Apple's "Jesus Tablet." What For?

Apple Inc. Chief Executive Steve Jobs kicks off his company's Worldwide Developers Conference with a keynote address in San Francisco, June 9, 2008. CBS/Larry Magid

The Monday Note covers the intersection between media and technology and the shift of business models. It is jointly edited by Frédéric Filloux, a Paris-based journalist and Jean-Louis Gassée, a Silicon Valley veteran currently general partner for the venture capital firm Allegis Capital in Palo Alto. Their column appears on CBS News.com each Monday.

If you went on vacation and renounced Internet access for the duration, you might not have heard the latest rumors concerning the iTablet a.k.a. the Jesus Tablet, Apple's eagerly awaited entry into the putative bigger than an iPhone but smaller than a MacBook segment. I'm avoiding the n-word: for Apple, this is the no-book category.

As for the religious nickname, let's go back to MacWorld, in January 2007. Steve Jobs walks on stage and demonstrates the "iPod of phones." The audience reacts with such religious fervor that, for a while, wags call Steve's latest miracle the Jesus phone. (I could go on and call AT&T's network the iPhone's cross, but I won't.)

Back to 2009, for the past week, we've had the strongest wave to date of rumors and speculation regarding Apple's second coming (after the Newton, see below) into the tablet space. Putting such froth down would be ignoring the desire, the hope behind the agitation. The Greater We seems to want something bigger than and iPhone and smaller than a 13" MacBook, currently Apple's smaller laptop.

Great, but what for?

Credentials. Before I proceed with parsing the question and exploring answers, I need to disclose my own background in this very topic, it'll shed light on my perspective.

We're back in the Spring of 1987, I run Apple's Product Development, we just launched the Open Mac my 1985 license plate promised, the Mac II, and a natural evolution of the original Mac, the Mac SE, with a much-desired internal hard disk and a not-so-welcomed fan.

Steve Sakoman, head of Macintosh hardware engineering, walks into my office and, for a moment, we bask in the glow his good work. But he has something more important in mind: he doesn't want to keep running a large and growing organization, not his cup of tea. Steve wants to leave and start a tablet computer company. He describes a computer the size of a sheet of US letter paper, 8.5"by 11", about 1" thick. A touch-sensitive screen occupies the surface; you write on it with a stylus, it recognizes your handwriting. I immediately ask him if he needs a CEO; he smiles. He knows I've been bitten by the entrepreneurial bug and replies we need to discuss the matter with his main investor, Mitch Kapor, the founder of Lotus. Steve befriended Mitch in his earlier HP days where he engineered a small portable computer product, the HP 110. Yes, you might call it a netbook today.

Steve is the engineer's engineer; we sometimes call him The Real Steve to tweak the then departed Steve Jobs. To us, Steve is a Franchise Player, a term of American Football used to designate an individual you don't want to trade away. As a result, we offer him free rein to get rid of the big organization duties he doesn't like and set up an independent group, his own team, his own building elsewhere in the Valley, funded by Apple and reporting to me. Steve calls the project Newton, a neat reference to an important apple. There is tremendous excitement inside and, soon, outside, because we all see a huge future for the tablet "form factor," a nice, more natural portable computer we'd all carry around and write on.

Three years later, we leave and start Be, Inc. While we say nothing about our plans, our association leads many to believe we're doing a tablet computer. In fact, we had soured on Newton's prospects: Steve's time running the project and my own observations led us to agree handwriting recognition was hopeless.

We know what happened next: a number of tablet devices came out, such as the GO Pen-based OS and AT&T's Eo.

Apple's Newton, was announced in 1992 and shipped in August 1993. Initially, Newton was touted as creating a trillion-dollar PDA (Personal Digital Assistant) market and Microsoft, in its usual creative fashion, jumped on that bandwagon as well. Windows CE (as in Consumer Electronics) became the core of Microsoft's PDA effort and later morphed into Windows Mobile. In another burst of original thought, Windows Mobile will now be rebranded as Windows Phone.

On the PC front, a Windows version got dressed up as the Tablet PC operating system. In 2001, Bill Gates told us: "The tablet takes cutting-edge PC technology and makes it available whenever you want it..It's a PC that is virtually without limits - and within five years I predict it will be the most popular form of PC sold in America."

Today, the tablet form factor occupies a very small segment in the PC market, with Toshiba, HP and Dell shipping one or two models each. They're modestly successful in vertical applications such as form filling for insurance adjusters or doctors.

With this out of the way, let's turn to the putative iTablet.

The "What For" question isn't easily answered. For example, it is tempting for me to fantasize about an iPhone, only with a larger screen, wouldn't this be nice? The "only thing" I can't do on my iPhone today is write columns. The Notes application is helpful for a few sentences, but that's it, no real writing. A bigger screen would give me a bigger touch keyboard, I could type my Monday Notes away on an airplane or, forbid the thought, in a boring meeting.

Back from the dream, will I type on a 10" slate? That's the big ergonomics question (OK, usability by a large enough number of normal humans). I don't know; I suspect some of us won't. But an aging French male like me, not trained to be a touch-typist, might try it and like it.

Put another way: Will the Jesus Tablet appear as a replacement for a notebook, only smaller, supporting enough of the tasks performed on a laptop today? And, if it does, will it cannibalize Apple's laptop business? Or will it come in at a lower end, expensive lower end perhaps, as a complement to today's laptop line-up? Will this "premium lower-end" vacuum up business formerly left "on the floor" by Apple's lack of no-book offering? This assumes that, unlike Windows netbooks, the iTablet generates adequate margins. See the business models discussions a little later.

Dimensions. The rumor mentions a 10" (diagonal) screen. I'll spare you the arithmetic and the comparison with the iPhone's 1.8 length to width ratio: a 10" screen means something close to half a US letter page, 8.5" by 5.5." Fold a US letter page and stare. I checked men's pockets, jackets and coats. Women don't have pockets, they have purses.) The hypothetical tablet would fit in a coat (as in topcoat) pocket, it would go in but stick out of a jacket pocket (the opening is a standard 6," the depth varies a little but never reaches 8.5," by far) and it wouldn't fit inside most breast pockets. Contrast and compare with the approx. 2.5" by 4.5" dimensions of the iPhone and most of its brothers and sisters; those dimensions make smartphones eminently ubiquitous. I doubt the half US letter format would achieve the same constant presence.

Blackberries are called Crackberries because they're used at all times, even inopportune ones. So are the other smartphones. The price they command comes, in large part, from their frequency of use. If an iTablet ever comes out, I'll be curious to see what size/frequency of use compromise is reached.
Personally, I'd like something a tad smaller.I still miss my Toshiba Libretto, a tiny but fully functional Windows 95 computer. While I'm at it, I'd prefer (and pay the price for) a very small Libretto-inspired MacBook. Fat chance - so to speak. I won't bet against Apple designers' and engineers' ability to do something really innovative in the tablet form factor.

Connections. The iTablet is like an iPhone, only bigger. No. I don't quite see myself bring an iTablet to my ear to argue the merits of a Term Sheet in a conference call. But that doesn't say we won't see useful telephony function. If we assume WiFi plus a data plan on a wireless carrier, then running Skype-like VOIP telephony with a headset might be in the cards; the Term Sheet discussion just mentioned will now be over a shared document on the screen.

US carrier choices? AT&T is much maligned for its poor network. A lame excuse is they didn't see the Jesus phone rising and failed to build enough capacity. Not coverage, capacity: smartphones drink a lot of data and overwhelm the wireless pipes designed for voice traffic. So much so Verizon just decided all future smartphones on its network must also have WiFi connectivity. Why? WiFi traffic will relieve the still voice-centric network from data overload. AT&T hasn't waited to offer "free" WiFi to iPhone users in the US. Regarding which carrier will support an iTablet, it's not a given there will be just one carrier; times are changing: the FCC is now looking into exclusive arrangements.

Late 2010 or, more likely, in 2001, a new wireless standard, LTE (Long Term Evolution), might get us into "interoperable" phones and n-books. Here, "interoperable" means we could switch carriers, say from Verizon to AT&T, without having to change devices, just like in more civilized parts of the world. Summing up: nothing special to an iTablet, here.

Price and business models. A delicate matter. Today, if we believe several analysts, Apple gets $850 or more per iPhone. Does this mean the iTablet would retail for more? Surely, it will cost more to build. Can Apple sell a $1,000 tablet? Even Steve Jobs had to cut the iPhone's price by $100 a few weeks after the inaugural June 30th 2007 shipments. This gets us back into subsidies or, if you prefer, paying for a small portion of the device every month, buried in your phone bill.

But we've established the iTablet isn't a phone, we'll have just a data plan, meaning a smaller ARPU (the sacred Average Revenue Per User) for an iTablet than for a smartphone. Today, for reference, I have a Verizon dongle for my MacBook, just in case nothing else works; the data plan is $60/month. That's $1,440 over two years. Is there room for a $500 subsidy bringing the n-book, sorry, the iTablet down to $499, or $400 to reach $599 "retail"? Not sure. Today, Verizon sells an HP Mini n-book for $199 with a 2-year contract. The data plan is $39 for 250Mb/month, $59 for 5Gb, just like my dongle. In this case the subsidy, when comparing with the retail price of a similarly equipped HP Mini, falls somewhere between $150 and $200. This calls into question the $400 to $500 subsidy required (in my theory…) for the iTablet.

Another possibility is a new iTunes subscription for music and videos. And, while we're at it, let's buy the data plan directly from Apple using the iTunes micro (in this case, if not mega, at least meso) payment system. Dear Leader doesn't like the phone company to "run the table". Who are we to blame his steely resolve when we see the ruses carriers use, the impenetrable agreements they deploy to get into our wallets.

The Financial Times had an interesting story on July 27th. In effect, the story positioned the iTablet as an entertainment device, offering movies and music, complete with albums and, why not, ebooks. The "albums" part is puzzling, this is what one of my neighbors, who supplies software to Hollywood types, calls "a 50-years-old idea of what a 20-years-old will buy". But the rest of the story could buttress the subscription concept. We can already get this type of content one at a time on an iPhone, including Kindle books. An iTunes subscription might work, it's been suggested many times before. Personally, I think Jeff Bezos could make a neat deal with Apple and focus on selling content, books, rather than having to build a Kindle. Imagine a Kindle DX (9.7" screen, $499) next to a (subsidized) $599 iTablet.

Games. Much to everyone's surprise, the iPhone has emerged as a major game platform. So much so Nintendo now points to the iPhone as a probable cause of its Q1 2009 revenue decline, this after 2 years of go-go growth from its innovative motion-sensing Wii. If an iTablet comes out, we can expect it to feature games, either adapted from the iPhone or specifically designed for the bigger screen. This, in passing, says the iTablet would run iPhone OS software, not Mac OS X.

Game revenue, outright sales or subscriptions, could become an important part of the subsidy business model.

The third device question. This could be an ill-formed query but let's try anyway: do we need a third device? A phone, a laptop and now an iTablet? The iPhone's place was never in doubt but what about a device that's neither a laptop nor a pocketable smartphone? As discussed earlier: Is this a way to sell another device to existing Apple customers, or is it a way to bring in the lost sheep, the errant n-book users?

We'll see in a few months.


By Jean-Louis Gassée and Frederic Filloux
Special to CBSNews.com
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