Expo Speculations

Moscone Center, January 6, 2004, 9:00AM:

The speaker strides onto the stage from the wings. Immediate standing ovation. Speaker pats the air with his hands, a humble, crowd-calming gesture. He's put on a pound or two but still looks healthy. Apparently, he's toying with growing the beard back. He's dressed in a black turtleneck and jeans to show that he's One of Us.

"Hi," he says, "I'm Al Gore, and I'm very proud and honored to endorse Steve Jobs to be the next CEO of the Walt Disney Company. Steve really is the only candidate who has been able to inspire at the grassroots level, all over this country, the kind of passion and enthusiasm for cartoon animals that we need in America ... "

... or maybe not.

It's really hard to resist the temptation, at this time of the year, to guess what will be revealed in Steve Jobs' Macworld Expo San Francisco keynote. It probably won't play out anything like the above scenario, although Al is on the Apple board, he does admire Steve, and he is in an endorsing mood these days. Also, Walt Disney's nephew Roy has resigned from Disney's board and launched a web site dedicated to getting rid of Disney's current CEO Michael Eisner, Disney is floundering like Apple in the mid-90s, and Jobs' other company, Pixar, has become so important to Disney that the board is being encouraged to acquire it.

And we know what happened the last time a floundering company acquired one of Steve's companies.

However, I do have a couple of other speculative scenarios to suggest. The rule with speculations is, the plausible ones are not so interesting and the interesting ones are not so plausible. I'm going to try to make mine interesting.

iPod Light and Dark

Apple may be on its way to dominating a market that it doesn't want to be in.

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You've heard the iPod Light rumor? That Apple will release a "mini" iPod in multiple colors with 2MB RAM in January? Normally, Apple opts to capitalize on design efficiencies, economies of scale, or other techniques to make existing products more powerful and useful at the same price, rather than holding features constant or even reducing capabilities (or margins) in order to reduce prices. But Steve Jobs has said that Apple really is trying to reduce the iPod's price, so this rumor probably has at least some truth behind it. I would expect Apple either to ignore it, in the hope that it will go away, or to explicitly deny it, though, because the specter of a cheaper iPod early in 2004, even a "mini," won't help sales of the current iPod models during the holiday shopping season.

If Apple announces an iPod Light, it might choose to do so during the Super Bowl rather than at the Macworld Expo. 2004 is the 20th anniversary of the famous Ridley Scott 1984 Super Bowl commercial. It doesn't make any sense that Apple would attempt anything comparable this year for the Mac. If Apple does produce some sort of must-see commercial for the Mac, it can show it at Macworld Expo and then make it available to TV news media, which will run it for free if it proves to be the kind of groundbreaking commercial some are imagining.

But Apple could announce a next-generation iPod during the Super Bowl. If a cheap iPod is in the works, it would make sense that it will be featured in the Super Bowl commercial slot that Apple has in fact bought. But if Apple wants my advice, the subtext of the commercial should be "beware of imitations."

When a company tells its customers to "beware of imitations," it is attempting to infect the customers with its own paranoia. I'm suggesting that Apple has reason to be paranoid about its music products, and not because of surtaxes by Canada or lawsuits by Paul and Ringo.

With all the hoopla over the iTunes Music Store (iTMS) for Windows and the fact that iPods work with non-Mac computers, it's easy to overlook the fact that Apple's music strategy is another proprietary platform play. That's the strategy that gave Microsoft its monopoly and made Apple a niche player in the computer market two decades ago, and I see no reason to think that a proprietary iPod platform won't be similarly marginalized over time.

Right now, of course, it's all breaking Apple's way. First-mover advantage, superior design of both the software and the hardware, the revolutionary deals that Jobs cut with all five music monoliths, the amazing deals with Pepsi and McDonald's, Apple's stratospheric brand esteem, Apple's coolness edge, and a huge advertising budget -- it makes you wonder why anybody else is bothering to try to compete with the iPod and the iTunes Music Store.

But that's right now. The serious vulnerability in Apple's strategy is that the iTMS is just a marketing tool for iPods, and iPods are consumer electronics products being sold at artificially inflated prices that give Apple the kinds of insane margins it can't even get selling expensive computer displays to fussy design professionals. That's going to change.

Apple has to face the possibility that next year at this time, there will be dozens of $99 (or cheaper) music players being sold at minuscule profits, all probably paying some form of tribute to Microsoft and all interfacing with thousands of Loudeye-enabled online music stores, undercutting Apple's prices because they are being run as loss leaders or promotional services and collectively offering more music than iTMS. And if that's the kind of market that music downloading and playing is evolving toward, is it the kind of market that Apple can survive in? Is it even the kind of market that Apple wants to be in?

If so, Apple is thinking different indeed.

Quantum Change

One way that rumors about new Apple products get started is by Far East publications snooping into the plans and activities of the companies in their backyards that build Apple's computers. One way that such rumors get stopped is by Apple leaking the story that the deal has been cancelled or that it isn't what it seems.

We've seen that pattern with the subject of a new 2004 version of the iMac: in April, the Chinese-language Economic Daily News reported that Apple was working on a 15-inch tablet product that used Apple's Inkwell handwriting recognition technology. The story could be read as consistent with either a full-on tablet computer of the kind that aren't selling all that well now, or a tablet as a computer peripheral, or some new product category. Subsequent rumors tied the tablet rumors to iMac redesign rumors, always referring to a radical "new form factor" for the iMac, and predicting a release date in early 2004. The Cube was mentioned, too: Jobs still thinks that the market was wrong about the Cube. Could the new iMac be some variation on the Cube design? A Bluetooth-enabled keyboard and mouse would make the Cube design more appealing, and Apple wouldn't repeat the pricing and machining mistakes that hurt the Cube. But in September, Apple let it be known that any tablet plan it may have had in mind was cancelled and that the 2004 iMac would be the same old 2003 gooseneck iMac, but with the internal aluminum parts replaced with magnesium parts to lower manufacturing costs.

Uh-huh.

Let's examine the facts behind that claim. Quanta, a huge but low-profile company that manufactures notebook computers for nearly all of the big players, won the original contract to produce the gooseneck iMac starting in January 2002, but within a few months had lost the contract to Hon Hai, which produced a lot of CRT-based iMacs for Apple. Now Quanta is back and will be producing the 2004 iMacs in its new Shanghai facility. Using magnesium.

So why did Quanta lose the contract in the first place?

It wasn't that Apple didn't want to work with Quanta. It seems that Hon Hai owns some component that is crucial to the manufacturing of the gooseneck Luxor Jr. iMac, and refused to license it to Quanta. So Hon Hai muscled its way back into iMac production.

Something has happened to allow Quanta to manufacture iMacs again. Either Hon Hai has had a change of heart and is now willing to license its technology to its competitor, thereby allowing the competitor to steal its multi-million-unit contract with Apple, or the 2004 iMac will not require the mystery component. I'm guessing the latter, how about you? If so, something more is going on than just replacing one metal with another to reduce manufacturing costs. Something that Apple is laboring to keep secret.

So if Apple is planning a change in the iMac and the change is significant enough to justify this secrecy, what might it be?

Maybe we should take another look at Apple's claim to have killed off its tablet plans. Is there any more reason to believe this disclaimer than to believe that the only change in the iMac in 2004 will be magnesium vs. aluminum? Or might Apple be planning a tablet bombshell, possibly as part of an iMac redesign?

Actually, there are several reasons to believe that Apple has really shelved the tablet. Steve Jobs is on record as having nothing but scorn for the last Apple product that relied on handwriting recognition. And the market has not exuberantly embraced the tablet computer products and devices that are already out there. Then, too, a tablet device that was a computer peripheral rather than a standalone computer would be pretty much limited to the small market of PowerMac owners.

Unless it could serve as the display for a headless iMac.

Losing Your Head

People tell me that a headless iMac is simply not going to happen. Maybe they're right, but I find their reasons unconvincing.

They say the iMac is Apple's all-in-one computer by definition. They say that's what makes it unique. That's what makes it easy to use. And the all-in-one design ensures that Apple's lickable Quartz graphics aren't compromised by being displayed on some bargain-basement monitor. Then too, it embodies Steve's need to control every detail of the user experience. It's cheaper to build and deliver. It ain't broke, so why fix it? And so on.

Well, I don't think that the iMac is by definition an all-in-one computer; I think it is by definition the top-right quadrant of the product grid: the consumer desktop machine. What makes any Apple product unique is a combination of things, notably including Jonathan Ive's brilliant designs. I assume he's been designing something this year. Easy to use? Most consumers seem to be able to figure out how to connect a monitor to a CPU box.

As for the control issues, Apple is tightening its control over its own Apple stores, making it harder to be an independent Apple store, and, of course, maintaining total control over its online store. With this kind of control over the entire chain, Apple can dictate how consumers buy Macs. Rather than sell headless computers and monitors directly to consumers, Apple can sell systems that it configures from these components. That's the general idea behind the online store already: here are the packages that we are willing to put together for you. Want to build your own? OK, but you won't be able to connect any of those obsolete devices you have lying around, because our computers don't have the ports for them to connect to. As certain components get in short supply or fail to move fast enough, Apple can fiddle with the components of the systems it offers, and the prices, pushing the slow movers and getting maximum bucks for the popular items.

Which brings up the economic argument. I have no idea whether it's cheaper to build and sell all-in-one systems or to build and sell component systems. But I can't believe that it's cost-effective to do a little of each, which is what Apple is doing now. Those lovely Cinema displays cost so much because you can only use them with those headless PowerMacs. Imagine if that cost could be amortized across a computer product line that is about a half-million units a year larger.

So maybe Steve will announce a new line of headless iMacs that can work with any of Apple's current displays, or with a new 15-inch display that has a brand-new feature that, soon, all Apple displays will have: the ability to function as an input device as well as an output device.

And as long as I'm speculating, let's make those displays wireless, too, OK?

Michael Swaine has been writing about computers and technology for over twenty years. O'Reilly regulars may recall his "Swaine's Frames" column for WebReview.

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