While estimates vary wildly, by all accounts the consumer market for tablets is set to explode in 2011. According to the Wall Street Journal, about 13.5MM iPads were sold in 2010. This year, it is estimated that Apple will sell between 23MM (Barclay’s) and 30MM (Forrester). Both the agreement of the experts and the success of the iPhone suggest that Apple is well positioned to remain by far the dominant player in what will soon become a very crowded field. Last week, Barclay Capital’s tech analyst Ben Reitzes went on record as saying:
“Outside of Apple, we believe many tablets will not meet bullish sales expectations. Like MP3 players, we believe some investors may learn the hard way that Apple’s ability to marry content, software, hardware design and style is unmatched in the tech sector.”
We not only believe he’s right, but fear that – like investors – some publishers may also be poised to learn a difficult lesson. As publishers think more carefully about the role that Apple will continue to play in the development of mobile and tablet devices, we think it is important for them to give careful consideration to the following:
Consumers Will Choose the Channel – and So Far the iPad is the Device of Choice
Publishers need to sell their digital products, like their printed versions, in ways that maximize the likelihood that consumers will buy them. This means putting them in high-traffic environments – or on high traffic devices – where they will show up to best advantage and where they can be easily found. Because of its size and superb graphic quality, the iPad is a near perfect delivery mechanism for magazines and newspapers. For the moment – and for the foreseeable future – it is likely to remain consumers’ device of choice. While the installed base of e-readers may be only slightly less than that of the iPad, e-reader growth is estimated at a fraction of that for both the iPad and tablets in total. E-readers are much better suited to books than they are to magazines and newspapers. Even for books, we believe the iPad’s versatility and graphics handily eclipse the consumer benefits offered by e-readers. Although viable competitors to the iPad may ultimately emerge, we wouldn’t bet our business – or our app strategy – on it.
Paying the Piper
We fail to understand why Apple’s 30% of revenues from app sales is widely perceived as excessive. The iPad brings to publishers an extremely cost-effective way to seamlessly deliver their product without incurring traditional production or distribution expenses. Indeed 30% compares favorably to the 50-60% of newsstand revenues retained by retailers and national distributors, or to the (often negative) remits accorded to publishers from subscription agencies.
There Will Be Other Ways to Get Consumer Information
Publishers’ desire for control over consumer information should not limit their embrace of platforms and technology that provide substantial opportunities to establish meaningful relationships with consumers. We all wish that Apple were more willing to share information on app users with app sellers. But publishers have long lacked detailed information on newsstand purchasers and web visitors, and – more often than they would admit – even the information they have on subscribers is of relatively poor quality. Many are already collecting significant information on their users through in-app surveys and feedback forms. The high engagement levels that accompany app usage make it relatively straightforward to find compelling reasons for consumers to voluntarily share information.
Summary
While magazines and newspapers can be expected to generate a substantial revenue stream for Apple, the iPad is more important to publishers than publishers are to the iPad. Rather than devoting disproportionate resources to the pursuit of alternative platforms, we believe publishers should focus instead on marketing their publications more effectively on the iPad by a.) obtaining greater visibility within the App Store, b.) resolving the issues surrounding subscription availability, and c.) making their publications easier for consumers to find by clearly identifying them as magazines or newspapers. While it seems basic, many are not identified in this way either in their title, keywords, or descriptions.
