What is it with some Wall Street analysts? Some of them are really smart. Take Shaw Wu of Sterne Agee. The man is bright, and he and I have a different opinion on something, I have heretofore always respected his opinion, and he’s even been able to change my mind about a couple of things over the years.
Being a person with strong opinions, that’s no mean feat.
There are smart analysts…
Or how about Brian White of Ticonderoga? He is aggressive and a little on the bleeding edge of bulldom when it comes to Apple, but he understands the company, its ecosystem, and its value proposition.
Brian Marshall of Gleacher & Company? He’s one smart puppy, IMNHO. Charles Wolf of Needham & Co? When only a few analysts covered in the late part of the 1990s and early 2000s, and most of them were bears, Mr. Wolf was one of the few who wasn’t saying that Apple had to follow Microsoft and license Mac OS/Mac OS X to other hardware makers in order to survive.
There are many others, of course, smart analysts who are able to understand that Apple’s whole widget business model offers value to consumers, and that there is room for more than one business model in the computer and smartphone markets.
And then there are other analysts…
On the other hand, there are some analysts who don’t understand Apple. At all. The Mac Observer’s Apple Death Knell Counter is littered wth them, and much of my living over the last 13 years has been made by calling them out and expaining why they are wrong.
Today, it seems to be the tablet market that confounds all but the brightest analysts. Back in March, for instance, Mike Abramsky of RBC predicted that Android will dominate tablets by 2014.
His reasoning was bascially that there will be a bunch of Android tablets at some point, just like there were a bunch of Android smartphones, and that like smartphones, the greater numbers and cheap hardware would trump Apple’s value proposition, allowing it to pass iPad by 2014.
I explained then, and many other times, too, that the tablet market will be more like the MP3 player market, and not like the smartphone market. Apple has overwhelmingly dominated the MP3 player market since it introduced the iPod in 2001.
Analysts like to look at PCs, and now smartphones, for their clues. How it went for PCs must go every other computer-related market seems to be thinking of folks like Mr. Abramsky. They can’t imagine any other paradigm, even though the MP3 player market — the “digital device market” — is the proof in the pudding that the Windows vs. Mac vs. OS/2 vs. BeOS vs. vs. Amiga vs. Unix version of history isn’t the only way that things can work.
And I guess the smartphone market only adds fuel to their limited imagination’s lack of fire. After all, iPhone literally exploded the smartphone market, but plenty of cheap Android devices have gained market share over iPhone the same way that plenty of cheap DOS and Windows boxes took share away from Apple, which had exploded the personal computer market with the Apple ][.
Never mind that Apple’s Mac has been gaining market share for the last six years now — it’s still a small player in the computer market.
To these analysts, it will simply have to be the same way with tablets. What they don’t understand is that tablets aren’t smartphones or computers, where “good enough” and “cheap” create a compelling enough reason for people to buy Apple alternatives.
This is a repeat of my long-stated position, but the short version is that PCs and smartphones each have uses that make them must-haves. Media tablets, however, do not. There’s no killer app yet for tablets except for the experience they offer users, and only Apple has an experience that qualifies as a Killer App.
Amazon and Microsoft might be able to change that, but I don’t think they will (in fact, look for an upcoming piece on why Microsoft is getting it wrong, despite my hopes for a proper iPad competitor from the company)
Keep beating that drum
Today, I found a new analyst — analysts, rather — who have similarly missed the clue train. A team of three analysts from Nomura Equity Research released a 90 page report Thursday that said that Android and Windows 8 are going to (magically) “hit the sweet spot” in 2012 and combine to sell 47 million non-Apple tablets in 2012 and 64 million in 2013.
Their argument is basically a rehash of what Mr. Abramsky said, that cheaper and varied devices will combine to beat Apple’s single device. As an example of just how much they do not understand why people are buying iPads, they say specifically state that pricing and distribution is what will sell all these non-iPads.
From the report, which was obtained by Barron’s (emphasis added by me): “Given limited scope for product differentiation among tablets, we believe competitive pricing and distribution will be key to success for hardware makers.”
Tilting at Windmills
What puts me on tilt about this kind of nonsense are two things. The first is that, as I said, it’s the experience that sells iPads. The second is that Apple is the price leader in media tablets, the same way it was and is in MP3 players with its iPod line.
Apple’s volume and ability to use its enormous cash hoard to secure favorable supplier deals has allowed Apple to CRUSH the competition with the iPad on pricing, and I expect Apple to be able to continue to do so for some time, in part because no other competitor will be able to gain much of a foothold.
That means third party developers are disincentivised from adding to the experience available on other tablet platforms, while other tablet hardware makers will be unable to use their own volumes to even match Apple on prices, let alone beat it
Nevertheless, the analysts wrote that, “While Apple will likely remain a leading player in the tablet market on strong software integration, cloud service and cost advantages, we expect the competitive landscape to change in 2012.”
I ask you, what’s going to change in the competitive landscape in 2012? Will Apple suddenly have less money to secure great component pricing? Will Apple stop raising the bar with its hardware designs, giving the competition time to catch up?
It’s nonsense. The only thing that wil change the competitive landscape will be Google or the Android platform as a whole being able to get their act together with tablets, or maybe Microsoft entering the market with their own experience-driven tablet platform.
Ain’t neither gonna happen, to toss in some vernacular.
About Microsoft, the analysts wrote, “We expect Windows 8 on ARM could provide new growth opportunities for hardware makers. If Microsoft Windows 8 becomes a popular OS for tablets, we believe product standardization will become the norm for tablets, following a similar process as PC commoditization throughout the 1990s.”
As I’ve already noted, this is just flat-out wrong. It’s wrong. It’s wrong. It’s wrong.
It’s a 90-page report, meaning that there’s a lot more to it than my three little quotes, but those quotes show that the analysts who created the report don’t understand the market,which makes the rest of the report moot.
And some of those smart analysts I mentioned agree with me.
Roger Kay of Endpoint Technologies Associates told Marketwatch that the report, “is a little too optimistic,” and does not put enough weight on “the value of Apple’s already established ecosystem.”
Right on, Mr. Kay.
Brian White of Ticonderoga added, “There is no one that can deliver the vertically integrated digital ecosystem [that Apple currently has.] They make the hardware and the software, so they can control the experience. And all their products talk to each other. No else can do this.”
Ditto, good sir.
I’ll conclude by repeating: The iPad will dominate the tablet market the same it dominated the MP3 player market with the iPod. For tablets, experience is the only thing that creates a desire to have a media tablet, and no other platform can offer an experience.