It’s Only a Matter of When

I’ve been trying to square my lack of enthusiasm about the iPad with the seemingly very positive analyses from those smarter than me.

After a few days, I think I finally reconciled it with a simple realization: the only reason I’m not enthusiastic about the iPad as a consumer is that it simply falls below my value curve at this point in time. Consider the graph below:

When the iPhone came out, I would have paid $1000 for it. I still would, to be honest. I wouldn’t exactly be happy about it, but I’d do it. It provides so much utility to me, it’s become such an indispensable part of my life, and it has no perfect substitutes, so its price elasticity to me is extremely low. Apple can charge pretty much whatever it wants and I will buy exactly one iPhone.

When the iPad was announced, however, the value curve was very different for me. It is currently a device I’d pay about $199 for. Not $499-$829. That is not to denigrate it at all. It just means its current value to me is below its current price. I don’t read eBooks, I have a laptop for my mobile computing needs, and I don’t have a place in my workflow for this device at this point in time.

The key is what happens over time, however.

The first effect is a pricing effect. As the price of both devices inevitably decreases, the value equation begins to change. A $10,000 iPad sells maybe 1000 units. A $1000 iPad sells maybe a million units. A $100 iPad sells 50 million units. And a $10 iPad sells about 500 million units.

So then, “liking” the iPad is really just a question of “what price would you pay for it?” For me, it’s about $199 right now. Electronic toy price, in other words. For others it may be a lot higher, and still others, lower.

The second effect is a utility effect. The utility of an iPhone is very high right now. It already plugs into existing cellular and wifi networks, it fits in your pocket, it replaces multiple devices, and it has few competitors. What happens when it’s not the only horse in the race though? We’re already starting to see stiff competition from Google with the Nexus One and Nokia undoubtedly wants to play this game too. It’s unclear whether any competitors will succeed making a better smartphone than Apple, but they will certainly create viable substitutes, thus reducing the unique utility of the device.

Look at what happens (possibly) with the iPad though. You can just sense by looking at it that it’s a bit “early”. There isn’t enough to do with it yet. The New York Times app looks nice and all, but it’s a far cry from a world of widely available, richly laid out e-publications (I personally question, however, if we even need this sort of world). You also can’t use the iPad for home automation stuff yet (although my buddy Danny will be working on it). You can’t beam Hulu from it to your TV. You can’t video conference with it. You can’t control it with voice commands. You can’t run it for a week on a single charge. These are all things I think we’ll see in the next several years, and thus it may become a more valuable device as time goes on.

When either the price is lowered to my value threshold, or my value threshold rises due to increased utility, that is when a purchase will be made. Perhaps even multiple purchases.

There is little doubt in my mind — upon finally thinking this through from a dispassionately microeconomic standpoint — that at least one of these two things will happen; and that is why Apple wins in the end, despite our best attempts to be curmudgeonly about it.

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12 Responses:

  1. Dave says:

    Same here. Iphone is super useful for getting things done and replacing several other gadgets… I earn my living on a mac book pro. The niche between the two is so small (if there is even one) I can’t really wedge something in there that the other two aren’t already doing brilliantly.

    Maybe a netbook hackintosh for $250 ;-) which I did do over christmas. But as you said that is down around the electronic toy threshold.

    Loads of people have asked me what I thought about iPad and I’ve been a little flippant and said… I’m not the demo… it’s for amateurs and I’m a pro. ;-) but then explain further basically what you’ve summed up here.

    Maybe I will just send people this link now to save me some time. Thanks Mike!

  2. Mykola says:

    Yeah, I think what I realized is along similar lines. I recognize the value it promises – I’m totally down with a tablet-style multi-touch personal computer device. It’s just that I’m not currently interested in the iPad 1.0, which happens to be the only one currently available.

    I’m also interested in the idea of a computer built specifically for consumption, as opposed to consumption AND production like everything we have now. StevenF’s article, which you link above, does a good job exploring the potentials here.

  3. [...] Link: It’s Only a Matter of When [...]

  4. Many of the things you’re looking for — better e-publications, Hulu without Flash –are software improvements that will come whether you buy the device or not. In fact, they’ll probably come before Apple reduces the price or refreshes the hardware in about a year.

    So by delaying your purchase, you’re not actually saving money.

    You can have it for $499 now or $499 six months from now. The difference is, choosing the first option lets you use for an additional six months.

  5. John, you’re assuming that Apple won’t bring down the price of the iPad in six months. I remember that the price of the 8GB iPhone was lowered by a third within its first few months. There were specific reasons for that price drop, but still…

    You’re assuming that enough software improvements, and the right kind of improvements (for Mike) will come out in a year’s time.

    You’re assuming that Mike “using” the device for an additional six months – by buying it *right now* – is at all worthwhile when Mike’s already said that there’s not enough “use” in the darned thing *right now.*

    Lot of assumptions there.

  6. Mike D. says:

    John: Not true. As soon as you buy an electronic device, the depreciation timer starts. Even if you keep it in pristine condition, it is worth less every day as the next device gets ready for release. Take my iPhone 3G for instance. Nobody in their right mind would buy it from me because it’s so much slower than the 3GS. Combine that with the danger of losing or breaking your device and you have a real lack of value in purchasing something you don’t want or need… right now. If I bought an iPad right now, for $499, I would be losing $499 and not gaining much utility. If I buy in a year, it should be more useful to me, possibly cheaper, and possibly with more features.

  7. Honestly, I’m waiting for the device to be released before I pass judgement. It could replace my aging (failing) PowerBook—I still have my Mini and a work laptop. But even then, I’ll wait. After all, a year after the initial iPhone release we saw a *major* upgrade.

    “When the iPhone came out, I would have paid $1000 for it. I still would, to be honest.”

    Of course, with service and subsidies, you are. The iPhone has an average $2,838 total cost of ownership after two years[1].

    We can throw some present value calculations in there (as we could for other-John’s claim, too), but thought I should point that out.

    [1] http://www.billshrink.com/blog/iphone-versus-palm-pre-versus-android/

  8. Chris says:

    I would like to try one for a weekend before deciding how much use it has. Many of the things I like doing on the iPhone would be great on the iPad. Several friends think it’s something to have on your lap whilst watching tv…maybe they are right?

  9. Collin says:

    I agree entirely that iPad has a seriously pricing issue. Your other points are completely valid also. unlike you , I would LOVE to load up on eBooks but if you look at Sony and Amazons readers, they are overpriced as well. I just can’t justify the cost as a replacement for carrying around a real book with actual paper.

    You mentioned Google’s Droid, that certainly is an up and comer in the mobile game. But don’t rule out Windows 7 Mobile. I am personally excited about it but unlike the average consumer, I have had fun making and playing my own games on the Zune so the familiar interface and ability to bring my zune marketplace to a single device would be awesome.

    Don’t be afraid to wish Windows 7 Mobile the best of luck and success! Apple is not going to go out of business with more competition and as you already pointed out the end result will be a lower price, next generation iPhone for you. Give me my Zune Phone! (Since I am obviously not going to win an iPod or iPhone from Mikes graphics contests anytime soon!)

  10. Dave S. says:

    So, did you cave into the weekend hypefest and get one anyway?

  11. Mike D. says:

    Dave S.: Nope, but I will admit to briefly thinking about ways I could buy one for someone else (e.g. girlfriend) such that I could use it for awhile. I just used one a few minutes ago for the first time and I would say it’s more or less exactly what I expected. Cool little device, not going to spend $500 on one.

  12. Berthold says:

    It’s not out here yet, but I’ve seen it in action. As much bitching and whining as is going on in the circles of people who can’t afford to just buy it for the novelty about stuff like multitasking or flash or touch-typing or what-have-you:

    This is the future.

    I’ve followed other trends that led into dead ends and I have become a late adopter for it, and I think you’re absolutely right to consider it outside of instant buy threshold. While it does so many things well, it still has serious shortcomings when compared to either the iphone or a laptop in terms of (perceived) usability. Given time, these will be remedied, and when that happens, iPad and possibly iPad-alikes will become the new way we do casual computing. It may well replace other interfaces to serious computing, as in controlling a PC with it instead of keyboard, mouse, drawing pad (Optimus eat your heart out), or even get the remote video output to compensate for it’s lack of horsepower.

    This type of device will become the new window, the new human – machine interface for many things we do differently today. I can totally see it replacing laptops 80% of the time, and a phone (with 3G) another 60%. After all, if everybody interfaces this way, what’s stopping us from using twitter, IM and collaboration tools as main communication tools instead of text messages / emails and skype instead of voice calls?

    Apple did it with the iPhone for the mobile internet and phone world, and they’re doing it again for casual computing. They’re revolutionising the way we think about and use technology. I can’t wait to see what the competition will bring to the table, but Apple is clearly the big dog in the house.

    Thanks for the great article Mike and sorry for the rant.

    In the interest of full disclosure: I have a bar-shaped non-touch mobile and a Vista Laptop. Both are made by Samsung. So there.

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