1. the overall advertising “pie” will shrink because the new efficiencies enabled by “digital” will allow advertisers to spend less (e.g. media placement dollars) and still drive the same or greater business impact
2. there will be a continued shift to digital, especially for companies that have products that benefit from more consumers coming online to do more research — e.g. bigger ticket items or items that require more consideration and research
3. because of the massive reach of Facebook, it will siphon branding dollars that used to be allocated to traditional one-way mass media such as TV; but in the short term magazines and newspapers will “hurt” the most, since they can’t even offer competitive mass reach any more – relative to Facebook.
Now that we’ve seen the iPad in the light of day, there’s a lot of chatter about what it can’t do. But Apple is now a massive threat to netbooks and ebook readers. Here’s why:
Generally speaking, the iPad’s goal is not to replace your netbook, assuming you own and love one. It’s not about replacing your Kindle either, assuming you cashed in for that as well. We have reviewed plenty of both, and know there’s plenty to like. If you derive pleasure out of using either, then Apple might have a hard time convincing you to switch to the iPad. But for the millions of people who aren’t on either bandwagon, yet have the money and interest in a “third” device between the phone and the computer, the iPad will have greater appeal.
250 Million iPods Earlier…
When the first iPod came out, its goal was not to grab the customers who Creative and Archos were fighting over, with their dueling 6GB “jukeboxes.” It was to grab everyone else. I remember listening to arguments about why Archos had a better device than Creative or even Apple. Lot of good that early-adopter love got them in the long run. The pocket media player market exploded, with Apple eating over half the pie consistently for almost a decade.
When the iPhone came out, BlackBerry users were like, “No flippin’ way.” And guess what, those people still buy BlackBerries. (And why shouldn’t they? Today’s BlackBerry is still great, and hardly distinguishable from the BB of 2007.) The point is, the iPhone wasn’t designed to win the hearts and minds of people who already knew their way around a smartphone. It came to convince people walking around with Samsung and LG flip phones that there was more to life. And it worked.
iPhones now account for more than half of AT&T’s phone sales. You can bet that WinMo, Palm and BB combined weren’t doing that kind of share pre-iPhone. Globally, the smartphone business grew from a niche thing for people in suits to being a 180-million unit per year business, says Gartner, eclipsing the entire notebook business—about 20% of which, I might add, are netbooks. The iPhone isn’t the sole driver of this growth, of course, but its popularity has opened many new doors for the category. Just ask anyone in the business of developing/marketing/selling Droids or Palm Pres.
You could say, “Those were Apple’s successes, what about their failures?” In the second age of Steve Jobs, there aren’t a whole lot. Apple TV is the standout—quite possibly because Apple discovered, after releasing the product, that there wasn’t a big enough market for it, or any of its competitors. Apple TV may be crowded out by connected Blu-ray players, home-theater PCs and HD video players, but Apple TV’s niche is, to this day, almost frustratingly unique.
So how do you know if a market exists? You ask the “other” Steve, Microsoft CEO Steve Ballmer.
It’s Business Time
There’s a famous Ballmerism, one he’s even said to me, that goes something like, “A business isn’t worth entering unless the sales potential is 50 million units or more.” 50 million. That’s why Ballmer is happy to go into the portable media player business and the game console business, but laughs about ebook readers. Microsoft may not sell 50 million Zunes, but it’s worth being a contender.
You can bet Apple thinks this way. You can easily argue that, despite its sheen of innovation, Apple is far more conservative than Microsoft. Apple TV is a bit of an anomaly, but with no major hardware refreshes and a few small-minded software updates, you can hardly accuse Apple of throwing good money after bad. Presumably Apple TV was a learning experience for Jobs & Co., one they’re not likely to repeat.
With that in mind, let’s look particularly at netbooks and ebook readers.
Like Notebooks, Only Littler
Netbooks are cooking, but it’s well known they’re cooking because notebooks are not. A netbook was originally conceived as something miraculously small and simple, running Linux with a warm fuzzy interface that dear old gran could use to bone up on pinochle before Friday’s showdown with the Rosenfelds. But instead of growing outward to this new audience (always with the grandmothers, it seems), it grew inward, cannibalizing real PC sales.
The Linux fell away, mostly because it was ill-conceived, and these simply became tiny, cheap, limited-function Windows PCs. They may have been a 40-million-unit business last year, according to DisplaySearch, but they only got cheaper, and the rest of the business was so depressed nobody was happy. (And just ask Ballmer how much he makes on those XP licenses, or even the “low-powered OS” that is Windows 7 Starter.)
Point is, nerds may love their netbooks, but the market that the netbook originally set out to reach is too far away, running farther away and screaming louder with every blog post about what chipset and graphics processor a netbook is rumored to have, or whether or not it is, indeed, a netbook at all. Clearly the audience is cheap geeks, and while that may be a good market to be in (just read Giz comments), it’s definitively not Steve Jobs’ market.
Easy on the Eyes
Now, about that Kindle. Best ebook reader out there. Every time we say that, we say it with a wink. We totally respect the Kindle (and I for one have hopes for Nook once it pulls itself out of the firmware mess it’s in), but we think e-ink is a limited medium.
Its functionality is ideal for a very specific task—simulating printed words on paper—and for that I have always sung its praise. The Kindle is ideal for delivering and serving up those kinds of books, and as a voracious reader of those kinds of books, I am grateful for its existence. But there are other kinds of books of which I am a consumer: Cookbooks, children’s books and comic books. (Notice, they all end in “book.”) The Kindle can’t do any of those categories well at all, because they are highly graphical. E-ink’s slow-refreshing, difficult-to-resize grayscale images are pretty much hideous. No big deal for the compleat Dickens, but too feeble to take on my dog-eared, saffron-stained Best-Ever Curry Cookbook.
So, e-ink’s known weaknesses aside, let’s talk again about Ballmer’s favorite number, 50 million. Guess how many Kindles are estimated to have been sold ever since the very first one launched? 2.5 million. Nobody knows for sure because Amazon won’t release the actual figures. Guess how many ebook readers are supposedly going to sell this year, according to Forrester? Roughly 6 million. In a year. Compare that to 21 million iPods sold last quarter, along with 9 million iPhones.
I am not suggesting that the iPod or iPhone is a worthwhile replacement for reading, but I am saying that, for better or worse, there are probably at least 2.5 million iPod or iPhone users who read books on those devices.
Are you starting to see the larger picture here? I am not trying to convince you to buy an Apple iPad, I am trying to explain to you why you probably will anyway. As the Kindle fights just to differentiate itself while drowning in a milk-white e-ink sea of God-awful knockoffs, you’ll see that color screen shining in the distance.
Sure the iPad may not be as easy on the eyes as a Kindle. But you will be able to read in bed without an additional light source. You will be able to read things online without banging your head against a wall to get to the right page. And, once the publishers get their acts together, you will be able to enjoy comics, cookbooks, and children’s books, with colorful images. Even before you set them into motion, dancing around the screen, they’ll look way better than they would on e-ink. (I haven’t even mentioned magazines, but once that biz figures out what to do with this thing, they will make it work, because they need color screens, preferably touchscreens.)
Tide Rollin’ In
So we have this new device, carefully planned by a company with a unique ability to reach new markets. And we have two types of products that have effectively failed to reach those markets. And you’re going to bet on the failures? The iPad has shortcomings, but they only betray Apple’s caution, just like what happened with iPhone No. 1. Now every 15-year-old kid asks for an iPhone, and the ones that don’t get them get iPod Touches.
We can sit here in our geeky little dorkosphere arguing about it all day, but as much as Apple clearly enjoys our participation, the people Jobs wants to sell this to don’t read our rants. They can’t even understand them. My step-mother refuses to touch computers, but nowadays checks email, reads newspapers and plays Solitaire on an iPod Touch, after basically picking it up by accident one day. That’s a future iPad user if I ever saw one.
Jobs doesn’t care about the netbook business, or the ebook business. He’s just aiming for the same people they were aiming at. The difference is, he’s going to reach them. And the fight will be with whoever enters into the tablet business with him. Paging Mr. Ballmer…
PS – If I’ve gotten to the end of this lengthy piece without telling you much about the iPad at all, it’s because other Giz staffers have already done such a handsome job of that already. If you missed out, here are the best four links to get you up to speed:
Taking the top box office results for each of 52 weekends from the past 10 complete years (1998 – 2008; Source: IMDB.com) we see consistently that occasions like Valentines, Memorial Day, July 4th, and Thanksgiving show increased movie going activity. People have more time during these holidays to go to the movies and Valentines is a date+movie occasion. Also, during the summer, many people go to the movie theatre to escape the heat so there is an overall hump every year during the summer months — from Memorial Day to Labor Day.
People go out during Valentines, Memorial Day, July 4th, and Thanksgiving. And they still spend what they planned to spend — 2 tickets for movie — they didn’t buy 2 more tickets and see a second movie on the same date or holiday weekend. If they had several good movies to choose from (often, they don’t), they would choose to spend the finite dollars on the one movie they really wanted to see. The overall movie spending “pie” did not increase much, if any, year over year.
1998 $4,055,194,733 n/a
1999 $4,253,601,768 5%
2000 $4,496,554,005 6%
2001 $5,003,433,737 11%
2002 $5,489,974,199 10%
2003 $5,581,797,720 2%
2004 $ 5,697,299,530 2%
2005 $ 5,524,566,579 -3%
2006 $ 5,660,826,625 +2%
2007 $ 5,968,027,963 +5%
2008 $ 5,887,193,490 -1%
The chart below shows a red line which is the average of all 10 years. The 10 thin blue lines are the annual lines from1998 – 2008, inclusive and these are plotted as actual dollars. They come out right on top of each other.
Movie advertising, which runs into the hundreds of millions of dollars a year, has failed to noticeably increase the overall spending year-round or even during specific times. The chart below shows the differentials (difference between an annual line and the 10-yr average line). These all hover closely in the +$50M and -$50M band. The amplitude of the 10-yr average (red line) is larger than $50M in the summer hump — implying that the average change in movie ticket sales due to normal seasonality is larger than the change in amplitude caused by ALL movie advertising combined.
And the summer “hump” is due to actual demand (people going out to movie theatres, some to escape the heat) not due to advertising. The only effect of advertising is to share-shift from one movie to another — the total spending remains consistent and even seasonal variations are consistent — a “zero-sum game.”
All-Time USA Box office
|Rank||Title||USA Box Office|
|2.||The Dark Knight (2008)||$533,316,061|
|3.||Star Wars (1977)||$460,935,665|
|4.||Shrek 2 (2004)||$436,471,036|
|5.||E.T.: The Extra-Terrestrial (1982)||$434,949,459|
|6.||Star Wars: Episode I – The Phantom Menace(1999)||$431,065,444|
|7.||Pirates of the Caribbean: Dead Man’s Chest (2006)||$423,032,628|
|9.||Star Wars: Episode III – Revenge of the Sith (2005)||$380,262,555|
|10.||The Lord of the Rings: The Return of the King(2003)||$377,019,252|
|11.||Spider-Man 2 (2004)||$373,377,893|
|12.||The Passion of the Christ (2004)||$370,270,943|
|13.||Transformers: Revenge of the Fallen (2009)||$367,614,540|
|14.||Jurassic Park (1993)||$356,784,000|
|15.||The Lord of the Rings: The Two Towers (2002)||$340,478,898|
|16.||Finding Nemo (2003)||$339,714,367|
|17.||Spider-Man 3 (2007)||$336,530,303|
|18.||Forrest Gump (1994)||$329,691,196|
|19.||The Lion King (1994)||$328,423,001|
|20.||Shrek the Third (2007)||$320,706,665|
|22.||Iron Man (2008)||$318,298,180|
|23.||Harry Potter and the Sorcerer’s Stone (2001)||$317,557,891|
|24.||Indiana Jones and the Kingdom of the Crystal Skull(2008)||$317,011,114|
|25.||The Lord of the Rings: The Fellowship of the Ring(2001)||$313,837,577|
the greater efficiencies of “digital” mean that the same amount of “advertising” can be achieved with fewer dollars because more waste can be eliminated. The decreases in ad spending in traditional media channels like newspapers will only be partially replaced by ad spending online.
For example, the dollars that used to fund newspaper classified advertising has been replaced by free online classifieds through Craigslist. While newspapers had incremental costs due to materials, printing, labor, and distribution, online classifieds have virtually no incremental cost.
Similarly print advertising, which was based on targeting ads to specific demographics of readerships are being replaced by online ads which can be more finely targeted to even more niche readerships — e.g. contextual advertising. And the revenue models based around cost per click are inherently more efficient (and thus lower cost) than the impression-based revenue models of magazines. Again for every dollar taken out of print advertising, only a few cents are needed to replace it in “digital.”
Agree with me or tell me I’m stupid @acfou
Dr. Augustine Fou is Digital Consigliere to marketing executives, advising them on digital strategy and Unified Marketing(tm). Dr Fou has over 17 years of in-the-trenches, hands-on experience, which enables him to provide objective, in-depth assessments of their current marketing programs and recommendations for improving business impact and ROI using digital insights.
Collaborators – Digital Profs
- Netflix vs Blockbuster - Perfect example of an industry replaced by a more efficient version of itself
- ActiveHours Gives You Your Paycheck Early, Free of Charge
- Try On New Glasses in Warby Parker's Virtual Booth
- The JKWeddingDance video was real; the viral effect was MANUFACTURED - Post 1 of 2
- Coke vs Pepsi vs Dr Pepper
- Marketing Costs Normalized to CPM Basis for Comparison
- Samsung 52 inch HDTV $9.99 at BestBuy - purchase receipt below (6:21a eastern time August 12, 2009)
- Smartphone Users Recall
- How to manufacture a viral video sensation and make viral profits - Post 2 of 2
- February 2016 (2)
- January 2016 (6)
- October 2015 (2)
- September 2015 (7)
- August 2015 (6)
- July 2015 (2)
- June 2015 (5)
- May 2015 (4)
- April 2015 (32)
- March 2015 (57)
- February 2015 (79)
- January 2015 (86)
- December 2014 (69)
- November 2014 (98)
- October 2014 (150)
- September 2014 (109)
- August 2014 (44)
- July 2014 (92)
- June 2014 (118)
- May 2014 (173)
- April 2014 (130)
- March 2014 (247)
- February 2014 (167)
- January 2014 (222)
- December 2013 (167)
- November 2013 (111)
- October 2013 (116)
- September 2013 (214)
- August 2013 (210)
- July 2013 (200)
- June 2013 (87)
- May 2013 (87)
- April 2013 (70)
- March 2013 (114)
- February 2013 (89)
- January 2013 (136)
- December 2012 (96)
- November 2012 (130)
- October 2012 (147)
- September 2012 (93)
- August 2012 (93)
- July 2012 (112)
- June 2012 (71)
- May 2012 (82)
- April 2012 (80)
- March 2012 (122)
- February 2012 (114)
- January 2012 (129)
- December 2011 (60)
- November 2011 (54)
- October 2011 (29)
- September 2011 (17)
- August 2011 (30)
- July 2011 (18)
- June 2011 (19)
- May 2011 (23)
- April 2011 (23)
- March 2011 (52)
- February 2011 (69)
- January 2011 (108)
- December 2010 (82)
- November 2010 (67)
- October 2010 (68)
- September 2010 (44)
- August 2010 (101)
- July 2010 (61)
- June 2010 (28)
- May 2010 (28)
- April 2010 (26)
- March 2010 (33)
- February 2010 (21)
- January 2010 (13)
- December 2009 (4)
- November 2009 (2)
- October 2009 (14)
- September 2009 (6)
- August 2009 (19)
- July 2009 (34)
- June 2009 (11)
- May 2009 (4)
- April 2009 (6)
- March 2009 (13)
- February 2009 (32)
- January 2009 (25)
- December 2008 (1)
- October 2008 (1)
- June 2008 (1)
- November 2007 (1)