How the Market will React to an Apple Tablet
If, as anticipated, Apple demos a multitouch tablet device on January 26-27 for a March ship date, these are a few likely reactions from investors in AAPL:
1. "It costs too much." PREDICTION: the Apple tablet will be priced at $800 or above, or less when optionally subsidized by a monthly wireless contract (can be combined with existing iPhone plans or purchased separately). As with iPhone 1.0 ($600 subsidized) and various iterations of iPod -- and, in fact, stretching back to the introductions of Lisa and Macintosh -- Apple's strategy has consistently been to price high, allow diehards and early adopters to purchase, and then scale back pricing incrementally beginning six months after launch. While analysts consistently deride this approach as a poor way to gain market share, this method allows Apple to preserve what is perhaps even more vital to its core business philosophy: brand and margin. In terms of brand, consumers view an Apple product as the premium choice partly because the product is initially accessible only to a few. Regardnig margin, Apple's mantra has long been that dollar share is more important than marketshare. As adoption accelerates, Apple reduces build costs on volume and lowers its price point while preserving its profit.
2. "Not enough content partners." PREDICTION: Apple will launch its tablet with a few key content partners, including media providers such as the New York Times, Disney and ABC, and a few key publishers; as well as gaming and application designers like EA and (yes, even) Google. This select roster of partners, allowed early access to a beta iPhone/Tablet 4.0 Software Development Kit, will highlight the features and capabilities of the tablet, but will in no way be comprehensive. Within its first few months of launch, thousands of software developers will follow suit. Nevertheless, Wall Street will expect Apple to have already lined up more content partners and will react negatively.
3. "Not enough differentiation from competition. Too little, too late." Noting that a number of tablets have (by that point) already been demoed at the Consumer Electronics Show or are in the works by the likes of Microsoft and Google, analysts will observe that Apple is entering a nascent marketplace already saturated with options, denying them their typical niche leader advantage. While reflecting a significant challenge for Apple, this point underestimates the cachet of the Apple brand with leading-edge consumers.
In short, it is my opinion that AAPL will likely decline in value within the few days immediately following the January 26-27 event, presenting a buying opportunity for investors.
1. "It costs too much." PREDICTION: the Apple tablet will be priced at $800 or above, or less when optionally subsidized by a monthly wireless contract (can be combined with existing iPhone plans or purchased separately). As with iPhone 1.0 ($600 subsidized) and various iterations of iPod -- and, in fact, stretching back to the introductions of Lisa and Macintosh -- Apple's strategy has consistently been to price high, allow diehards and early adopters to purchase, and then scale back pricing incrementally beginning six months after launch. While analysts consistently deride this approach as a poor way to gain market share, this method allows Apple to preserve what is perhaps even more vital to its core business philosophy: brand and margin. In terms of brand, consumers view an Apple product as the premium choice partly because the product is initially accessible only to a few. Regardnig margin, Apple's mantra has long been that dollar share is more important than marketshare. As adoption accelerates, Apple reduces build costs on volume and lowers its price point while preserving its profit.
2. "Not enough content partners." PREDICTION: Apple will launch its tablet with a few key content partners, including media providers such as the New York Times, Disney and ABC, and a few key publishers; as well as gaming and application designers like EA and (yes, even) Google. This select roster of partners, allowed early access to a beta iPhone/Tablet 4.0 Software Development Kit, will highlight the features and capabilities of the tablet, but will in no way be comprehensive. Within its first few months of launch, thousands of software developers will follow suit. Nevertheless, Wall Street will expect Apple to have already lined up more content partners and will react negatively.
3. "Not enough differentiation from competition. Too little, too late." Noting that a number of tablets have (by that point) already been demoed at the Consumer Electronics Show or are in the works by the likes of Microsoft and Google, analysts will observe that Apple is entering a nascent marketplace already saturated with options, denying them their typical niche leader advantage. While reflecting a significant challenge for Apple, this point underestimates the cachet of the Apple brand with leading-edge consumers.
In short, it is my opinion that AAPL will likely decline in value within the few days immediately following the January 26-27 event, presenting a buying opportunity for investors.
Comments
Although history would show that Apple typically introduces products at a high price, I think they have to be careful here.
A 7-10" slate is not a useful as a laptop because of the screen size and inevitably not all software will be designed for touch. If they go with iphone OS then definitely not as useful. Less useful = lower price.
It's not as useful as a phone either because you can't call or send texts and you can't take it everywhere as it won't fit in your pocket. Less useful = lower price.
In the UK, a non-contract iphone 3G is about £350 = $560. The Juju 12" capacitive tablet is $499. I expect Apple to match $499 and worst case be $599. This is Kindle/Nook territory and they sell at $259.
I think this device needs to be a mass-market device in the interests of the content distribution. If it's just one of those devices that rich people can afford to complement their other more useful devices, the platform fails.
I agree with points 2 and 3. I think they will get content partners and have some already from the iphone so that shouldn't be a problem and differentiation is no problem because the LG Prada was out before the iphone and it was clear it was about the software and the experience.
It never seems to react to Apple's actual performance. But rather it reacts to the anticipated perception of Apple's performance. So really it matters little what Apple does and greatly how people perceive what Apple does. This is a study in psychology more than it is a study in product quality.
Not that there's anything wrong with that. It's just how the market works, especially in regard to companies such as Apple which command significant public attention.
I'd post a prediction but would most assuredly get it horribly wrong.
How refreshingly honest.
The only prediction I will make is, the media already has "too expensive" and "Apple faithful" fully programmed into their word processors. So while this is about as dangerous as predicting the dawn, I plan on demanding credit for getting this right anyway.