Colin's Corner

CES Roundup - 2011 The year of the “superphone” and “media tablets”

After a few years with a weak pulse, the energy, enthusiasm and crowds were back in force at CES in Las Vegas with estimates of around 140,000 attendees. 

Apple does not exhibit at the show but its influence on the industry was clearly seen in the product design and functionality of some the most interesting mobile products. These included advanced smartphones or “superphones” announced by Motorola, HTC, Samsung, LG and many others.

These superphone come feature packed with dual core processors, large amounts of ram and storage, an HTML5 browser, and support for HD video, micro HMDI out, front and rear cameras, and video chat capabilities. Along with better data security encryption some even require finger print recognition to unlock the device. 3D on the phone is not too far away and may end up being much more successful than on TV screens.

Some of the current “Superphones” and others coming out over the next couple of year can function as extremely powerful computers that you carry around in your pocket.  Combined with secure file storage in the cloud, fast mobile bandwidth via 4G plus the ability to dock into peripherals such as keyboard and displays theses phones have the potential to replace many laptops.

The message being delivered at this year’s CES is that, over the next couple of years, mobile devices will totally exceed your expectations.   

Media Tablets

There were dozens of tablet announcements and lots of prototype demonstrations that focused more on technical specifications than the overall user experience plus the amount of developer support that would be at launch to support the hardware.  

One of the issues of having an annual event such as CES is that companies are forced to work to the organizers timetable rather than their own. This results in products often being demonstrated that are not quite ready for prime time. Some companies such as HP decided to hold off and will showcase the PalmPad on February 9^th at their own event.

A lot of the tablet attention at CES focused on Motorola Xoom’s one of the first tablets with a 10” screen that will ship with Android 3 (Honeycomb) the first version of the OS designed for tablets, and also on RIM’s Blackberry Playbook that has a 7”screen and is expected to do well with corporations.

However, one got the sense that everyone was holding back a fair amount of information while waiting for the details of Apple’s iPad 2 which is rumored to be announced around 1^st February with shipment early April. When asked about pricing, the answer was always “it will be very competitive”.  A year after the iPad was announced there appears to be some competition on the horizon although too many of the tablets are chasing features rather than focusing on the totality of the user experience.

 The implications for the media industry are enormous.  A very large number of people are going to be consuming a lot of content on mobile devices either through a mobile browser or via apps.

Theses devices will be as powerful as many laptops and will be able to receive and display rich media content such as HD video. Static content such as e-editions and digital replicas will start to phase out as the media industry shifts to delivering more dynamic, rich interactive content.

The ability to share and receive content over social networks also needs to be a core feature of mobile content. Today 50% of all active Twitter users are using mobile devices to share and receive information. You don’t have to be constantly monitoring your social network. Applications such as Flipboard make it easy to organize Twitter and Facebook content in a digital magazine style for easy reading when every you want.  Facebook “likes” and other sharing mechanisms are driving as much traffic as search.  With the CEO of Flipboard now on the board of Twitter, expect to see a very close alignment of these organizations.  As the CEO of Twitter, Dick Costolo noted at CES – “Twitter is a technology company in the media business”

With the ongoing convergence of the computer, consumer electronics and wireless industries 2011 is being viewed, as a major inflection point for the mobile devices industry.   The often-predicted evolution of the Personal Computer era into one of Personal Communications appears to be finally here.

 

The iPad Advantage

A decade after Microsoft‘s Tablet PC failed to gain traction Apple introduced the iPad on 27 January 2010 to positive if muted response from the general and technical press.

Initial derision over the choice of name was coupled with concern from tech geeks that it was an overpriced and underpowered computer tablet.  However, despite lacking technologies such as mini-USB, a memory card expansion slot, direct printing, a camera, and flash support the iPad received overwhelmingly positive consumer response.

In under a year the iPad now ranks as the fourth largest consumer electronics device behind TVs, smartphones and notebooks and may be the fastest selling consumer electronic device ever. It contributed to Apple’s shares surging over $300; after near collapse in the late ‘90s the company is now one of the most valuable in the US.

Blowing past initial analysts’ estimates of 5 million iPads in the first year, Apple has sold 7.5MM iPads and is on track to sell around 12 million units worldwide in 2010 with estimated sales of over 36 million units in 2011. Now that Apple has opened up to Verizon these forecasts could go even higher. Apple’s biggest problem is not customer demand; it is keeping up with it.

The iPad is a unique hybrid device sitting somewhere ‘tween a laptop computer and a smartphone but one that is optimized for a “lean-back” content consumption. The customer appeal lies in simplicity of use. An intuitive touch interface, a stunning 9.7” screen, and great battery life together with easy access to the Internet, email, and 300,000 total applications (35,000 specifically optimized for the iPad) available via the iTunes store dazzles and delights potential customers. Those who have purchased the iPad rank it as the highest scoring product ever tracked by the American Consumer Satisfaction Index.

Of course the iPad’s success will drive intense competition especially from smartpad devices powered by Google’s Android and Tablet operating systems. But today, Apple has a significant lead, achieved by carefully orchestrating hardware and OS integration together with its massive developer ecosystem.  

Competitors seeking to unseat Apple will be challenged to deliver a significantly better user experience at a more competitive price.

Optimizing for a 9.7” screen was no trivial engineering feat. The effort involved gave Apple a huge competitive advantage but was only part of the story.  While initial reviews suggested the iPad was little more than an expanded iPod Touch, many failed to fully appreciate that the overall user experience went far beyond just screen size.  

Apple’s key competition, Android, is designed for smartphones not tablets. Android 2.2 and even the upcoming Android 3.0 OS are optimized for up to 5” screens and with some tweaking can work on 7” and perhaps 10” screens (the rumored Motorola “Stingray”) but it’s not an optimal user experience and Steve Jobs, Apple's CEO made it clear during their earnings call that Apple did not believe that the 7" from factor provided a good customer experience.

Although a number of 7” devices using Android 2.2, notably the Samsung Galaxy Tab, will soon be on the market, key hardware manufacturers such as LG and Acer have publicly stated they are waiting for the release of Google’s Android 3.5 Tablet OS (codenamed Honeycomb) due in 2011 before introducing iPad competitors. 

In addition to Android tablets, Google had been rumored to be launching its own Chrome OS “Speedbook” tablet, manufactured by HTC and scheduled for November delivery via Verizon.

While the competition races to catch-up the iPad offers a new and exciting canvas to create and deliver mobile content but publishers still face significant difficulties negotiating business terms with Apple.

Unresolved issues remain over revenue sharing on subscriptions, the control over access to customer data and analytics, the split of advertising revenues sold via Apple’s iAd service, and how magazines are marketed and discovered within the iTunes store.

Per copy pricing on the iPad has largely been set at the Single Copy Sales price resulting in howls of protest from consumers who question why they can buy an annual print subscription to their favorite magazine for $12-$15 per annum but are expected to pay around  $4.99 per issue on the iPad, especially if they are already a loyal print subscriber.

As publishers consider “universal” subscriptions that combine both print and digital and even “cable-type content aggregation models” the revenue allocations and dealing with Apple becomes even more complex.

There is a lot of posturing from both sides. Apple currently enjoys a position of market strength and can largely dictate terms but at the same time recognizes the importance of the media to their long-term competitive success. Today media companies, while they balk at the business terms, have little choice but to embrace the iPad given the rapidly increasing installed base and Apple’s 160MM iTunes users with credit card accounts.

Much can be gained for both sides from a successful resolution. Maybe it just takes a good arbitrator to bring the sides to agreement and deliver solutions that really benefit the consumer.

Within the next quarter Apple is expected to launch a newspaper and magazine digital newsstand.  Will Apple’s digital newsstand launch embrace or compete against similar offerings from Zinio, Next Issue Media, Texterity, Pixel Mags, ZMags, Issuu, Exact Editions and others ?

While competition is good for consumers excessive fragmentation can hurt a nascent market. Both publishers and consumers will benefit greatly if there are more streamlined solutions for digital content production and distribution.

Publishers are taking a range of different approaches with the delivery of content on the iPad. Some publishers opting to distribute little more than pdf versions of their print magazines (sometimes enhanced with additional multimedia content) while some are taking more aggressive, innovative and more costly approaches that fully utilize the functionality of the device and Internet capabilities via dedicated applications.  Others are looking to distribute digital media content via mobile browsers using the rapidly evolving HTML5 standards.

A number of interesting magazine experiments on the iPad worth watching include:

Esquire from Hearst is using the ScrollMotion platform.  Great interactive elements if a little confusing navigation makes this app stand out especially as it does not try to include all the content from the print product. Another popular Hearst title, Popular Mechanics, has received positive reviews for the app and pricing at $1.99 per issue.

Food and Wine from American Express Publishing uses WoodWing’s Digital Magazine Tools. The app delivers several interesting navigation features to access content. WoodWing has delivered a number of iPad magazine applications from around the world with different pricing approaches to the per issue sale.

Popular Science and Popular Photography from Bonnier use their Mag+ technology. Mag+ demonstrated some initial design innovations but the pace of development on the Mag+ platform appears to have slowed.

Wired and The New Yorker from Condé Nast uses Adobe’s Digital Magazine Solution. Condé Nast initially assumed flash would be fully supported on the iPad and then had to adjust their strategy. The current iteration produces very large downloads.

Condé Nast has also lunched Gourmet Live App http://bit.ly/a2xSdR that was developed in collaboration with Anil Dash’s Activate. It deserves a call out for being developed in HTML5 as well as its extensive user of social networks.

People and Sports Illustrated from Time is pushing an approach that allows a free digital download if you are a print subscriber. Non-subscribers have to pay a single-issue copy price. Time's Josh Quittner addresses some of the practical investment challenges impacting app development.

Better Homes and Gardens from Meredith, one of the top circulation magazines in the US, is about to launch an iPad app. The slow time to market from major publishers such as Meredith opens up opportunities from more agile start-ups.

New York Post is the first periodical without a paid website that Apple has allowed to sell in-app subscriptions.  .

New York Times has finally unveiled an app that gives full access to the whole edition. 

Distribution platforms

Another major challenge facing publishers is dealing with several distribution platforms. Current options include:

Zinio which offers a paid digital newsstand platform and has an extensive number of top publishers signed up although the majority of them are distributing pdf replicas.  By investing in Viv Magazine http://vivmag.com/about-viv/magazine Zinio is trying hard to educate publishers on the potential of multimedia content on tablet devices.

Texterity is encouraging publishers to adopt a strategy of print plus digital subs and encouraging content sharing through their Coverleaf product http://www.coverleaf.com/ . These are welcome initiatives as too many publishers are taking a “walled garden approach and not embracing the social networks.

ZMags claims over 2,500 customers across 50 countries. They have issued a well-produced whitepaper to guide publishers on the transition to mobile. Issued in June it’s already a tad dated but their advice is very sound .

Pixel-Mags has announced in-app subscription in addition to single issue downloads. In particular access to 26 issues of AutoWeek for $5. The content is largely a replica of the magazine rather than being designed specifically for the iPad.

Next Issue Media  The consortium from Time, Hearst, Condé Nast, Meredith, and News Corp is looking to develop a cross platform content distribution service and digital newsstand but details remain sketchy. It’s uncertain if they will be a major competitive force to Apple’s iTunes.

Publishers are seeking a seamless solution that integrates well with their existing systems and allows distribution across a variety of mobile devices.  While looking to take advantage of the specific functionality of applications they need to be planning for a time when the mobile browser offers the functionality of today’s applications but does not lock them into any specific platform.

Recommended approaches

The mobile market for publishers is at a very early stage of development, it’s messy and confusing and unlikely to become simpler any time soon. However here are a number of recommended approaches:

1. Think hard and research the customer value proposition. Carefully consider what content is appropriate for print, on a smartphone and on a smartpad. The UI/UX varies significantly across platforms so replicating content across devices is not a good long-term strategy. Content navigation should take full advantages of the device’s features but it needs to be simple and intuitive.  Minimize the surprises for the user.
2. Ensure your publication has an effective mobile web page for all key mobile browsers before developing a mobile app. Check out how your publication looks on key mobile browsers and mobile platforms. 
3. Look to develop “universal subscriptions” that combine print and digital. Price digital subscriptions modestly above print subscriptions. A price of around $1.99 per issues seems to resonate well with consumers. Balance the per issue price with collecting addition customer data (with careful privacy considerations) so that advertising can be more targeted and can command higher CPMS. B2B publications should focus on collecting user information for lead generation programs.
4. If the approach is taken to distribute a pdf version, set customer expectations appropriately and price accordingly. Personally use the replica on mobile devices for a month or so to appreciate the customer experience and then determine if this is a good strategy to follow.
5. Go beyond a walled garden approach. We’re in a mobile social world so ensure that the content can easily be shared. Use social networking account log-ins via Facebook, Linkedin, and Twitter for easy connections.
6. Work through all the revenue opportunities – advertising, subscriptions, and data collection for lead generation, e-commerce, and affiliate revenue streams. Don’t over rely on a single revenue source.
7. Be extremely clear and transparent over the audience data being collected and what cookies are installed. Clearly call out your privacy policy.
8. Analytics should be embedded thought the mobile web pages and within the mobile app so that the customer usage patterns are well understood and the UI adjusted accordingly.
9. Discovery of apps is a major issue. Take every opportunity to promote your app at each customer interaction. Work with apps review sites such as Appolicious to get your app noticed. 
10. Mobile is the future of publishing. While it’s too early to advocate a mobile first strategy, publishers need to be investing in and planning for the mobile future today.

Publication brands have to consider content distribution across a variety of media - print, online, smartphones, smartpads and soon smartTVs. The engagement of the customers and the time they spend in each medium will ultimately determine the allocation of resources. 

Today revenues are being disproportionately allocated to legacy media but the transition to “new” media is occurring rapidly.  

The publishers who are preparing now for the world of digital, mobile, and social will see success. 

Updated 10/15 following Apple's earnings - Jobs speaks! The complete transcript