Wednesday, October 20, 2010

Size Does Matter

Steve Jobs stirred a hornet's nest with his comments about the 7" iPad competition that has been talked about for months now.

While Steve has a valid point about user interface usability, there is an even more important point to consider.

The iPad has a 9.7" diagonal screen, and the competing products have all picked a 7" screen. The trouble with a 7" screen is that you get only 45% of the screen area, so the interface has to be redesigned to fit that form factor. This redesigning is theoretically possible for some applications, while it will be impossible for some applications.

But there is another problem with having just 45% of screen real estate - you only have 45% space behind the screen to hold all the electronics and the battery. Presumably, the electronics in the iPad and the competing tablets are similar in size - so that means the space left over to hold the battery would be severely restricted for the competing pads. This only gets worse when you include bezel, because the larger screen of the iPad allows a wider bezel - on a smaller screen, the bezel has to be a lot smaller, otherwise it would be really weird.

Let us do some guesswork here.

Lets say the electronics take up 20% of the internal space in the iPad - the same electronics would take up almost half the space of the competing tablets. So while the iPad has 80% of its larger internal space left over for batteries, the competing tablets have only HALF of their SMALLER internal space left over for batteries.

This means that the competing tablets would be a lot lighter - because they have much lower battery capacity. And means that they will have a lot lesser battery life. With the math above, it is clear that the competing pads will have only about 25% of the battery capacity of the iPad.

A smaller screen will consume lesser battery - so a 45% smaller screen 7" would likely consume 45% of the power of a 9.7" screen. This is debatable, because most of the 7" screens would still have a resolution comparable to the iPad. When it comes to the power consumption of the other electronics, Apple has a massive edge with its A4 architecture - and an OS which is designed specifically for the A4.

I think most of these competing tablets will struggle to have a battery life of 3-4 hours compared to the iPad's 10 hour battery life. If Apple wants to lower the weight of the iPad, all they need to do, is lower the battery capacity by half - they will still have 5 hours battery capacity, in a much lighter device, with over twice the screen space of their competitors! Since the battery counts for significant part of the weight of the device anyway, lowering battery capacity by half should lower the weight of the device by about 25%, thus bringing it to a much more comfortable 1-lb weight.

Also with their recent acquisition of exlusive rights to LiquidMetal technology for electronic devices, Apple could lower the weight of the iPad even more by using LiquidMetal alloy for the case - without compromising the structural rigidity and durability of the iPad.

With this kind of change, Apple can sell a iPad Lite model that is 25% lighter, same flash capacity as today, at a 20% cheaper price, and still offer same screen size! Considering that most iPad use happens at homes, a 5 hour battery life is more than sufficient.

I also foresee Apple dropping the 16GB iPads, and moving to 32GB for the base model. This would be workable for Apple because of their lower costs for Flash, due to their humongous volumes, but it would be a tough act to follow for their competition.

Monday, October 18, 2010

5 things Apple can do with its cash hoard

Apple is likely to have ended the September quarter with a cash hoard of over $50 Billion. Steve Jobs has said that he wants the money to do something "big and bold". Here is my take on what they can do with this money. I think most of these things qualify as "big and bold", and also fit in with the grand plans of Apple.

- Apple should look at buying Time Warner. This gives Apple phenomenal presence in Content - including Movies, Music, Print Publications, News, online portal, Cable distribution, Internet Service Provider, etc. Costs $35B, Apple can likely buy them out for $40B. Time Warner's market cap is languishing because of a bad digital strategy, Apple would be the perfect fit to rectify their digital strategy. Considering the close ties Apple has with Disney, this takeover of Time Warner would effectively make Apple unbeatable in the media business.

- Apple is building a massive data center in North Carolina spending about $1B. They should look at creating 4-5 such data centers in different parts of the world - specifically, India, China, Europe, South America and possibly one more data center in North America. This will allow them to become the biggest player in the cloud services space. This will not just allow to offer services to each geographic location, it will also serve as a backup for other locations. Should cost about $5B, but if, as expected, Apple uses most of its own equipment, this will increase their revenues and profits massively.

- Enter the finance business. Apple already is the largest processor of small payments in the world - and they currently pay credit card companies as high as 15% in fees (15 cents minimum transaction fees for a 99 cents transaction on several cards). They should look to create a brand new network for small transactions. They can kickstart this network by adding RFID/NFC capability to the iPhone. They can come up with a global service and also be the biggest customer for this service, via iTunes! Should cost about $2B to create, but will result in massive savings on their current transaction processing costs. In 5 years, iTunes, iBooks and AppStore revenues could easily be $10B - and this payments network will save Apple a ton of money.

- Extend Apple into domains that have huge potential, but are currently not exploited effectively. An area like Home Automation could explode if Apple focusses on this domain. Instead of just taking over the living room, Apple can take over the entire house! Current offerings in this segment are way too complicated to use - Apple has the software and hardware skills to come up with a very easy to use implementation. This could be yet another component of Apple's grand ecosystem with iTunes, iPod, iPhone, iPad, etc. I expect this to take just $1B.

- Pay a dividend - Along with all these initiatives, it will be healthy for Apple to pay a dividend.