Quick Thoughts: A Busy 24 Hours in the Cloud


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–          The New iPad – Not a game changer, but the current game is a pretty good one for Apple

–          Netflix looks to establish itself as the HBO of the on-line video era, but what if the on-line era doesn’t need an HBO?

–          Google ties its cloud-based electronic media initiatives together into Google Play to give Android users their own iTunes.

It’s been an eventful week in the cloud, much of it obscured by Apple’s semi-annual rumor fest/product announcement.  It’s spring, so it is iPad’s turn for refreshment.  Deviating from previous product name protocol, the updated unit was announced as “The new iPad” rather than the “iPad 3” or “iPad 2S” or “iPad HD” monikers that had been bounced about in the blogosphere.  It will be interesting to see where Apple is going with this with its marketing, as retail confusion about an “iPad” that is an advancement on an “iPad2” product iteration that will remain on sale at a reduced price is more than possible.

The improvements incorporated into “The new iPad” are expected and straightforward (and well documented here).  Despite a yawn of a reception by the market, which has taken Apple shares down for a couple of days, the update is almost certain to give the franchise a boost.  The addition of LTE connectivity closes an important gap vs. current tablet rivals.  The retina display and quad-core graphics processor move the bar ahead enough to weather competition from the next round of Android and Windows 8 challengers.  Dropping the price of the iPad2 provides some cover against market incursion from lower priced units.  The real takeaway is that the table market is growing really, really fast, has the potential to be much, much bigger, and even if Apple loses share in tablets (and we expect that it will), iPad will still grow very fast and be very profitable for a long while.

The Wall Street Journal may be editorializing about the impermanence of Apple’s “vast profit margins,” but the threat could be a long time coming.  As long as Apple can hold its own against the Android hoard with a single new model per year, it will sustain an enormous scale advantage – number 2 smartphone seller Samsung competes with more than a dozen separate model families.  Combined with product differentiation around the integrated experience and the related barriers to customer switching, Apple’s cost advantages make these “vast profit margins” far less vulnerable than they might seem.  No doubt “The new iPad” will continue the tradition.

Lost in the shuffle behind “the New iPad”, Netflix is reportedly approaching cable operators to bring its on-line video service into the cable bundle.  The pitch is that Netflix might get around cable operator service throttling and help solve network performance issues, while cable operators remove some of the lure of cutting the cord.  Netflix showed up again during “The new iPad” launch as integrated into “The new AppleTV” that was launched at the same event.  AppleTV users will be able to sign up for Netflix, pay for it, and watch it right from within the iTunes interface running on AppleTV.  This is likely very much like what Netflix might be pitching the cable operators – click on Netflix right from within the channel guide and pay for it on your cable bill.  Ultimately, Netflix wants as many users as possible – size to make the studios take it seriously and customer relationships with which to establish itself as a trusted brand for on-demand entertainment.  Netflix hopes to tread the same path as HBO, which established itself as a channel for catalog content from movie studios before evolving into a venue for acclaimed original content.

The problem is that until Netflix has truly proprietary content it is at the mercy of the content owners, who can dictate the terms to Netflix, license to competitors, and/or pull their content entirely (e.g. Starz).  Moreover, since Netflix has no infrastructure of its own, the quality of its service depends on its host – Amazon Web Services – and its CDN – Akamai, Level3 and Limelight.  Meanwhile, its subscribers are free to go whenever they see a better alternative, and deep pockets like Amazon, Google, Apple, Comcast, Facebook, and others are conspiring to provide just that.  HBO filled a real need during the early growth years of cable but it is not clear that the same need exists for on-line video now.

The last item of the day comes from Google.  Google has long had a tendency to launch services haphazardly – throw a beta version out there and see if anyone likes it.  As its eco-system battle with Apple intensifies, Google is finding the need to be more than a bit more organized about its cloud-based services and to find ways to knit them into an integrated user experience.  Google Play is a step in the right direction.  Google’s Android App Market, along with its Google Music service, its eBookstore, and a movie download business born of its YouTube business, are being tied to Google’s cloud platform to form Google Play.  Ostensibly, this should be a one-stop shop for Android users to consume digital media, something akin to Apple’s iTunes combined with its newsstand and Amazon’s e-books, all available from the cloud from any device with a Play app, with free cloud based storage to boot.

This is another step in a strategic thrust by Google to integrate the user experience across all of its range of consumer services – search, G-mail, Google+, Maps, Google Places, etc. – to give a more compelling experience to Android and Chrome users.  It also leverages Google’s substantial advantage in cloud infrastructure, which is likely to yield performance advantages for users, particularly as video becomes an increasing piece of the mix.  Finally, it will make Google’s media products – the music, movies and books – more apparent to Android users who are likely using competitive products for those services.  Assuming a smooth roll out, this is one more step toward smoothing the fragmentation of the Android experience and delivering compelling differentiation vs. Apple.

For our full research notes, please visit our published research site.

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