• Newsletter Issue #618

    October 3rd, 2011


    This week, Amazon attempted to upstage Apple’s upcoming media event, by introducing revised Kindles. The cheaper ones are ad driven, so you pay a low price only to have to put up with advertising. I suppose that’s little different from Google’s playbook, where they hope you’ll click on targeted ads to keep the cash registers ringing.

    This is a topic that got coverage this week not only on The Tech Night Owl LIVE, but will be the focus of the next article.

    On the show, you heard from Macworld Senior Editor Dan Moren, who offered his expectations for Apple’s October 4th media event ahead of the event (this may be outdated by the time you hear the show), and his reactions to the announcement about the Amazon Kindle Fire tablet computer.

    Macworld Lab Director Jim Galbraith updated you on their new SpeedMark tests, and the results posted for the slowest and fastest Macs on the planet.

    From Avram Piltch, Online Editorial Director of Laptop magazine, you learned his reactions to Amazon’s Kindle Fire press conference, and its potential as a rival to the iPad. He’ll also give you details about a new business-oriented tablet from Lenovo.

    We also featured Jake Levant of fring, discussing a new text, audio and video chatting app that’s available free for the iOS and Android OS platforms. It’s an intriguing product, and, although I know it’s not their focus, I do hope they’ll consider providing a version for the Mac and PC, the  better to compete with Skype and other telephony solutions.

    On this week’s episode of our other radio show, The Paracast: Gene and Chris explore the amazing world of cryptozoology, as we discuss such amazing creatures as Bigfoot with long-time researchers Eric Altman and Dave Dragosin, from the Pennsylvania Bigfoot Society. You’ll learn about what we’ve discovered about these beings and whether their reality can be proven. And, yes, these things go far beyond what you see in those silly comedy and sci-fi movies from time to time.

    Now Shipping! The Official Paracast T-Shirt — Now with New Design! We’re taking orders direct from our new Official Paracast Store, where you can place your order and pay with a major credit card or PayPal. The shirts come in white, 100% cotton, and feature The Paracast logo on the front. The rear emblem states: “Separating Signal From Noise.” We’ve also added a selection of additional special custom-imprinted merchandise for fans of our show.


    I suppose you might think that companies who build or license competing products are in the same business, with similar business plans. But that’s not always true.

    Take Apple. You know precisely what butters their bread. They are in the business of selling hardware and services. Just about everything they sell is intended to deliver a good (some say high) profit, and they are experts at it. Consider how they manage to maintain those profit margins, even in areas where you just know their prices are equal or better than the competition. The struggles makers of tablets face to meet the cost of an iPad comes to mind.

    With the release of the new Kindle Fire, you have to think that Amazon is in the business of making consumer electronics gear. That may be true, but not necessarily to do so at a profit. Indeed, what surprised some is the revelation that it costs more to build a Fire than the $199 sale price. Well, at least that’s the price that Amazon will charge when the gadget goes on sale in November. Some speak of a loss of up to $50 for each unit sold.

    As you might expect, some members of the tech media have decreed that this new low price should be adopted by any company hoping to compete with Apple, and it comes not long after they were saying that the $99 blowout price for the failed HP TouchPad was the ideal price. So, therefore, tech companies need to lose money on every sale in order to get more product into user’s hands than Apple.

    I suppose Apple ought to wish and hope that’s what those other companies plan to do, because they will be putting themselves out of business before long. But if you actually look at Amazon’s game plan, you’ll see that it’s quite reasonable, and not at all about showering the company with red ink.

    Amazon is in the business of selling merchandise. They became ascendant, first, as a book seller, essentially killing many brick and mortar book stores, although Barnes & Noble has remained afloat also by doing lots of business online, and, by the way, selling an e-book reader, the Nook, to compete with the Kindle.

    Because Amazon hopes you’ll buy e-books, stream videos, and order other products from their vast online catalog, they offer Kindles as loss leaders. It’s the same scheme that any retailer might use by offering something at a super discount to get you to order something else. You see that at your supermarket, consumer electronics store, so there’s nothing strange or unique about the practice. It often works.

    Besides, what good is a Kindle if you don’t fill its meager storage space with content? It’s not as if it’s loaded with useful apps, beyond Web browsing and email.

    More specifically, the Kindle might be marketed similar to a printer. Such devices are sold are profits that are slim to none, with the realization that you’ll need to replace the consumables before long. So they offer ink and toner, quite often at exorbitant prices, with the expectation that they’ll earn healthy profits. HP, despite having trouble making a good living off PCs, does quite well with printers, and don’t appear to be giving any thought to unloading that division of the company.

    With Google, they license the Android OS to handset makers free of charge. But their apps contain targeted ads, which, when clicked, cause their cash registers to ring, more or less. Advertisers pay for the clicks, and Google is happy.

    The Android gadget makers may be less happy these days. If they’re not being sued for intellectual property infringement by Apple, they are paying royalties to Microsoft for patent rights. When it comes to tablets, few customers are interested, and even though the Kindle Fire uses an older version of the Android OS, it is so heavily laden with interface customizations that you won’t readily recognize it for what it is. It doesn’t help the Android ecosystem.

    Worse, Amazon is reportedly interested in acquiring the failed WebOS from HP. If that happens, the Android universe will lose what is potentially a large player. What’s more, the Fire appears to be restricted to Amazon’s own app repository, so you cannot just run any old Android app from other sources, although I suppose you could hack the unit and change things. But we all know that the iOS ecosystem also restricts you to one app resource, but it’s not as if you don’t have a rich selection of software. Amazon’s selection is much, much smaller.

    Of course, none of this is of any interest to most end users. The real issue is whether Amazon’s new tablet, or any tablet other than the iPad, suits their needs. So far they don’t. It’s also an open question whether the 7-inch form factor has a future, other than, perhaps, for reading books. But even here, the Fire is limited by the fact that it’s Wi-Fi only, and there’s no 3G support. So if you want to catch up on some great books at the beach, make sure that beach is close to a hot spot, or you’ll be out of luck. But maybe that’s the price to pay to keep the Fire’s price really low; it doesn’t have a camera or mic either.

    At the same time, I can see where the skeptics are now going to tout the Fire as the ultimate iPad killer, even though it’s not exactly in the same category. But if such statements deliver traffic to the sites where they’re posted, isn’t that enough?

    In the end, though, the tablet market, such as it is, is still Apple’s to lose. The Fire might catch fire for those who want a cheap and portable consumption device, and are willing to put up with its limitations. At least Amazon hopes that their losses will become profits when customers load up on e-books.


    Just about every quarter, Apple announces that at least 50% of the customers purchasing new Macs at an Apple Store are new to the platform. I assume most are Windows conquests, though some, admittedly, migrated from Linux, or perhaps never owned a personal computer before.

    I’m not at all certain how Apple comes by these numbers, since it’s not as if they routinely survey customers in the stores, though I grant that a customer who doesn’t have an Apple ID might be regarded as new, even though it’s possible that customer may have several Apple IDs for different family members, business or personal use, and so on and so forth. At least I’ve never been surveyed on the few occasions I bought a computer direct from Apple (I usually go to independent resellers), but they know who I am for better or worse.

    Now comes a new survey from Net Applications, which records Web traffic at thousands and thousands of sites. Their latest results show Mac market share as 6.45% worldwide; it’s 13.7% in the U.S., showing that Apple has loads of room for growth around the world. That, of course, assumes the survey truly represents actual OS use.

    Windows, in contrast, is down to 92.44%, so it’s not as if Microsoft is on the ropes. Seriously speaking, Apple could grow the Mac platform to twice the current share and still leave Microsoft with an unshakable dominance. What’s more, Apple could chip away at those numbers for years and still remain a tiny minority of the PC world.

    At the same time, if this is the post-PC era, it means that the number of personal computers sold will decline in the years to come, as more and more users embrace other computing devices, such as smartphones and tablets. For Apple, this trend hasn’t hurt Macs, at least not yet. Reports of Mac sales for the current quarter tout numbers in the range of 4.5 million, a record for Apple. Some estimates are higher, some a bit lower, but all claim to be based on surveys of dealer sales. If true, it would mean that the Mac remains a significant money-maker for Apple, even thought the lion’s share of their profits come from mobile gear.

    I suppose the really difficult question to answer is how many Mac users are postponing purchase of new Macs in favor of the iPad, and how many people, new Apple customers, choose an iPad instead of a Mac. I would think there is a certain level of cannibalization, something Apple admitted at one of their quarterly conferences with financial analysts. But they aren’t being very forthcoming as to how much. At the same time, Apple might end up selling close to three times as many iPads as Macs in the current quarter, and that disparity will continue to increase over time.

    Certainly, corporations have begun to equip employees with iPads instead of personal computers. They’re not just cheaper, but may provide superior functionality for certain uses, such as plant managers keeping track of production lines and quotas, or medical practitioners consulting and entering patient information. I wonder, in passing, whether hospitals would make fewer errors if doctors and nurses used portable computing devices rather than pen and paper with which to record a patient’s condition, and the medications that are being prescribed.

    That Apple continues to benefit from the changeover in the marketplace is only one piece of information that you can take from those surveys of Web traffic. But I wonder when and if the sales and traffic of the Mac and iPad will ultimately be combined. Certainly, Apple’s rivals would freak, but that should present the most accurate picture of all.


    The Tech Night Owl Newsletter is a weekly information service of Making The Impossible, Inc.

    Publisher/Editor: Gene Steinberg
    Managing Editor: Grayson Steinberg
    Marketing and Public Relations: Barbara Kaplan
    Worldwide Licensing: Sharon Jarvis

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    3 Responses to “Newsletter Issue #618”

    1. […] Continue Reading… Please Link to Us!<a href="http://www.technightowl.com/2011/10/newsletter-issue-618-dont-forget-that-apple-amazon-and-google-have-different-business-plans/&quot; >Newsletter Issue #618: Don’t Forget That Apple,Amazon and Google Have Different Business Plans</a>Related Articles:About the Amazon Kindle FireThe Shoot From the Hip Report: The Apple Media EventThe Real Victims of the iPad RevolutionShould Printer Makers Fear the iPad?They Assume the Worst About Apple […]

    2. Kaleberg says:

      Did the introduction of the desk lamp hurt the sales of floor lamps? Did the introduction of the ceiling lamp hurt the sales of table lamps? If you were studying the introduction of electric lighting in the early 20th century, those would have been interesting questions, but more or less meaningless. You bought a desk lamp for your desk, a floor lamp for behind your reading chair, a ceiling lamp for each room and a bunch of table lamps for various tables.

      I’m betting that this is future of computers. You’ll buy a pocket computer (probably an iPhone) to carry with you casually, a tablet for shoving in your bag, a laptop for when you are sitting around the house a desktop for work and a server for the household and to drive the big screen TV and for gaming. It’s like in Back to the Future, where the hero shocks his host by claiming that his home has a whole bunch of TVs.

      • @Kaleberg, This is not the same as a lamp, where you have multiple rooms and lighting requirements. You’ll probably see some people opt for an iPad or similar device rather than a second computer. For some people it may be their only computer, but that won’t happen for at least a few years.


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