The Big Consumer Tech Questions for 2012

When it gets to be early January, pundits like to prognosticate.  it doesn't matter whether the subject is technology, politics, or the love lives of celebrities, the news sites, blogs, and TV airwaves are filled with predictions.  This blog is no exception.

Since I am not a celebrity and abandoned my political ambitions in 10th grade, here are my tech predictions for 2012:

• Apple's slow product refresh cycle finally causes headwinds for the world's best run tech company.

There's no doubt about it.  In the last ten years, Apple has more "hit record" products than the Beatles had hit songs in their prime.  Or at least it seems that way.  However, in key areas, Apple is now way behind or at parity.  Beginning next week at CES, the market will be flooded with Ultrabooks, the Intel-based PC architecture that aims to take on the iconic MacBook Air.  The thing is, the first ultrabooks from Lenovo and Thoshiba are very promising.  They match the Macbook Air spec for spec and are very competitive on price.  Windows 7 performs well, and boot up times are much shorter than on traditional laptops.  This morning, Ina Freed of AllThingsD noted that Ultrabook prices are expected to drop by a third in the next 12 months.  Plus, Windows 8, which doubles as a tablet OS, will debut at the end of the year.  Expect Ultrabook/tablet combo devices by this time next year.  Personally, I think there's pent up demand for a Windows tablet that runs all those Windows desktop apps.

Innovation in the Mac hardware area seems to have stopped for an extended nap?  I read rumors of a 15-inch MacBook Air, updates for the Pro and iMac lines, and maybe even an update to the behemoth MacPro desktop, but the roll-out is very slow.  

The 4G revolution is in full swing.  All of the major handset manufacturers have credible 4G devices running on multiple carriers, and, with the broad roll-out of Google's Android 4.0 "Ice Cream Sandwich" OS, Android phones may finally come close to matching the "simple and elegant" look and feel of Apple iOS.  Plus, Google, not Apple, is leading the charge into mobile payments.  I love my iPhone, but I am part of the 10 percent of the US population that is Mac-centric.  The Mac ecosystem is the best solution for me.  Google's cloud apps, social network, integrated mapping and payments, and 400,000 app store get more credible and compelling every day.

Apple faces additional challenges expanding iCloud, broadening its media offerings, inventing its mythical TV that has been coming for years, and getting the next-gen iPhone 5 and iPad 3 out the door.

The bottom line is, Apple needs to step up its game - delivering more products faster with typical Apple quality.  My prediction is that Apple will live up to the challenge.

• Microsoft makes a comeback and becomes a player in digital media in the living room and over connected devices like tablets and smartphones.

Microsoft's biggest problem isn't weak products or poor customer satisfaction; it's snooty members of the tech press that call them a corporate dinosaur or discount innovations in areas like media streaming or mobile phone OSes.  If you look at Microsoft's product history over the last 3 or 4 years, you'll see a bunch of winners:

• Excellent new versions of Office for Windows and the Mac. 

• Windows 7, which largely erased all of the annoying features of Vista and made things faster, too.

• Superior media streaming built into the XBox 360, which is the largest streaming platform in the world.

• Excellent online games.

• Significant upgrades to its enterprise apps and development tools.

• The purchase and relaunch of Skype, which is expanding dramatically.

• A mobile phone OS in Windows Phone 7.5 that many reviewers grudgingly admit is just as easy to use as Apple's iOS.  Maybe the Microsoft-Nokia alliance will see some traction this year.  

Eventually, reporters and analysts will notice.  Microsoft is still insanely profitable with massive amounts of cash in the bank.  It is still a market leader in the most of the segments where it elects to compete aggressively.  Plus, it's a major investor in Facebook, which will go public this year and create even more available cash.  I wonder what they will buy with it.

The tech pundits talk about the Big Four Platform companies - Facebook, Google, Apple, and Amazon - like they will decide the future of the consumer cloud.  Well, 90 percent of consumers use PCs and software from Microsoft and don't seem inclined to change.  The Xbox is the number one selling game console in the US.  None of the Big Four has these advantages. 

My prediction is that, when the battle for the living room reaches maturity 3 or 4 years from now, Microsoft will be a serious challenger.  Eventually, even tech reviewers can recognize quality.

• Cord Cutting is coming, but slower than the pundits predicted and with higher margins for cable and telecom companies.

For several years now, the digerati have predicted that consumers will begin to cut cable/satellite TV connections in an effort to save money and gain access to programming on an ad hoc basis.  I have a client that sells subscriptions to digital services, and the number two top questions in their call center are:

1. "Can I get Netflix with that?"
2. "Can I get rid of some of those stinkin' channels that I don't want and pay less?" 

The answer to both questions is yes.  Someone will do a better job of streaming on-demand TV, although the jury is out on Netflix as the eventual winner.  And your cable/telco provider will be happy sell you TV a la carte by delivering to you through your connected TV over an even faster and more profitable Internet connection.  With the escalating cost of content - particularly ESPN and a few other network bundles - pay TV has become a low profit business, and it's not like the cost of content will decline any time soon.   

Broadband is another story.  It's hugely profitable, and consumers can't live without it in the way they can - say - ditch their home phone line or the Food Network with impunity.  For digital service providers, speed upgrades are a minor cost when compared to putting the lines in the ground to begin with. TV shows look just fine over the Internet, and then there are all of those tablet apps and websites, like Watch ESPN and the Verizon and Comcast programming apps.  It turns out that consumers will watch TV just about anywhere, including on much smaller tablet and smartphone screens.  In fact, yesterday, Comcast and Disney inked a ten year agreement to facilitate content delivery of the most popular pay TV properties on every platform imaginable.  Plus, broadband is the gateway to new services like home security and monitoring, which is hard to turn off once it's installed and is much less expensive to deliver than pay TV.

So, yes, you'll be able to cut the TV cord, but it's likely to be replaced over the next few years with a much more profitable cord or two and more expensive and faster broadband service.

The Long-Term Tablet War

So far, many have tried, but none have succeeded, in gaining significant share versus Apple in the tablet market.  Today, Amazon officially announced its tablet competitor to the Apple iPad - called the Kindle Fire, which has a 7-inch screen and sells for $200.  The $200 price tag seems to be its number one feature since storage is limited, the OS is an older version of Android, and there is no built-in 3g.  On the plus side, the Amazon skin on top of Android looks great, and so does the integration with Amazon video and music streaming and storage services.  Plus, lots of Android apps work on the device.

Others have taken different approaches.  Here's a summary of market activity in 2011:

• Samsung produced the Galaxy Tab II, which is a spectacular performer, but is stylistically too similar to the iPad.  Apple is suing to prevent its sale in most places around the world and, so far, is mostly winning.
• RIM released the Playbook, which is tied to the Blackberry.  You have to have a Blackberry to access mail. contacts, and your calendar.  Since more people are dumping Blackberries than buying them, this feature was unpopular.  Any day now, a new version of the RIM QNX operating system will come out that fixes this, but, in the meantime, it's like betting you'll win an NFL title with a 40 year-old Brett Favre at quarterback.  Who would do that? Oh, wait....
• HP released the TouchPad only seconds before deciding to spin-out its PC business and exit the tablet business.  Then, with over 200,000 unsold TouchPads lingering in warehouses and a sales channel with pitchforks marching on the castle, it put them on sale for $99 and sold a ton of them.  This was one sweet tablet - fast, intuitive, easy-to-use.  It's just that it had almost no apps beyond the ones that came with it.  All I can say is, it coulda been a contendah.  
• Motorola released the Xoom, which included wifi and 3g, but, if you wanted 4g connectivity, you had to send it back to them for a week for retrofitting.  People hug their tablets close almost every minute of every day like a firstborn child.  Who is going to send their child to camp at such a tender age - even if a free genetic upgrade comes bundled with the camp package?  Nobody knows what will happen when Motorola morphs into Googorola (in actions if not name).
• Asus, Acer, Lenovo, HTC, Vizio, and Toshiba have all weighed in with nice tablets that bring little differentiation to the market.  USB ports, HDMI, SD card slots - the iPad has none of those, and people don't care.  They really don't want their tablets connected to anything except for iTunes to sync - until iCloud comes out in a few weeks or months.
• Sony just launched to tablets that are fatter on one end than the other, feel incredibly comfortable in the hand, and have a software layer on top of Android that make using the tablet much easier.  It shows some promise, but I am not sure you can buy one yet. Time will tell whether the Sony approach creates a PHAT tablet or just a fat tablet.

You would think that, with so many new choices, sales would surge for several companies beyond Apple; however, the cash register has yet to ring for anyone but Apple.  Gartner believes that trend will continue for a very long time.  Here's what all the wannabes -  all huge names in computing and electronics - are missing that Apple has built:

• A truly integrated, simple approach to OS and applications software.
• A learning curve that takes an hour or less.
• A single huge marketplace for all things tablet.
• A cloud-based service that connects all devices easily with little or no technical knowledge required - if iCloud lives up to its promises.  MobileMe didn't.  Google has all these services, but connectivity can be curiously complicated.
• A brand against which all competitors are compared (and fail by comparison).  There can really only be one of these until someone flips the board.

Google had enabled many companies to get in the phone and tablet game. They have provided tools that enable each hardware manufacturer and carrier to create something different and unique.  They have provided Android for free, so that handset makers don't incur licensing fees, because they know that search and ad revenues will more than make up for Android's upfront costs. In the phone market, this has driven Android to a market leading position - great for Google - but 10+ handset makers sell Android phones.  It's likely only a few - Samsung, HTC, and Motorola, in particular - are big winners.  This approach hasn't translated to tablet sales, because users want a completely integrated experience on tablets.  Many consumer and business users have shifted their app use to tablets over the last year - at least on the iOS platform.  Android will continue to get better. Android tablet market share will rise on the tablet side, but frustratingly slowly.

So, who will challenge Apple's tablet dominance?  Their old nemesis, Microsoft, which is taking a marathon runner's approach to phone and tablet market share growth.  They have tens of billions in cash to invest.  They have Nokia as a huge global partner, which has bet its business and hopes for return to market share dominance on Microsoft.  And, somehow, the Nokia alliance hasn't scared away other handset makers that currently bet the ranch on Android.  All the biggies, except for Motorola, will be releasing Windows 7.5 phones.

Most importantly, Microsoft is highly motivated.  The Company wants and NEEDs to unify all these different devices - PC, phone, and tablet - to preserve their Windows, Office, and server software revenue streams.  Plus, making Bing and other cloud services profitable and successful, too, would be hugely helpful.  Having people running the show who have been through epic wars with well-armed competitors provides valuable lessons, too.

The initial reviews are good.  See the CNet roundup of all things Windows Phone 7.5 here:

• Windows Phone 7.5 is integrated experience especially for social networkers and heavy e-mail users.  
• Windows 8, which comes out next year, will be a unified experience on the PC, phones, and tablets.  
• Microsoft's online services seem to work much more easily on mobile devices than on the web, which is kind of weird.  
• Microsoft is taking a soft and nurturing approach to seeding the market - paying the best developers to write for their apps and targeting top influencers like Scott Adams of Dilbert fame and Molly Wood (here and here) of CNet, who, despite their best efforts, had good things to say about the new OS.  Note that Molly hasn't given up Android yet, but she said the phone was a good fit for people who were heavily tied to Microsoft services.

Right now, Google has the spotlight as the tablet challenger.  24 or 36 months from now, Mr. Gates and Mr. Ballmer may be taking the lead.