jeudi 3 mars 2011

The Smart Cover is bigger news than the iPad 2

Let's take a few minutes to talk about the iPad 2 and Apple's global strategy

Yesterday, people saw the unveiling of the iPad 2 as the major piece of news. To me the iPad's Smart Cover says far more about Apple and the reasons behind its success:

The Smart Cover retails at $40, pretty steep for a piece of plastic that only covers the screen don't you think? And yet people will buy it, I certainly will. Why? Because Apple has this unique capacity to keep only features that matter and ditch the rest. This, I think, is the single most important factor behind Apple's success. If you look at each and every Apple product, you will notice that whichever one you choose, it will have less features than most of its competitors. The iPod was far less technically advanced than other MP3 players when it came out, the iPad is constantly lambasted by geeks for its lack of technical features and the rigidity of the Apple IOS and don't even get me started on Macs... But Apple succeeds because it focusses on what truly matters. It creates value not with technical features but with tangible customer benefits that, put together, create a fluid and nearly flawless customer experience. The Smart Cover is simple and almost minimalist but it does exactly what people expect and incorporates small innovations that bring big improvements to the product experience. A true Apple product.

Click goes the profit margin...

It is widely recognized that the iPad is the best tablet out there (sorry Apple basher but it's true). But do you notice anything about its price? It is remarkably low! The iPad 2 starts at $499 for the 16G+Wifi version and the iPad 1 is now sold for only $399. Competing tablets such as Motorola's Xoom, Dell's Streak and the HTC Flyer are all at least $100 more expensive. How does Apple do it? For starters, the scale of its operations allows it to be a heavyweight in the components market. The company develops strong relationships with its suppliers and is doing everything it can to make it as hard (and expensive) as possible for its competitors to have access to quality components (especially touch-screens). Then, since it operates its own retail network, it can count on more revenue drivers than its competitors. Finally, it knows how to make up for smaller margins.

Now I haven't looked at the financial details but let's suppose for the sake of argument that Apple, to maintain its cost advantage, has to accept a smaller profit margin on its iPad 2 (very probable). Enters the Smart Cover. Retails at $40, probably costs Apple less than $5 apiece. I'm ready to bet that at least 70% of iPad buyers will go for the cover as well. You do the math...

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