The iPad Ecosystem: Economics, Elitism, And Advertising

A number of iPad-related stories broke over the last couple days; we've rounded up some of the larger topics into a single news post. First up, graphic designer Paul Threatt took exception to some of Apple's iPad advertisements, several of which purported to show the device running Flash without a hitch. In the screenshot below, the iPad is surfing the New York Times and displaying a slideshow that's only viewable on a browser with Flash installed. Threatt didn't just complain to the company, he filed suit with the FTC, alleging that Apple's ad conveyed false/misleading information about the capabilities of the device. From the complaint:

In several advertisements and images representing the Apple products in question, Apple has purposefully elected to show these devices correctly displaying content that necessitates the Adobe Flash plug-in...This is not possible on the actual devices. Despite the controversial lack of support for Adobe Flash on these devices, Apple has elected to depict these correctly utilizing the Flash plug-in. This constitutes willful false advertising and Apple's advertising practices for the iPhone, iPod Touch, and the new iPad should be forcibly changed.

Apple has yanked the misleading images and stated that the screenshots were actually 3D renders. The images were not meant to imply that the iPad would run Flash.

iPad Profit Margins, Elite Design

Apple's gross margins have long been the envy of the computer industry and early
estimates of the iPad's cost suggests that's not going to change. Based on the value of its component materials and manufacturing expense, analysts believe Apple will pay around $270.50 per iPad, plus a $20 warranty set-aside per unit. That adds up to $290.50 for the basic $499 model, giving the company a 42.9 percent profit margin. If the figures are accurate, the basic model would be in line with Apple's current gross margin of about 40 percent.

The higher-end models are even better deals, from Apple's perspective. The 16GB iPad with WiFi and 3G support carries a projected 52 percent margin while the $599 iPad comes in at 48.1 percent and the $729 iPad+3G hits 55.1 percent. High as that is, it's still not atypical for the manufacturer; the 3GS iPhone carries an estimated gross margin north of 60 percent. The fact that the iPad is essentially a fat iPod Touch is a distinct advantage in this case, as it allows the new tablet to potentially utilize many of the same internal components."This [the profit margin estimates] shows that there's room going forward for Apple to reduce the price of the iPad," said Ezra Gottheil, an analyst with Technology Business Research. "I think the $499 price point is very aggressive, but if they dropped [the price] it would really put the iPad in the netbook range. At a lower price, consumers will have to decide what they want for a portable work and play device, a netbook or get an iPad."

While we don't want to cast aspersions on anyone's predictions for what Apple might or might not do with the iPad this early in the game, there's precisely nothing in the company's history that suggests Jobs would cut the price to directly compete with other devices. In reality, analysts regularly predict that Apple will cut its prices in order to better compete and Apple regularly doesn't do it. The company's product revisions and price structure are updated at regular intervals, not according to the actions of any would-be competitors. When Apple does decide to target lower price points, it typically does so with smaller devices with their own distinct features (the iPod Shuffle, Mini, and Nano are all good examples of this).

Steve Jobs has historically disdained the idea of competing on price and Apple's product focus and distinctive design are inextricably tied to his vision. According to John Kao, a corporate and governmental innovation consultant, Apple is an excellent example of the auter model of innovation. "In the auteur model," Kao
told the New York Times, "There is a tight connection between the personality of the project leader and what is created. Movies created by powerful directors...are clear examples, from Alfred Hitchcock’s 'Vertigo' to James Cameron’s 'Avatar.'

One of Jobs' most signature design philosophies is deliberate simplicity, particularly when constructing design interfaces. In contrast to the "everything-but-the-kitchen-sink" approach typically personified by Microsoft and associated Windows OEMs, Apple focuses on delivering a unique, particular, and specific user experience. At times that can be frustrating (and it might not work with the iPad), but there's no arguing with Job's success over the past 12 years. And, of course, it's worth noting that not even Steve gets everything right all the time—for all the man's recognized genius, the Mac Cube and hockey-puck mouse point out that he's just as human as the rest of us.