Apple has invested billions in bringing the iPad to market.
Just to produce the A4, the ARM-based chip designed to give good
performance and good battery life, Apple bought PA Semi for $278
million and had the associated running costs for nearly two years and
bought an ARM development license. A $500 million investment in LG is
for IPS screens, which are only currently used in iMacs and the iPad.
The iPad hardware and related iPhone OS extensions have taken a fair
sized bite from Apple's R&D budget - $1.3 billion in the 2009
fiscal year. And on top of these expenses, the costs of the time of top
Apple executives - while Steve Jobs $1 annual compensation doesn't add
much, the opportunity cost of him working on the iPad instead of
another Apple product is huge.
While consumer choice is great for consumers, companies want
monopolies. That is how this kind of investment is paid back.
Monopolies are where the real profits lie - the profits that fund the
future, pay the executive bonuses, and keep the shareholders happy.
iPhone OS Competition
Apple can be reasonably sure that Microsoft will produce some kind
of overcomplicated and not very well thought out response tot he iPad,
with some kind of muddled message around Windows 7 and Windows 7
Mobile.
Linux has too many competing camps to come up with a single serious
contender, and Nokia is busy transitioning to Maemo while trying to keep
Symbian a
viable option.
The Android Option
The real issue is Android.
What started as a way to block Windows Mobile from
the consumer cellphone market and keep Google as the prime search
engine is now competitive with the iPhone OS, in the sense that it is
good enough to look the same to many people and can run on cellphones
and tablets.
...buying something cheaper is buying less.
Apple makes most gains when the average customer can see and feel
the difference - when all the senses, as well as the ecosystem, say
that buying something cheaper is buying less. Thus Apple has to try to
delay the emergence of a mobile equivalent of Windows 3.1,* running on
cheaper hardware and reducing long-term market share and profits.
Google is well financed, and all the potential tablet manufacturers
are looking for a solid alternative OS that will keep them in the game
- preferably an OS that doesn't cost as much to license as Windows.
That way they can offer a cheaper tablet and still make a few
dollars.
The Preemptive Path
Apple has chosen the preemptive path by filing
suit against HTC over 20-some patents related to the iPhone OS.
Unlike Google, Samsung, or LG, HTC
isn't a key Apple component supplier and so is unable to retaliate by
delaying supplies of key software, memory, chips, or screens.
If Apple's patents are overturned, there are few ruffled feathers to
smooth. If, however, its patents are upheld by the courts, a multitouch
Android will have to take a different approach and put together a
different "look and feel". This will take time, and during that time
the iPad and iPhone will have a chance to become as embedded as Windows
is on PCs.
This patent lawsuit makes decisions very difficult for large PC
companies such as HP, Dell, and Acer. Do they want to spend money
entering the tablet market, which has done nothing since Bill Gates
launched it in 2001? If so, can they afford to base their strategy
around Android, or should they wait for a Windows solution, preferably
one based on Intel?
At CES, Steve Ballmer showed an HP tablet with Windows 7, but that
looks like an interim solution until Windows Touch is more developed to
make it more competitive with the iPhone OS. Then developers will need
to recode their software to make it work effectively on the updated
platform or the biggest advantage of Windows - all the software
available for it - is lost.
For most manufacturers, the opportunity will only lead to the kind
of profits they see on PCs and is only worthwhile if it protects their
customer base, so the temptation is to wait. And without large numbers
of Windows tablets being sold, most Windows software developers will
wait too and work on a more promising Microsoft initiative, such as
Cloud
computing.
Pushing Android Costs Higher
The lawsuit also complicates life for large contract manufacturers
like Foxconn. They
make most money when production lines are running to capacity on the
same product. However, if the
ITC (International Trade Commission) blocks Android from the US
market, Android cellphone and tablet volume will be much less than
anticipated or contracted for, and lower volume raises costs. Thus the
price of devices will go up while Android is still working to establish
itself in most major markets.
For cellphone manufacturers such as HTC and LG, partnering with
Microsoft, which has a large patent portfolio and has cross-licensed
with Apple in the past, looks more attractive again. If Windows 7 is a
reasonable option for tablets and Windows 7 Mobile can regain some of
the consumer cellphone space while Microsoft preps its Windows Phone
7 OS for launch, Microsoft will retake part of the Verizon-Sprint
area that Android has been busy colonising.
That is probably the best situation for Apple as well. It would keep
Android and Windows trailing the iPhone OS in cellphones and tablets,
keeping both weaker.
Non-US Markets
Outside of the US, Nokia seems to be slowing down Android in most
countries, apart from the UK and China. Nokia is also
busy fighting Apple through the ITC. While Nokia has a rich
portfolio, it agreed to license many of its basic patents to other
cellphone makers on
fair, reasonable, and nondiscriminatory terms. Nokia later wanted
to increase the license fees for those patents that Apple uses in the
iPhone. One view of Nokia's actions is that it is looking for enough
leverage to cross-license Apple's patents.
While the US Patent Office has been much criticized for issuing too
many software patents without looking at prior art, even before the
patent explosion this would have been a "look and feel" copyright
action. Apple sued
Microsoft over Windows "look and feel" in 1988, but it lost the
case due to a poorly worded 1985 agreement licensing parts of Apple's
"visual display" to Microsoft.
Patents are now the basis for action, and HTC has no agreement with
Apple to protect it.
The stakes are too high for Apple to let other organisations copy
its approach to touch without a fight.
