iPad: Apple takes a bite of the e-books market

Adam Leach, Principal Analyst, Ovum

UK: Yesterday Apple launched its much anticipated tablet device, the iPad, and with it Steve Jobs proclaimed that Apple was now a mobile device company. Apple hopes to kick-start the market for e-books with its iPad and iBookstore service, and replicate its success with the iPod and iTunes. However, like the iPhone, the key to the iPad’s success will be the value added by the enthusiastic community of Apple developers.

iBookstore is to books what iTunes is to music
The iPad, which resembles an enlarged iPhone, with a 9.7-inch touch-screen, will be available worldwide from March 2010. Apple has produced a unique device that has multiple use cases, from e-book reading to video watching and gaming.

A key aspect of the iPad proposition is Apple’s iBooks application. It allows users to both read e-books on the device and, importantly, to purchase new books and download them directly to the iPad. This puts the iPad in direct competition with other e-book readers, but most notably with Amazon’s Kindle.

The revenue-generating capacity of the e-book market looks significant, with early estimates for the Kindle 2 last year suggesting that the device had generated over $100 million in revenues in little more than two months after its launch in February. Apple will be aiming higher still with the iPad, which should also deliver a useful uptick to its other content stores.

The iPad’s advantage over the similarly priced Kindle DX is that it provides a host of multimedia functions as well as e-book reading. Although this seems like bad news for Amazon, the iPad will certainly increase the market for e-books.

The iPad as a platform
The iPad is based on the iPhone OS, and applications built for the iPhone will run on the iPad, providing users with access to over 140,000 existing applications, giving them content from the start.

However, the real value will be delivered once developers start delivering applications optimised for the iPad. Although this will require extra effort for developers and cause fragmentation, some will be motivated by first-mover advantage. However, the larger shift will happen once there is a proven addressable market.

The iPad, like the first versions of the iPhone, has a number of limitations (such as no camera and no multitasking capability), and it is tempting to believe that these will limit its success. Apple will refine the iPad through OS updates and new hardware, but still needs to deliver a compelling experience for the initial version of the iPad. It cannot rely purely on improvements that are not yet delivered to establish the product.

Apple is essentially acting as a highly specialised MVNO
If, as Apple’s press release seems to imply, the device will be tied to AT&T, even in international markets, this may leave a greater legacy, with local carriers potentially cut out of the revenue loop created by such a relationship, except through roaming charges.

The potential for many more such selective agreements to be made between platform vendors and specific carriers is clearly a concern for those excluded from such deals. It is also consistent with the idea of tight interdependency between specific SMART and LEAN players outlined in Ovum’s Telecoms 2020 Vision report series.

As with Amazon and the Kindle, Apple with the iPhone and iPad is essentially acting as a highly specialised MVNO, piggybacking on AT&T’s international access agreements. But while there appears to be very little scope for other carriers to join the party, there may in practice prove to be opportunities for regional operators to act as the host carriers for the iPad once its geographical reach extends beyond the US and the as-yet-unannounced initial international markets.

Cheap data plans will help adoption of the iPad
AT&T’s data plans for the device are cheap compared to current big-screen mobile broadband prices, but are nowhere near as generous. Users opting for the 3G device can pay either $14.99 per month for 250MB or $30 for unlimited data, both without the need for a fixed contract term. The ‘unlimited’ plan is a good deal cheaper than the $50–60 per month plans currently seen for netbooks. However, 250MB per month would be limiting for many users on an iPhone.

Significantly, both plans come with free access to AT&T’s Wi-Fi hotspots. This re-inforces the idea of the device as nomadic rather than truly mobile like the iPod or iPhone.