white screen. An Apple tablet could run mobile safari on its larger color screen. The Kindle interface uses dedicated buttons and requires a downsized QWERTY keyboard to access its more advanced features. An Apple tablet could use the multitouch interface from the iPhone to create a device which is physically smaller despite having a larger screen. It could dispense with the keyboard and the directional pad in favor of a more elegant multitouch interface to turn pages, zoom into specific areas or even highlight text. The Kindle costs $489 but offers free content downloading over 3G. An Apple tablet could respond in kind by offering a subsidized price that would brings its cost down into direct competition with the Kindle DX while offering more functionality.
It’s not too far fetched to imagine Steve Jobs dropping the bombshell in one of his famous on-screen product comparisons. On the left side of the matrix is the Kindle with a smaller greyscale screen, no multitouch capability and a limited number of potential uses. On the right is the Apple tablet with a larger color screen, full multitouch capability and a near infinite number of potential uses thanks to the app store. The Kindle DX sells for $489. The Apple tablet, with its ability to download music, movies, tv shows, and now books and magazines is only (dramatic steve-like pause here) $499, with a 2 year data plan.
Lest you think this is nothing more than a fanboi hallucination, consider this. According to iSupply, the iPhone 3G costs approximately $228 to build. The iPod touch is even less. Considering the larger form factor of the tablet and additional cost of a 10”color display, let’s roughly double the build cost to $450. According to ChannelWeb, the current iPhone subsidy from AT&T is $300 per device. This lowers Apple’s actual cost to $150. If sold for $499, it still represents a 300% profit for Apple. Not too shabby.
There is another interesting angle to the “Apple tablet as e-reader” scenario that bears scrutiny and that’s the potential chaffing of media partners due to the harsh deal being offered them by Amazon. According to James Moroney, CEO of the Dallas Morning News, Amazon wants 70% of all profits from Kindle subscriptions, in part to pay back telcos for the 3G data access which Kindle owners get for free. Now imagine that Apple offers newspapers and magazines the very same deal it offered developers at the opening of the app store, allowing them to keep 70% of the profits from every sale, with Apple taking only 30% for hosting and administration. What newspaper or magazine in their right mind wouldn’t want to make 40% more profit on a same subscription and have it in color as well. Once again, Apple can leverage its diversity and size to create an instant ecosystem. The more publishers who sign up, the more devices Apple ultimately sells, the more compelling the device becomes precisely because there is so much content available for it. A self-sustaining cycle is formed that generates both excitement and by extension, profits.
In what could be the ultimate coup-de-grace, an Apple tablet could end up using the Kindle as a human shield as it positions itself as the ultimate multimedia device, a 3G enabled chameleon that can handle virtually any kind of digital content anywhere you want.
It’s a beautiful dream, but for now that’s all it is. Should the situation change however, my checkbook and I are ready.
What do you think? Is Apple going to pull a summer surprise or will it be business as usual?