iPad Presales Musings

Apparently, the iPad sold 120,000 units on the first day of sales. Sales came in at 25,000 per hour for the first two hours, but after six hours had dropped down to around 10,000 per hour. Analyst estimates for iPad sales in 2010 range from 2.0M to 7.0M for 2010 (estimates for fiscal 2010 omit the Christmas quarter and bottom out at 1.1M). So I guess it looks like the average (one can hardly call it consensus) estimate is that Apple will sell 3-4M iPads by the end of 2010. In order to hit that target, Apple needs to sell about 600 iPads per hour for the rest of the year.

If that’s true, then Apple will have something like a 70% market share in tablet computers (I’m going to optimistically guess that 2M tablet PCs of one kind or another will sell in 2010, and I’m going to generously count “hybrid” tablets — i.e. tablets with keyboards — as tablets), except that IDC (perhaps along with other self-appointed arbiters of “market share”) doesn’t consider the iPad a computer because it “doesn’t run a full operating system” (IDC Press Release — by the way, they also predict Bluray will continue to be irrelevant).

It’s interesting that by IDC’s standards a tablet with Windows 7 on it, which is a “full operating system” not really designed to be used on a tablet, will presumably count; of course if we were to consider the Kindle a tablet computer then it might give the iPad a run for its money if Amazon’s vague “millions” is to be believed.

In the end, it seems to me that the iPad is not a “full operating system” in the same sense that Mac OS wasn’t a “full operating system” in 1984-5, or Windows wasn’t a “full operating system” (so much as DOS application with plugins) until Windows NT.

So, does 120,000 presales in one day seem to indicate 3-4M is right or wrong, high or low?

Well, some random data points:

The Palm Pre’s presales were 50-60,000 in the first week. It received enthusiastic press (in no small part because the press wanted an “iPhone-killer” narrative) followed by a pretty tepid sales and sold, what? something over 1M units in six months or so.

The original iPhone sold 270,000 units in its first quarter and around 2.8M in its first three quarters (calendar 2007). There were no presales.

The iPhone 3G sold over 1M units in its first three days (in 21 countries).

The iPhone 3GS sold over a million units in its first five days (in 3 countries), and 5.2M in its first quarter.

In general, consumer sentiment towards the iPad seems to be more positive than towards the iPhone at similar stages in the marketing cycle. But there are huge differences between the two as products — the iPad isn’t strongly tied to a single carrier (the AT&T data plans don’t involve a long-term contract) so it doesn’t automatically lose sales there, on the other hand it doesn’t have a well-defined role (the iPhone, at minimum, is a phone and an iPod, so it automatically earns a spot in your briefcase or handbag — at best, the iPad is a Kindle, and a Kindle is already one more damn thing). Simply compared to the original iPhone, the iPad looks like it’s well ahead, but that’s hardly apples to apples.

One thing I will point out — the iPad has a much greater potential upside than the iPhone. If it proves to be a “must have” product, it won’t be limited by carrier contracts. But to nail a big Christmas season, Apple will probably need to refresh the product line and/or cut prices.

It’s definitely interesting to watch.

And, for the record, 64GB Wifi.

Post Script

Apparently sales fell to around 1,000 per hour over the weekend.  The guy tracking this stuff thinks that the “real” demand will be around 30,000 per weekday until launch and half that on weekends — I have no idea how he figures this (he also attributes 50% of first day sales to “rampant fanboism” despite the fact that first day buyers had the same buying patterns as later buyers — seems to me it’s simply people who knew they what they wanted and ordered as soon as they could).

Anyhoo — if Apple sells 180k iPads per week from now until 4/3 that will be over 500k presales, and if Apple maintains that rate of sales post-release it will blow out the most optimistic analyst estimates. But I don’t even know how this guy figures 30k/day is going to be sustained.

Laptop Extended Warranties

Alexander Micek (tumbledry.org) has posted a refutation of a recent “paper” published by SquareTrade — a vendor of extended warranties, which in turn got coverage on a lot of popular tech sites.

I’m not sure the results are quite as worthless as he argues. By way of comparison, consumerreports.org in reporting their laptop reliability survey results states that “differences of fewer than three points aren’t significant” (albeit deep in the prose below the chart) and in their FAQ that their standard for statistical significance is p = 0.01 (vs. 0.05 for most statistical reporting). When a survey is based on a really big sample (in SquareTrade’s case n = 30,000) you’d think it probably has some kind of usefulness. I doubt most people know what to do with this stuff anyway — does it really matter if SquareTrade doesn’t give you its confidence interval or Consumer Reports buries the necessary information deep in verbiage? In any event, in my experience methodology (i.e. how the data are acquired) is both more likely to distort statistics and less likely to be reported in any comprehensible way than confidence intervals.

Sampling Errors

Since the organization reporting the results sells extended warranties, it seems highly likely that their figures come from people with extended warranty coverage. Indeed, I’m guessing that the reason they don’t have three years of accidental damage data is that they’ve only been offering accidental damage for two years. This isn’t a reporting omission, of the kind Alexander Micek is complaining about, but a sampling error, which is much worse. (It’s like the difference between trying to randomly sample probable voters using some reasonably scrupulous methodology (e.g. calling people randomly selected from electoral rolls) and — say — just asking the people you find in a particular shopping mall.)

It’s worth noting that SquareTrade’s 30,000 laptops found Acer and Toshiba to be the most reliable, while Consumer Reports’ 65,000 respondents found Toshiba and Sony to be the most reliable. In both cases, the ballpark failure rate is around 20% (although the Consumer Reports figures cover laptops that are anything up to four years old — which (on the assumption that the average age would be around two years or less*) would seem to imply a higher failure rate than SquareTrade’s figures).

In short, even though it seems as if SquareTrade’s figures ought to have a sampling bias upwards, their figures are below Consumer Reports’s sample (which we would suppose to be less biased), and the general agreement over brand reliability makes their figures seem reasonable**. My suspicion is that Consumer Reports’ survey has a softer criterion for “major problem” than SquareTrade has for “failure” (going back to methodology: this criterion is much more valuable than “confidence interval” and is not documented in either case).

* Laptop ownership is increasing, and some people will sell or give away or discard an older laptop (especially if it breaks down), so I’d expect a population of laptops to skew towards the younger end of a capped age range.

** I’d put in the charts side-by-side but this would violate Consumer Reports’s usage rights.

The Simple Cost Equation

The basic question is this: is my extended warranty a good deal? Ignoring brand names (because the information provided doesn’t break down the sample sizes per brand, making that information useless), if the raw data indicate that ~30% of laptops fail over three years — 20% of that due to reliability and 10% to accidents — with an n of 30,000 then the chances are that this is pretty damn accurate. I’ve had three PC laptops (TI, Dell, and HP) and two experienced a significant failure in their first three years, and seven Apple laptops of which three failed in the first three years — so I’d have to say based on my own experience these figures are optimistic.

So let’s suppose that a typical laptop comes with a 12 month warranty, so that your extended warranty justifies itself by paying for repairs in the second and third years. Based on SquareTrade’s figures that’s a roughly 15% chance of failing during the extended warranty period. So the ballpark value of an extended warranty is 15% of average repair cost — and repairs for laptops are frequently expensive or simply impractical (i.e. the laptop has to be replaced). So let’s be generous and call it 15% of 50% of replacement cost — i.e. around 7.5% of replacement cost.

Well, AppleCare costs $349 for a $1999 MacBook Pro. Dell’s extended warranty coverage costs (at minimum) $120 for a $720 Dell Latitude E5500. (I tried to get a quote on a more comparable Dell, but Dell’s Pro laptops include three years of on-site coverage.) Neither Dell nor Apple cover you against accidental damage, SquareTrade essentially doubles the cost of coverage if you want accidental damage cover. SquareTrade just quoted me $200 to cover a $2000 laptop for three years — $200 extra to cover accidental damage. That’s a better deal than Apple or Dell, but probably much less convenient. (My guess is that while accidental damage is less common, it tends to be more catastrophic. A big dent, broken screen, or major spill is often effectively a write-off.)

Incidentally, AppleCare is hugely profitable for Apple.

Moral Hazard

I bought my wife a top-of-the-line iPod for Christmas in 2004, and I got the extended warranty (which included free replacement for any reason — completely bizarre, but then CompUSA is out of business now). So when it became obsolete — seriously, what were they thinking? — we just returned it and got the new 60GB iPod Photo as a replacement. (Nothing was wrong with the old iPod.) One day, the new iPod then wouldn’t start up, so I called Apple and they had a courier pick it up and sent a new replacement. The new replacement soon had the same problem, and we solved it the same way. The next iPod didn’t seem to have the problem but some time later — after the warranty expired — it recurred. I spent a few minutes Googling the problem, learned how to reset an iPod, and solved it. So that iPod “failed” three times — entirely because it had an extended warranty. Actual number of failures: zero.

Not only will insured users get non-defective products fixed, but the insured do not care how much a repair costs, while the uninsured care deeply. The laptops I’ve had that have failed have either been impossible to repair (e.g. two laptops’ physically fell apart) or very cheap (e.g. in two cases it was a hard disk failure — replacing hard disks is easy and cheap). In one case the unit was effectively DOA (it died after a day’s use), which was covered and thus doesn’t count (electronic devices are most likely to fail when brand new). So even though I’ve had five of my ten laptops fail (50%), the total cost of repair/replacement is less than the cost of extended warranties would have been — and of course mechanical failures are far more likely in older equipment that you’re happier to replace.

And of course there’s fraud. I once had a friend and business partner who — I discovered to my cost — was not the most honest person in the world, and he would always buy maxed out insurance on any piece of electronics (cell phone, camera, computer) he bought, and a remarkable number would prove “defective”, or be stolen, or accidentally destroyed before the coverage expired. In just the four years of our association he had one of his cars stolen (he’d had a car “stolen” the year before we went into business together, but I hadn’t observed a pattern), a laptop was left too close to a window during a rain storm, a cell phone was dropped in a toilet, another cell phone died some other way, and all of our video gear (but none of our office computers except for one laptop which happened not to be working) was stolen. And that’s just the stuff I know about. For the honest consumer, this means that when you pay for extended coverage, you’re paying for people like my friend. For the dishonest consumer, this is a wonderful opportunity for — effectively — perfect crimes. Oh dear, my 30 month old laptop just happened to fall out the window.

This class of problem is known as “Moral Hazard” and has been understood since at least the 16th century. It’s why free support lines keep you on hold for fifteen minutes (even when they have no other calls), why our healthcare costs are skyrocketing, and why figures on laptop reliability from a company that sells extended warranties are likely to be highly suspect no matter how the data are analyzed or reported.

The interesting thing here is that we don’t seem to see a lot of Moral Hazard at work in these figures. Consumer Reports seems to have higher failure rates for its respondents (many of whom do not have extended warranties) than SquareTrade (all of whose presumably do). If SquareTrade wanted to frighten people into buying warranty coverage, they’d have been better served by quoting Consumer Reports’ figures than doing their own study! The really interesting question may be whether SquareTrade is going to see an uptick in “accidental” damage to laptops as their coverage draws to an end.

Peace of Mind

Extended warranties have other benefits beyond the raw figures. To begin with, laptops often develop problems that aren’t major enough that one would try to get them repaired on one’s own dime (loose hinges, say) but which are both easy and inexpensive to fix. Typically, if you have a laptop without extended coverage then you will just ignore such a problem, while if you do have extended coverage you will get it fixed. If you tried to get it fixed without extended coverage it would probably cost an arm and a leg, but often the cost to the vendor for repairing the problem is minuscule (the person doing it is on salary, and the parts cost a few cents).

Again, this is a lot like health insurance (and for the same reasons). Because most people seeking a service (laptop repairs, medical care) do not pay directly, the actual costs are hidden and the fees actually paid for them are negotiated in back rooms. For the few who pay directly the costs seem incredibly high because they can’t negotiate an “insider” rate. So, in essence, the problem with laptop repair costs is that most of the people who get laptops repaired don’t pay for it, so the people who do get horribly overcharged. It thus follows that if you’d rather not live with minor, niggling issues you may want to get an extended warranty because it’s better than just being irritated by minor issues all the time.

You Win When You Lose

On the other hand, not getting an extended warranty also has benefits. If your laptop fails after two years and you have an extended warranty, you can fix it for free. But if your laptop fails and you don’t have cover you can just buy a new one (which will probably be better and/or cheaper as well as being new). Based on the figures above, you’ll not only be ahead financially on average and — in an odd way — when you do “lose” you “win” (yay, I get a new laptop). In my experience, catastrophic failures in laptops tend to occur when they’re getting old and mainly serve as an excuse to get a replacement. Of my ten laptops and five failures, one was a simple DOA (instant new replacement), and the others were all old. (In fact, I think two were more than three years old, and thus wouldn’t benefit from a typical extended warranty anyway.)

Conclusions

The one real justification for an extended warranty, in my opinion, is if you’re the kind of person who will pay for “peace of mind” or the kind of person who will fume over niggling minor things — the kind of thing you can get fixed for free — at least in theory. It’s not really good value for money (because you’re essentially paying through the nose for stuff that costs the vendor almost nothing to do and subsidizing criminals) but it’s cheaper than stressing out over shit. In my experience, a laptop that survives a year of solid use is only going to die if you physically damage it or the hard disk dies. It’s really expensive to cover the first, and it’s dirt cheap to fix the second.

Of course, if your plan is to “accidentally” back over your obsolete laptop on its 30 month birthday, then get all the coverage you can get.

Ooh that Awful App Store

Featured Apps for the Blackberry Storm (yes, the icons are MIA)
Featured Apps for the Blackberry Storm (yes, the icons are MIA) ... all twenty-or-so of them (apparently that qualifies as "plenty" for purposes of their TV commercials). I tried counting them, but each is mentioned several times making it a bit of an exercise in tedium.

Developer Angst

So <insert slightly famous developer’s name here> has given up on App Store development because Apple is <insert bad thing here>.

While there’s no question Apple could do a better job of handling App Store approvals (actually, there is some question: they’ve approved 100,000+ apps in 18 months or so, and that’s not counting version updates — it just possibly might be hard to do that job flawlessly), most of Apple’s problems stem from the iPhone being so popular and Apple not being bastards about (a) accepting third party developers, and (b) scaring developers silent.

Nintendo is (a) far harder, and (b) more expensive to get a dev license for, and (c) has far nastier contractual clauses for shutting up developers (and of course fewer developers to keep shut up), but we hardly see anyone wailing about how terrible it is to develop for Nintendo platforms. Meanwhile the Wii and DS are pretty much starving for compelling titles and the App Store has an embarrassment of riches. Facebook’s “walled garden” is a gigantic system for selling your personal information to advertisers and no-one seems to be too cut up about it.

I’m sure it’s momentarily gratifying for <slightly famous developer> to blog about how <insert bad thing here> Apple is, depart the platform in a huff, and actually have people pay attention to their little tantrum, but in the end it doesn’t matter a hill of beans.

I suspect that developer frustration with other platforms is actually as high or higher than with the iPhone, but it doesn’t get much coverage. After all, who cares?

Market Share

Depending on whether the analyst you read is long on Apple, the iPhone’s market share is either growing like crazy or dropping further behind RIM’s (both are in fact true). The fact is that the iPhone’s market share is only slightly relevant, just as Apple’s market share for Macs isn’t the whole picture.

Current Blackberry Model Screen Specs
Blackberry Model Screen Specs
8300 320×240
8500 320×240
8900 480×360
9000 (Bold) 480×320
9700 480×360
Storm 360×480 (portrait)
Tour 480×360
Pearl Flip 240×320 (portrait)
Pearl 240×260 (portrait)
8800 320×240
This is how Blackberry’s current 20.6% or so of the market breaks down for screen resolution (kind of critical for game developers, say). Then there’s CPU, memory, etc. This is why there’s “plenty” of apps on that web page, I guess. Of course it was different last quarter. Source blackberry.com

First of all, the iPhone represents a single platform you can target with one code base by hitting a compile button, and that platform encompasses three major versions of the iPhone, two versions of the iPod Touch, and — wait for it — future versions of the same product lines and new products we haven’t heard about. I say this confidently with no special knowledge of Apple’s plans because Apple isn’t stupid. Indeed Apple is so not stupid that they’ve changed their accounting and reporting rules simply so they can push OS upgrades for free to keep the platform as monolithic as possible.

(The $29 upgrade price for Snow Leopard may actually be Apple trying to increase the effective size of the Mac platform by increasing upgrade rates the way free/cheap iPhone/iPod Touch upgrades have worked for that platform.)

This means that Apple’s installed base of iPhones and iPod Touches represents one single huge and growing market for App developers. If you’re an Android, Blackberry, or Windows Mobile developer not only is your “market share” actually sliced into a bunch of varyingly interoperable pieces, but you’ve got no culture of buying and trying apps, and no history of upgrading phones to a common platform after release. (I didn’t lump Palm in there because it’s just possible — given the takeover of engineering by ex-Apple folk — that they’re not so stupid as to slice and dice their platform moving forward.) If you’re targeting this year’s Blackberry 8xxx then your market slice is only going to shrink as Blackberry switches to selling different phones with random screen resolutions, cpus, RAM, etc. and users switch to new phones.

Post Script

CNN has a story about Android platform differences (three OS versions, firmware differences, etc.) making life difficult for developers.

Meanwhile, Ray Ozzie is saying that the number of apps available on a given mobile platform is irrelevant because “Mobile apps require very little development, so it’s much easier to bring them onto every platform”. (Recall that Ray Ozzie’s chief claim to fame is Lotus Notes — make of that what you will.)

A fellow named Russ Beattie (who incidentally works for Nokia) provides concrete examples of just how fragmented the Android market is right now. (The title of his blog entry is “Android is splintering, just not how you think it is” — I don’t think I’m the “you” he’s referring to, since the fragmentation he describes is exactly what I’m talking about.)

Tim Bray dismisses all these concerns:

I’m pretty sure anybody who’s been to the mat with the Android APIs shares my unconcern. First of all, a high proportion of most apps is just lists of things to read and poke at; another high proportion of Android apps are decorated Google maps and camera views. I bet most of those will Just Work on pretty well any device out there. If you’re using elaborately graphical screens you could do that in such a way as to be broken by a different screen shape, but it seems to me that with just a little work you can keep that from happening.

So, basically the problems won’t affect most apps because their functionality is trivial, and fixing other problems requires “just a little work”. So I can build an app for one particular Android handset — let’s say whichever seems most popular right now — and hit, say, 25% of the Android market (a 25% which is likely to fade away as some other “flavor of the month” phone is released), and then with “a little work” deal with the other little bits and bobs, or I can just develop an iPhone / iTouch / iTheNextThing app (and sell 400x as many copies).

Let me just dwell on the “little work” thing for a moment. Fitting a UI into 480×320 pixels or so is no trivial matter — unless you simply don’t give a damn. Chances are you sweat over every pixel. Now, trying to provide an equally good experience at 320×400 and 480×360 and so on is going to drive you nuts. Again, it won’t be a problem if you don’t give a damn. So, what kind of app developers will live in Android-land? I guess the kind who develop “lists of things to read and poke at” and “decorated Google maps and camera views”.

Most of his readers disagree strongly, e.g.:

I had the “oh, whatever, just make a fluid layout” attitude also, and then I was struck down by reality. It was worse than I imagined.