The modern tablet market - created by Apple - has most recently been taken over by Google’s Android platform. However, Android is badly fragmented and the only pure player of scale seems to be Samsung, a corporation aggressively seeking an alternative.
The other big Android player is Amazon which actually forked the code. So I’d definitely argue there is very little about the mass market of Android that Google truly owns. However, Apple, Microsoft and Amazon do own their efforts. So while Apple defined the past, it could very well be Amazon or Microsoft which define the future.
Both Amazon and Microsoft have announced but not yet released new tablets - beating Apple to the punch. While Cupertino is typically better at building excitement, the iPhone 5S launch excitement petered out pretty quickly this year. So for Apple to take momentum back with the iPad in the fourth quarter Cupertino will need to hold on to the excitement a bit longer.Let’s focus on Amazon and Microsoft for now, although we'll also discuss why Apple should be concerned about the success of others.
What Amazon recently announced (new Kindle Fire) is pretty impressive, putting in Qualcomm’s latest Snapdragon solution (which is arguably better than Apple’s) and making high speed wireless optional across the line. In addition, Amazon enhanced the screen and graphics significantly. Qualcomm, thanks to its acquisition of ATI’s mobile unit, has one of the strongest mobile graphics solutions and its radios are best in class. They then priced the result at or below cost, providing memory upgrades at very reasonable prices (often it is in the upgrades where much of the profit resides).
Amazon was able to do this because it effectively consider the tablets as dedicated store fronts to the Amazon set of services and store. Remeber, Amazon’s services in retail exceed Microsoft, while Amazon’s enterprise services exceed Apple’s. This last point is new because this generation of tablets is tied to Amazon Web Services. So you can see the beginning of an effort not to just go after Apple, but to aggressively go after firms like Dell, HP and even IBM. (Some folks seem to completely ignore this last part).
Amazon has become, with AWS, one of the scariest companies in the corporate segment because they have successfully figured out how to go around IT and sell to employees and line mangers directly - something traditional corporate vendors are still struggling with.
If Amazon’s strategy is successful, the only way either Microsoft or Apple could fully combat it is to merge with each other or become successful in areas (corporate for Apple, consumer for Microsoft) that both have failed in historically. Neither path would be an easy one, granted their merger is historically considered once a year.
Microsoft: Making Existing Tablets Feel Inadequate
Microsoft is finally beginning to put the entire strength of the company behind its tablet efforts, with both PCs and back-end business focused on services which significantly exceed Amazon or Apple’s capabilities.They are light on consumer, but if Redmond can make consumers want to use tablets professionally they can basically flank Amazon and Apple - again doing what it did to Atari, Commodore, and Apple in the 1980s. Before you think that is an impossible scenario, remember IBM is currently doing to the server market what it did in the 80s, with a mainframe product that has become its most successful platform as a result.(Our industry considered that same mainframe dead in the 1980s). It is very appropriate this Halloween month to realize that the IBM Mainframe is very much undead.
In the ARM space they have arguably the best dual purpose tablet currently in market. Their new Windows RT tablet, using Nvidia's Tegra 4 processor (the only technology that may be more powerful than Qualcomm’s), has the added advantages of Office and a magnetic keyboard so it can be a more powerful laptop replacement in a pinch than either Amazon or Apple currently provide. They are marketing some of that advantage now, but I expect will ramp this up a lot once the products are actually on retail shelves.
But Microsoft has a second punch in its 1-2 punch lineup. The second punch is a nearly identical tablet that fits into the Ultrabook class and will also run legacy software. This is something neither Apple nor Amazon can do, and in Apple’s case they not only can’t run legacy Windows software on their tablet but they can’t run legacy Apple software either - which otherwise would be an offsetting benefit. A lot of folks who bought the initial iPad wanted to be able to live on it and most found they had to buy a laptop (generally a MacBook Air) to close that gap.
Microsoft is supplying one product that effectively displaces both an iPad and a MacBook Air. Granted, this will be more difficult to market because folks are used to Ultrabooks which are closer to the Mac Book Air’s industrial design. Still, if these same people got around that once with the iPad which couldn’t step up to this level of utility, the Surface Pro can likely do the same. Plus, if Microsoft can remind folks that it was a Pro kind of product they really wanted, well, Apple and Amazon are screwed. This is a big “if” though, and it will require almost a Steve Jobs level of marketing to pull such an effort off
They do have Kathleen Hall running advertising over there and if they can stop hobbling her, she is one of a hand full of folks that could pull this off.
Wrapping Up: Apple Problems
Amazon is a very different company than Apple, simply because it is used to living off thin margins. This leaves Apple between a rock and a hard place if they have to compete. If they lower prices to compete they’ll bleed profit and the stock market will pummel them. If they don’t, more folks will buy the more attractively priced Kindles as gifts and they’ll take a bad revenue bath.
On the other hand, Microsoft is attempting to do what it did to Apple when Steve Jobs was fired in the 1980s and use their added utility to drive smart people to a more productive platform. Part of this will be to connect “smart” with Microsoft, but that is what they have been trying to do with both the Nokia and the Windows Surface Ads, and while they still have a tendency to run each too long, you have to admit Redmond's ad quality has come up sharply of late with respect to disparaging the competition. Microsoft can better give what a lot of folks wanted in the initial iPad - a single product solution - and with a price/legacy software tradeoff that Apple doesn’t have in a similar product.
As Samsung has successfully demonstrated, Apple isn’t good at defense and in the fourth quarter they will be working mightily to defend their hard earned tablet turf against a more powerful Amazon and a more focused Microsoft. Oh, and Samsung isn’t going away either. That is why Apple should be concerned, because even though Microsoft and Amazon will approach the market differently and likely not compete with each other both are likely to focus excessively on Apple collectively because Cupertino remains the gold standard - even though it gave up leadership on paper to Google this month.
We'll see what Apple launches in a few weeks, but I expect the new version of the iPad will face a level of competition we’ve never seen in this market before.