Tuesday, December 28, 2010

But What Would Eric Think?

Brett Arends is steamed.

He’s had it up to here with the Cult of Apple, and he’s decided to do something about it: what he’s doing is he’s not getting an iPad for Christmas.

This is how the Wall Street Journal columnist began his pre-Christmas diatribe against the latest must-have invention from Steve Jobs’ North Pole Magic Factory:

Why I Don't Want an iPad for Christmas

Everyone wants an iPad this Christmas, right?

Apple's tablet computer is this year's hottest adult toy. Sales are booming. James Cordwell, an analyst at Atlantic Securities, expects the company to sell six million this quarter, half of them here in the U.S. It's driving the company toward what will probably be yet another blowout Christmas period.

But you can count me out. I don't want an iPad for Christmas, thanks very much.

—Wall Street Journal, December 21, 2010

Arends’ reasons—there are ten in all, thus fulfilling the journalistic requirement for “Top Ten” lists at this time of year—include a few a rational ones (“The cost of the add-ons,” for one) and quite a few more irrational head-scratchers that, in the main, remind me of something Paul Hulleberg used to say.

Paul was a childhood best-friend, and a serious music-head in those days when serious music came on LPs (look it up, kids) packaged in fancy sleeves (look that up too, kids), which we would dissect along with the music (“Magical Mystery Tour,” with its 24-page color booklet, was a particular fave), debating everything from who-sang-what to what was the song about, anyway? (“Drugs,” we usually decided).

There was, however, one album from that period that we did not dissect.

It was “Layla” (technically “Layla and Other Assorted Love Songs”: look that up too, kids), courtesy of the post-Cream guitar hero Eric Clapton, but released under the assumed name of Derek and the Dominos.

Now, because Clapton’s name was not on the cover, and because the title song clocked in at seven minutes, the album failed to find an audience when it was first released, despite having both Duane Allman and Clapton playing together.

It was only a year later, when “Layla” was included on a Clapton ‘Greatest Hits’ compilation, that the year-old album became popular.

And therein lay the problem: Paul refused to buy “Layla and Other Assorted Love Songs” after the album became popular, because the whole point of us being music-heads was that we were supposed to find this kind of stuff before everybody else knew about it—not when Layla had become as close to a hit record as was possible on WNEW FM, which back then was the leading-edge New York music-head station, home to the likes of wispy-voiced Alison Steele (“The Nightbird”) and gravely-voiced Scott Muni.

“What would Eric think?” Paul would say. “I can’t buy it now that it’s popular.”

I’d throw an album cover at him and yell something like “Eric would say ‘Thank you for the five bucks.’”

My reaction, of course, made him say it every chance he got.

Which brings us back to Arends’ “Top-Ten” reasons not to buy an iPad: he seems less interested in what the thing actually does—which is a lot—and more concerned about what it represents—which to him is a slavish devotion to the Cult of Apple.

Let’s take the first five of his so-called reasons:

1. It’ll be cheaper next year.

That may be true, but it may not be true. While the painfully slow first-generation iPhone soon became, as Arends writes, “a paperweight,” the iPad is no such thing: it is fast, easy to use, and excellent value for the money.

2. It’s going to be better next year.

“The next iPad will have new features—allegedly including video conferencing and maybe a better screen. This year’s model will be so over,” he writes. This may also be true—but it probably won’t, since not many people are a) sitting around waiting for video conferencing, and b) unhappy with the iPad’s gorgeous screen.

Unless Steve Jobs is going to attach a working personal jet-pack to the next generation iPad, it’s hard to see a reason the average user will care to wait.

3. Apple’s profit margins are too high.

This is the biggest head-scratcher. First, Arends gets the margins wrong. He cites Apple’s year-old 41% gross margin and says “Me, I don’t want to support someone else’s 60% markups with my own dollars.”

But Apple’s gross margins are now running at 37%, down significantly from last year thanks in no small part to the lower margins Apple gets on the iPad compared to the iPhone, the price of which is subsidized by the wireless phone carriers.

Second, the issue shouldn’t be what Apple’s margins are, unless, of course, like Microsoft’s margins they result from a monopolistic business model in which the consumer has no choice when seeking an Intel-compatible computer. The issue should be value-for-money.

And the iPad is terrific in that department.

4. Competitors are coming.

This is true, as far as it goes. Arends unfortunately cites the Samsung Galaxy Tab, which means he apparently has not seen a Galaxy Tab, nor used one, because the Galaxy Tab is the least of the iPad’s potential concerns, in our opinion. It has a surprisingly small screen, for starters; and based on hanging around the repair desk at Verizon stores, we are told the thing tends to seize up and need rebooting, which may explain why a friend’s 22 year old daughter recently called the Galaxy “an iPad for losers.”

5. No flash.

By this, Arends refers to Steve Jobs’ famous decision to leave Adobe’s Flash Player for video and animation off the iPad. This was a very a big issue when the iPad first came out, because most web sites used Flash at that point, and it was about the only thing competitors could talk the iPad down with.

But today, an increasing number of web sites (MLB, for example) that were Flash-only last spring now accommodate the iPad, and do so beautifully.

Of the remaining five issues on the list, one is merely list-expanding padding (“It’ll get boring”), while another regurgitates mainstream fluff (“The whole Apple cult is starting to creep me out”).

But what it all seems to come down to is, like Eric Clapton’s “Layla” those many years ago, the iPad has become too popular for some people to admit they want one.

Our own advice is, don’t listen to “Top-Ten” columnists, whatever newspaper they write for, and don’t listen to virtual columns like NotMakingThisUp: try it yourself and make up your own mind.

Meanwhile, I’ll have to call Paul and see if he’s got an iPad, or if he’s holding out like our Wall Street Journal columnist. Besides, it’ll give me a chance to find out if he ever, finally, bought “Layla and Other Assorted Love Songs,” too.

Paul had excellent taste: I’ll bet he’s got them both.

Jeff Matthews
I Am Not Making This Up

© 2010 NotMakingThisUp, LLC

The content contained in this blog represents only the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes investment advice, and should never be relied on in making an investment decision, ever. Also, this blog is not a solicitation of business by Mr. Matthews: all inquiries will be ignored. The content herein is intended solely for the entertainment of the reader, and the author.


bytehead said...

Apple cult creepism is valid (IMNSHO)as I've been creeped out since Guy Kawasaki was evangelizing the Macintosh. And no, not a big Mac fan here either.

The people that are claiming and clamoring that the iPad will do away with notebooks, laptops and desktops will have to get a clue. You have to have one of those just to activate the device, and any kind of updating still requires a connection as well. New firmware? Can't be done over the air, you HAVE to connect it to a real computer. The hype on that is unreal. We are not there yet. Cutting the cord to another computer will help. There's still the issue of user input. On screen keyboards suck. They will never replace a hardware keyboard and will continue to suck until we get into another paradigm for input, probably something like the Kinect (and probably resolving down quite a bit).

I don't care about the iPhone or the iTouch, the iPad is still very much a first generation device. Continuing firmware updates help in this matter, but it's still a factor.

Along with the creepism of the cult, you've got Apple controlling what apps I can choose to run on the device, making it a walled garden. Yes, you can fire up Safari and do what Apple won't let individual apps do. But one has to wonder for how long they'll allow that before putting some kind of nanny software on there. And Apple's capriciousness with accepting some applications while rejecting others, sometimes both, sometimes allowing one app while rejecting another app that does the same thing, you really have to scratch your head. It must be lucrative to be selling apps through iTunes, but it also has to be frustrating to create an app just to have Apple reject for reasons that really aren't apparent.

And then there's the whole "Pick your hardware first, then pick your software" which is about as backwards as it can get. It used to be, pick your software, then pick the hardware that runs the software. Now you're expected to buy the hardware and hope that the software you want runs on it, and actually turns out to be what you want it to be. It's just not guaranteed.

I didn't make it to 10, but I think I made enough.

bytehead said...

Frakking Blogger. My comment was too long! Ahhhhhh!

Creepism, I've been having that since Guy Kawasaki.

The iPad is a first generation device, despite what anybody thinks about the iPhone or the iTouch.

the iPad is not a replacement for any notebook, laptop or desktop. The iPad depends on connecting to one too much. No hardware keyboard, onscreen keyboards suck.

The iPad is a walled garden. No clear cut directions on what is acceptable or not. Safari can get around that, but how long before Apple decides to be a nanny on that as well?

Not 10, but sufficient enough for me to be passing right now.

Anonymous said...


I might not fit into your demo --- but, well, what can I say? Going to your blog and getting a reference to Layla, and Other Assorted Love Songs double-album was outstanding (let alone WNEW). It is arguably one of the top 50, or, for the season's sake, top 10, rock albums of all time. thx

Anonymous said...

"the iPad has become too popular for some people to admit they want one."

The same logic can be applied to Apple's insistence on the single button mouse.

Jeff, you are obviously loooonnng Apple like 99.999% of funds. Look, the upside is just too obvious, all you have to do is look in the rear view mirror and project the last 10 years of Apple history into the future. It would be refreshing if you could write about the potential downside of owning Apple stock and the holes in the the long's arguments. Are there any holes at all?

Jeff Matthews said...

Anonymous #1 is clearly an old fan of WNEW, and one of these days we'll tell a few more stories along those lines. ("Jagger, Stones, Sympathy for the Devil, Scot Muni and you on WNEW-FM" is a line forever imprinted on our brain, for whatever strange reason--but there's one more that deserves a fuller airing).

Anonymous #2 confuses writing about the iPad with writing about shares of Apple, Inc, as do many casual readers of this virtual column, despite the fact that longtime readers know we never discuss stocks, ever.

Besides, the notion that a blog could (or would want to) influence the price of a $300 billion market cap stock is absurd.

Of course, if the iPad stunk, like Microsoft's various smartphone efforts stunk, we'd write about it, just as we did write about Microsoft's now-dead "Kin" in these virtual pages.

So, if Anonymous #2 wants to hear something negative about an Apple product, well, when Apple releases a lousy product, we'll be the first to report it.

As for stocks, we never--ever--discuss them.


Anonymous said...

"So, if Anonymous #2 wants to hear something negative about an Apple product, well, when Apple releases a lousy product, we'll be the first to report it."

Looked back in history and found that you did not write anything about the original iTunes. Or original Apple TV. Or Cube. Or eMac. Or... well, you get the idea.

Jeff Matthews said...

Anonymous, in attempting to prove an unseemly bias in favor of Apple on these virtual pages, "looked back in history" and discovered a conspiracy of silence on such Apple bombs as the eMac, the original iTunes, the first Apple TV, and the Cube.

Since, however, NotMakingThisUp did not exist when all but one of those products had already been discontinued (or, in the case of iTunes, significantly upgraded), that's not really saying much.

As for Apple TV, which came along two years into our publication, it didn't move the needle then, nor will the substantially revised version.

(Our view on the whole Apple/Google TV thing is that nobody wants to hook everything up to their big TV screen for the simple reason that the iPad (and its soon-to-be-released Android competitors) is the new, portable TV.)

If and when Apple comes up with another hyped-up bomb like the Cube, you'll read about it. Just don't expect us to write about things that no longer exist: it isn't fun to write about, much less read about.