Why has the iPad stopped growing?

 

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Apple announced their earnings report for the first quarter of the year 2014 last Wednesday. Overall they were pretty much in line with the Wall Street expectations and the analysts’ predictions except for one stat that caught everyone’s eye- the iPad sales were down year-over-year from around 19 million in the same quarter last year to close to 16 million this year. For a device that had proven to be extremely successful for Apple and has shown tremendous growth over the past few years since it launched in 2010, this dip in sales is a cause for worry.

On the investors’ call, Tim Cook was questioned about this. He gave a pretty much non-answer by blaming an issue in the supply chain, as he had done previously on many other occasions. But the problem seems to be much deeper here. A 15.8% drop in sales is not something Apple can ignore. So what could be the problem? Before you say it is because of the rise of Android tablets, here is a graph representing web share of tablets. The iPad is clearly a leader in the tablet market, at least right now. Most Android tablets sold are sub-$100 in cost and naturally don’t give the user a pleasant computing experience. So no, Android tablets are not the reason for the declining iPad sales. They just are not fighting the same battles the iPad is.

 

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Benedict Evans called out an interesting point which intrigued me. He said that the falling tablet sales aren’t a consequence of people realizing their true value; it is incredible growth of the smartphone. Most people can accomplish all of their tasks that they do on a tablet on a smartphone, and whatever the small percentage of computing needs of a regular person remain, are done on a 5-6 year old PC that is lying around the house and is rarely used. I mostly agree with his point except for one argument- If this was the case all along, why did the tablet market grow so quickly? The iPad has sold more units than the iPhone over the same time frame since it launched.

The iPad is truly a revolutionary device, and will definitely go on to replace the PC, but not just yet. There is definitely room for a device bigger than the smartphone in almost everybody’s life. What seems to have happened is that the iPad had its initial boom and now the market is self-correcting. Sales might go down again for a few more quarters, but the iPad will be a slow burner. When we reach a point when a tablet will be able to truly replace a PC, the iPad will shine. For this to happen though, iOS for iPad needs to change. A blown-up iPhone interface has proven to be not ideal for a lot of use cases. The strict AppStore rules might need to be relaxed. Apps should be able to interact with each other. A lot of rethinking of the philosophy which created the iPad should be brought under scrutiny. Running two apps side-by-side is not the answer to all questions (just look how successful Windows 8 has been). We need real full-featured business class applications to run on these devices. Office and Photoshop are definitely a start, but we need all the features that these have on PCs. A lot of the notable productivity softwares are still missing-Visual Studio, Creo Parametric-to name a few. Lack of any external peripheral support is also a huge issue right now, although it might be less and less a necessity going forward. Searching for new applications that can perform well only on tablets has been exciting, but for the transition phase that we are in right now, we need to find a way to run these traditional programs on tablets. The post-PC product is not going to outsell the PC where the latter, while shrinking in sales, is still king.

We are so close, and yet somehow so far.

Why did Facebook spend $19 billion to buy WhatsApp?

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One of the earliest Facebook designs

I love to follow technology. I am constantly loading websites like The Verge and Engadget to consume every last bit of tech news and pulling to refresh Twitter to catch every single one of the quirky tweets by journalists. Twitter is the first app I open everyday when I wake up, unless I have a WhatsApp message. Wednesday was a holiday for me, and I went trekking. When I came back home, I was too tired and went to bed. I did not go online.

On Thursday morning, at around 8 am IST, I woke up and connected my phone to my home WiFi. WhatsApp exploded. 700 messages from 10 conversations. I was wondering what was going on, just to read message after message about Facebook spending $19 billion to buy out WhatsApp. I was stunned. I ran to my desktop to read the news, to get a sense of what was happening. To confirm that this was not an elaborate prank.

Alas, it was real. “Facebook is buying WhatsApp for $16 billion” was The Verge’s headline. “Facebook Buying WhatsApp For $19B, Will Keep The Messaging Service Independent” said TechCrunch. For the last few days I’ve been trying to make sense of why did Facebook spend 35% of its cash on WhatsApp and what this means for the messaging market in general. Here’s my take on the matter:

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When Mark Zuckerberg and a group of his friends launched Facebook, they launched it with one motto: “Connect the world’s people”. At the time the phrase might have seemed very good-hearted, but it always meant more. It always meant controlling how people of this world connect, which sounds more like a corporate strategy. And that is what Facebook always was. A corporation. When Facebook launched, most people were quick to dismiss it as a MySpace clone. What made FB popular at that time was that it was ‘cooler’ than MySpace. A start-up by a group of Harvard students with a passion to connect the world. Facebook grew faster than any other social network ever, and now it is 1.2 billion people strong. 60% of people who are online are on Facebook. In an attempt to attract more users, Facebook launched Internet.org, an initiative to get more people online. Facebook was becoming unassailable. So what happened?

Mobile messaging.

When Facebook was counting money with its primarily desktop-first interface, they made a huge bet on web apps for mobile. Both Android and iOS had HTML5-based Facebook apps. Facebook Messenger had a clunky UI and wasn’t really paid much attention to. That was the time when mobile messaging started to happen. WhatsApp, Kakao Talk, Line, Viber and a host of other apps launched on mobile with a singular vision-to make messaging simple. Signing up for these apps was as simple as entering your phone number. Convincing friends to stick with one app was easy. The network effect, which was once instrumental to Facebook’s rise, became the deciding factor in this new world of cross-platform messaging.

WhatsApp grew because of one differentiating factor – No ads. WhatsApp co-founders, Jan Koum and Brain Acton were ex-Yahoo employees who were smothered by the business of making money through advertisements. They launched WhatsApp in 2009. WhatsApp quickly became popular owing to a simplistic interface and a relatively low yearly subscription fee. Facebook by that time realised the market they had missed. After making native apps for mobile platforms, they focussed on Facebook Messenger, trying to get back users who once used Facebook extensively for all social connections, are now using these messaging apps for chatting. They launched a gorgeous new interface for Facebook Messenger, and a great new feature, called ‘Chat Heads’ on Android.

But that did not seem to buckle the ongoing trend. Facebook just wasn’t cool any more. In a bid to get back into the integral digital life of the young population, they bought the photo sharing start-up Instagram for $1 billion, an amount which sounded crazy back in 2012. Messaging still remained an important missing piece in Facebook’s mission. So what did they do? They spent a third of their cash reserves and a tenth of their overall market cap to buy WhatsApp, the biggest, and more importantly, the fastest growing messaging app among the lot. But why did they have to spend so much cash on one player, in an area where the network effect is not that pronounced and trends change in a whim?

“If you can’t beat ‘em, join ‘em.”

Or in Facebook’s case, buy ‘em. WhatsApp has a unique appeal in this market, being on every platform known to the world. WhatsApp has an app for iOS, Android, Windows Phone, Blackberry 10, Blackberry 7 and Symbian. Heck, they even have a J2ME app to work on feature phones. This helped WhatsApp grow faster than any other app. It effectively became a social network of sorts. WhatsApp became the first ‘social network’ to grow faster than Facebook. Even with total users half of that of Facebook, WhatsApp had more DAUs (Daily active users) than Facebook. WhatsApp was poised to become the next biggest social network. Facebook was going to get ‘MySpaced’ by WhatsApp.

WhatsApp's extraordinary growth

So in my view, there are two line of thoughts to look at this acquisition- as an Optimist, and as a Sceptic.

Optimist

Facebook sees mobile messaging as the next wave of social connections and wants a piece of that pie. With a blockbuster IPO, they had enough cash on hand and saw this acquisition as a logical entry to this field. WhatsApp has contacts information of more than 450 million people in the world and for Facebook, this information is invaluable.

Sceptic

If anything is going to kill Facebook, it’s going to be WhatsApp. So lets buy them before they get too big. Facebook tried several times to buy Twitter, but failed every single time. They did not want to miss this opportunity. After being rejected a $3 billion offer from Snapchat, they could not miss out on this opportunity. How to avoid being myspaced? Buy your closest competitor, and keep the competition at bay.

Me? I’m 60% optimist, but will definitely be watching this field very closely. Facebook was the app I used the most before WhatsApp. Now WhatsApp is one of the most used apps on my phone, along with Twitter. Facebook just bought one of them. Is Facebook just trying to be cool again? Or are they just forcing me to use the service. Only time will tell. Facebook just needs to remember one important thing- Your audience is not loyal. They can and will flee at any small error you make. Spending money to buy companies is easy. Keeping them enticed and entrenched in your service is the more difficult part.

Was Windows 8 a calculated bet?

After missing the boat on capitalizing on the early boom of mobile computing, Microsoft came out with Windows 8 in 2012, three years after the iPad. While the name itself just suggests that it is just the next version of Windows, Windows 8 was much more than that – A huge shift in both the underlying workings and the aesthetic appearances of the operating system. It was a fundamental shift in the thinking of how the operating system is supposed to be used. Windows 8 was the promise that Windows can still continue to be Windows in its true ultra-productive form, while being the fun operating system that will delight users, those users who were initially steered away to Android and iOS.

Of course, for this to happen the core interface needed changing, moving to a touch based user interface as opposed to the traditional mouse and keyboard interface. And again to entice users to use this new OS, this touch interface needed apps. So what was Microsoft’s answer? Shoving a touch UI with gestures and fullscreen apps down the throats of all people using Windows PC’s. There were no touch based PC’s around before Windows 8, and more than 1 billion users who are using Windows with their regular setup were left with a sub-par experience. Almost all of the industry followers noted that the reasoning behind this was to give developers a huge install base to develop apps for the touch version from day one. Did it work? The Windows 8 Store became the fastest growing app store in the world, reaching to the 100,000 number the quickest. The quality of apps was definitely questionable, especially after being compared to rival platforms, but Microsoft got something to promote its new OS with.

While Windows 8 gained market share at the same rate of that of Windows 7, the overall PC industry was still shrinking. Windows 8 got a bad reputation with it being disliked almost universally by regular and power users both. The promise that touch screen PC’s were the answer to the changing market wasn’t coming to fruition. This reception of Windows 8 wasn’t a surprise to most people, but was it really a surprise to Microsoft?

The more and more I think about this, the more and more I am convinced that Microsoft foresaw this reaction and frankly did not care. Why? Because the majority of the complainers were going to be the ones who are using regular non-touch PC’s and they did not have any other option but to still keep using Windows. Macs are and always were beyond the reach of the majority of the market, and Linux has never gotten mainstream traction. These people were essentially ‘stuck’ with Windows 8, or on any other older version of Windows.

This seems like a master plan which has so far worked out really well, but the most important thing that Microsoft lost is brand trust. Calling this mess Windows was a mistake, losing the name ‘Metro’ was a setback and OEM’s publicly expressing displeasure with Microsoft’s new direction didn’t help too. Microsoft may have always planned to make everybody happy again with Windows 9, but this interim period has definitely hurt them more than they could have ever anticipated. Windows RT was a catastrophe. The Surface was a catastrophe. The basic principle that launched Windows 8 – one OS everywhere – hasn’t yet happened. Maybe that happens in Windows 9. Maybe this path was leading up to the release of Windows 9. With the recent re-organizations and CEO change, the leadership is definitely not stable right now. But as a technology enthusiast, I can only hope that Microsoft makes it. History doesn’t repeat itself again with someone else swooping in and finally building what Microsoft is trying to build, and everyone doesn’t repeat themselves yet again by saying,

See Microsoft, this is how it’s done.