The iPad's Impact On Other Devices

Resolve Market Research has just completed a comprehensive study that looks at how the iPad is being used, and how the iPad is impacting other technology devices like e-readers, portable gaming consoles and netbooks. You can read more about it here.

Two million iPods sold, Apple Self-Esteem Hits Record High

Apple® today announced that iPad™ sales have topped two million in the less than 60 days since its launch on April 3. Originally available only in the US, this weekend Apple began shipping iPad in Australia, Canada, France, Germany, Italy, Japan, Spain, Switzerland and the UK. iPad will be available in nine more countries in July and additional countries later this year.

"We are working hard to build enough iPads for everyone“ said Steve Jobs, Apple’s CEO. “We appreciate their patience."

In today's press release, Apple modestly describes itself as follows: "Apple ignited the personal computer revolution with the Apple II, then reinvented the personal computer with the Macintosh. Apple continues to lead the industry with its award-winning computers, OS X operating system, and iLife, iWork and professional applications. Apple leads the digital music revolution with its iPods and iTunes online store, has reinvented the mobile phone with its revolutionary iPhone and App Store, and has recently introduced its magical iPad which is defining the future of mobile media and computing devices."

High self-esteem can be a wonderful thing to behold. It is very hard to argue with great sucess.

iPad parts cost at least $259, what about new iPhones?

For innovative products, price and cost may at first not be directly related, but, as Damon Runyon says, "The race is not always to the swift, nor the battle to the strong, but that is the way to bet."

I enjoy reading how iSuppli and other firms dissemble products to determine their cost. For example, Apple's iPad tablet computer costs as little as $259.60 to build.

Materials for the iPad, which went on sale Apr. 3, include a touchscreen display that costs $95 and a $26.80 processor designed by Apple and manufactured by Samsung Electronics, according to El Segundo (Calif.)-based iSuppli. This analysis means that the components of the lowest-priced iPad, which includes 16 GB of memory, constitute 52% of its $499 retail price, on par with other Apple products including the iPhone 3GS. You can find more details on the costs in an article by Arik Hesseldahl in Business Week.

Will the iPad price trend resemble the iPhone? Back in 2007, early iPhone adopters paid $600 for a phone. Two months later, Apple dropped the price to $400. Then, in June 2009, it introduced a better version, with twice the storage, for $200, one-third the original’s price. Now as we anxiously anticipate a new iPhone, we all wonder what the price will be.

Back to the iPad, will the cost drop significantly? Probably so. And when it does, we should follow the advice of DAMON DARLIN, “Applause, Please, for Early Adopters,” as related in the NYTimes.

“WHY would anyone rush to buy a product knowing full well that it would be cheaper — and probably better — in a matter of months?

”What is truly remarkable about this surge in consumption is that early adopters — those who simply have to own a new gadget right away — cheerfully exhibited what might seem to be irrational behavior. These ardent consumers will stand in long lines, if that’s what it takes, to get an overpriced gadget ahead of everyone else they know.” In my own case, I want to thank my former student, Rick Genter, the first person to show me an iPad.

If you are an entrepreneur contemplating product development in the iPad/iPhone arena, or represent a large volume purchaser of similar products, it would be very helpful to have direct access to the reports from iSuppli. “Unfortunately iSuppli does not allow for public posting of our report pricing,” says Debra Jaramilla, Manager, Marketing. “However, please do direct them (you) to info@isuppli.com or 310.524.4007 for more questions.”

Beware thin margins for smart devices

Before you and your partners launch a new company to compete with the iPad, iPhone, Nexus One, Droid, or similar smart  networked devices, be sure you understand the cost structure underlying this marketplace. Margins appear to be slim today and promise to be slimmer tomorrow.

Companies keep these figures secret, very secret, declining thereby to provide a road map for competitors. Thus a small industry has developed, teardowns, whereby specialized firms rip devices apart, analyze their design, identify their components, and calculate how much they cost to manufacture.

Last week The Economist published the parts cost for four well known phones.

Note that the iPhone 3GS with 16MB of memory has a parts cost of $170.07 and an assembly cost of $6.60. Neither ATT nor Apple quotes online a price for the phone without a wireless plan, but while I was writing this post a 3GS with 16MB sold on eBay for $550. ATT sells the same phone for $199, but requires a two-year service contract.

Like all chip-based devices, component prices, particularly memory, tend to fall in accordance with Moore’s Law. Components for the original iPhone cost $218, a full 28% higher than today. Absent competition, falling prices would mean larger margins, but smart phone competition this year should be fierce.

A better target might be the iPad. Until one of the teardown companies acquires and analyses a production model, we will just have to guess at cost. Based on the figures above, the parts cost of current iPhone is about 30 per cent of list price. Assuming the same for the iPad, a $499 model would have a parts cost of $150.

Still want to compete? Do what David Dell did for PCs and discover a dramatically more efficient sales and distribution channel.

Today’s Economist (9/30) calls the new device “The book of Jobs” and predicts great competition from many sources.”Different industries are already converging on this market: mobile-phone makers are launching small laptops, known as netbooks, and computer makers are moving into smart-phones. Newcomers such as Google, which is moving into mobile phones and laptops, and Amazon, with the Kindle, are also entering the fray: Amazon has just announced plans for an iPhone-style ‘app store’ for the Kindle, which will enable it to be more than just an e-reader.”

The soft spot for entrepreneurs: apps and content, where there are already multitudes of competitors, none yet dominant. And if you use a spell checker, add “iPad” to your dictionary.