For a product that hasn't seen the light of day, Apple's forthcoming
tablet computer certainly is getting a lot of attention. We have people
talking about how successful it will be - or why it won't succeed.
People have found multiple names for it: iSlate, iPad, iGuide, etc. And
they talked about the endless ways that it will revolutionize our
lives. The Apple tablet will save the print industry or reinvent TV
watching.
All of this could be true - or none of it may happen. Apple hasn't
even announced that it is working on such a device.
How Will Apple Profit?
The thing that is not talked about as much is how Apple will make
money from the device. Most people ignore this question, because it
sounds obvious: Apple make the tablet and earn profits on each sale,
plus a little extra from selling apps.
The problem here is what's new? The iPhone already fills that
description. Why does Apple need to make a device that competes with
the iPhone?
A New Revenue Stream
The signs are pointing to a new source of revenue with the tablet:
advertising. Just ask those folks over at Google what advertising is
worth; they'll tell you. Google is able to host web searching for
billions of queries off the revenue that advertising brings them. They
even develop software to give away free, all funded from the billions
earned from advertising.
Why should Apple let Google, Yahoo, and Microsoft make all the money
from Web and Internet device-based advertising? Apple is capable of
running a very successful Internet store (the
iTunes Store) that has to track billions of separate purchases.
Apple should be able to track a few million advertising hits.
For a long time, I thought Google was a bunch of jerks going after
Apple's iPhone and App Store business. The truth is that Apple struck
first. Many apps on the iPhone are nothing more than advertising. There
is everything from
Disneyland travel planners to where to find Budweiser
American Ale Beer. There are
HBO and Walmart promotion apps. Hundreds, if not thousands, of apps
are nothing more than commercials for various businesses, celebrities,
and even government groups.
Advertising is Google's bread and butter; Apple began encroaching on
Google's territory once apps became a vehicle for advertising. Ad
dollars that could have gone to pay for Internet ads thru AdSense were now being used to
develop apps for the iPhone.
Compelling Evidence
If you don't believe me, why did
Google grab AdMob before Apple could? Why does Apple need to block
Google from getting
Lala for the Droid? These rumors point to Google and Apple becoming
competitors, and that means they must be in the same business. That
business is controlling mobile access and the billions of dollars to be
spent advertising to that audience. [As we were preparing this article
for publication, Apple acquired Quattro Wireless, which specializes in
ads for smartphones and mobile websites. ed]
Apple cracked open the mobile device market for itself, and in doing
so it opened the market for other savvy companies like Google to follow
behind. And they are getting a warm welcome from everyone.
The iPhone is now a necessary evil for AT&T. It steals customers
from Verizon, Sprint, T-Mobile, etc. but at a high cost of turning
control over to Apple. AT&T can't even directly advertise the
iPhone in its campaign against Verizon. Apple controls all marketing of
the device.
The wireless carriers are now praying for salvation - even AT&T.
Google's Droid fits the bill. Google can move into the number two spot
with every provider cheering it on.
Apple vs. Google on Several Fronts
Google only wants to use this position to channel all mobile ad
dollars to itself, and it sees Apple in its way. Now Google is
attacking Apple's business by going after operating systems, web
browsers, and mobile Internet phones.
When you make an enemy, then you must be ready to face an
attack.
The irony is that Google was strengthened when Microsoft attacked
and threatened to destroy it. Google learned that to survive, it had to
break Microsoft's grip on computers and the Internet. Apple and Mozilla
were two strong allies. Google has increasingly turned its back on
these friendly companies.
Now in turn, Apple will have to break Google's grip on advertising
dollars. Literally billions of dollars are at stake. Billions to reduce
the cost of the initial price to buy the device. Billions to pay for
software development to fuel more sales. Billions to pay for marketing
to get the message out about what Apple has to offer. Billions in
profit to add to the balance sheets.
The iTablet will be a vehicle for advertising. This is not
necessarily a bad thing. We watch ads every day on TV, and there are
ads on this website. Advertising will be the fuel to pay for content
like magazines and newspapers. It will subsidize all those things that
we enjoy but don't really want to spend money on. Music and television
could be added easily; there may be a real reason why Apple bought
Lala.
Apple Is Ready to Go
Apple has all the necessary technologies to deliver on this vision,
and it probably has a few of these ideas
patented. By lining up various magazine and book publishers, Apple
has gained access to advertising customers. Apple will be focused on
serving these ads and collecting the money for each ad that is
viewed.
How else is Apple going to save the publishing industry if it
doesn't keep the revenue stream working? Seriously, every magazine that
I read is at least
half advertisements, and the content is spread all over to make me
look at more ads. The truth is that on average on 35% of a magazine's
revenue comes from subscriptions sales; the rest is advertising.
The question is what form the advertising will take. Will it be a
hypertext keyword that leads to an ad, or maybe a popup ad that you
have to watch before going to the next article? Since this will be a
new service for Apple, I expect something simple but easy to expand on
for future product releases. The big delay has probably been the
software engineering to make the ads work in an easy way that Steve
Jobs is happy with.
How strange does that sound, "'an advertising method that Steve Jobs
is happy with"? If it pulls this off, Apple won't just be reinventing
publishing; it will have every magazine and newspaper advertiser
knocking at its door. The scope of the possibilities is almost
frightening.
Innovation, Not Just Hardware
When I read the latest news about PC makers preparing tablet devices
to compete with the iTablet, I have to laugh. Apple isn't building just
a simple device with a pretty screen. Apple is building the
infrastructure to mange an entire industry. No one else is ready to
deal at that level of complexity: Dell, Google, Microsoft will all
trail behind with "me too" gadgets and pretend that they have something
close to what Apple has planned.
While the possibilities are exciting, it may never happen. After
all, Apple hasn't even announced that it is working on this device - or
have they? 
