The iPad changes everything

March 10, 2010: 10:34 AM ET

Will Apple's tablet usher in a new era of computing, or simply dominate it?

Apple's iPad, rendered as the monolith from "2001: A Space Odyssey," will be examined and pondered by the rest of the computer industry.

Chipmaker Nvidia is helping invent a slew of cool technologies that hold the potential to change the way we work and play. The company, which makes processors that enhance images and boost the brawn of computers and phones, is pushing 3-D entertainment into homes and high-def video onto handsets. But the gadget Nvidia CEO Jen-Hsun Huang is most excited about? Touchscreen tablets such as Apple's forthcoming iPad.

"We have found our most personal computer," declares Huang, who notes that Nvidia (NVDA) is working on 50 different tablets. "This is big, and it's going to change the computer industry."

Not all of Huang's peers share his unbridled enthusiasm for tablets in general, and for Apple's (AAPL) version in particular. If the iPad, which will retail for as little as $499, is a success, it could indeed change the computing industry, but not necessarily to the liking of some of its biggest players.

Among those anxiously awaiting the March launch of Apple's tablet: hardware makers such as HP (HPQ) and Dell (DELL), which have been betting that consumers would embrace netbooks, those scaled-down laptop computers; e-reader makers such as Amazon (AMZN) and Sony (SNE), whose devices compete with the iPad and Apple's new iBooks, the publishing equivalent of iTunes; and Microsoft (MSFT) and Google (GOOG), whose operating systems compete with the iPhone OS that powers the iPad. Even Apple ally Intel (INTC) has reason to worry: The iPad features a microprocessor, the A4, that Apple designed and is having manufactured to its specifications.

Meet iPad's competition

And while tablets (also called slates) are not new -- companies such as Toshiba and Panasonic (PC) have been making them for industrial clients for years, and many of the PC makers have consumer tablets in the works -- Apple's arrival on the scene with a sleek, user-friendly, irresistibly touchable, relatively affordable entry has the tech world scrambling to respond.

For Amazon the internal debate centers on whether to build its own color, touchscreen Kindle or get out of the hardware game altogether. Nokia (NOK) recently leaped into building netbooks, which are more PC-like than this new generation of tablets; its executives must decide if it would be better to scuttle those plans. Perhaps the biggest burden falls on Microsoft: Its computer-maker clients need the software titan to come up with a platform for their tablets that is as compelling as Apple's.

Of course, the iPad could be a flop. There are good reasons tablets haven't caught on (remember Apple's Newton?), and already many observers have dismissed the iPad as an overgrown iPod Touch. Even some Apple executives aren't entirely sure how big the market will be -- analysts expect sales of between 2 million and 3 million units in the iPad's first year, compared with about 6 million iPhones in its first year -- and what it replaces, if anything: Is it an e-reader, a gaming device, or a substitute for your laptop? The iPod and iPhone had distinct uses. Not even Apple will know exactly what consumers will do with the iPad until, well, consumers start using the iPad.

And this is the computer industry's Apple quandary: Do rivals wait for Apple to create a consumer market for this new crop of tablets, knowing the innovative computer maker may end up winning much of the share, not to mention all of the glory? Or do they try to jump ahead -- there are plenty of tablets that could be delivered to stores in the coming weeks -- only to see their product languish? For now much of the industry is happy to be a fast follower. "It has proved to be a mistake to underestimate these new categories," says Jeff Barney, head of Toshiba's U.S. notebook business. Toshiba plans to introduce a line of consumer slates in late 2010 or early 2011. "And besides, we need new category creation to grow our industry."

Even before Apple CEO Steve Jobs held up the iPad at a crowded press event in late January, anticipation surrounding the device formerly known as the "Jesus tablet" had reached almost ridiculous levels. In the week leading up to the announcement, hundreds of news articles had been written about the yet-to-be-seen device. A few weeks earlier, at the Consumer Electronics Show in Las Vegas, Microsoft's Steve Ballmer introduced HP's Slate, a touchscreen multimedia tablet that offers a lot of the same functions as the iPad. The Ballmer photo op didn't impress, but the real shocker was HP's vague timetable for its tablet (sometime in 2010).

Phil McKinney, HP's chief technology officer, shrugs off the suggestion that the world's largest technology company is somehow behind Apple on this one. McKinney and his team at HP saw an opportunity five years ago for a gadget larger than a phone but smaller than a laptop. But the components -- including touchscreens, low-power processors, and batteries -- weren't there to make it work.

"The difference between a good idea and a really great idea is a couple of years and the price point," McKinney says. "If we had come out a few years back with a slate, the price would have been between $1,200 and $1,500. It would have been a very niche-y product." McKinney wouldn't say what the Slate's price will be, except that it will be "mainstream." "I consider elitist pricing to be anything north of $1,000," he says.

So why not beat Apple to the punch? "We don't time our announcements relative to any of our competitors," McKinney sniffs. "We have had this road map for five years, and we are sticking with it." As to the size of the market: "HP wouldn't get into this space if the size wasn't interesting and significant," McKinney says.

Jonney Shih, chairman of Asus, the company that helped create a market for netbooks, is also adding slate computers, probably sometime this year, to his company's lineup. But he's not backing away from those pocketbook-size PCs. "We have been thinking about different kinds of usage scenarios," Shih says. "We think there will be various form factors that are suitable for different uses."

Meanwhile Shih doesn't think Apple has a lock on the nascent tablet business. He ticks off the features the iPad lacks and that others (including Asus) can add to attract customers: a camera for videoconferencing, the ability to multitask, and an operating system that runs Adobe's Flash. "That Apple left those out is a bit strange from my point of view," Shih says.

Still, Apple has one huge advantage over Asus, HP, and other PC makers. The iPhone OS, iTunes, and the App Store provide an ecosystem that makes it easy for users to buy and consume content seamlessly (and for software developers to get paid). "It's the entire experience -- hardware, software, and content distribution," says one software engineer who has worked closely with all the PC makers. "Apple understands that better than anyone, and none of the hardware companies are willing to invest the money to really take them on."

The Apple food chain is equally troublesome for software companies: The iPad runs on a mobile-phone operating system, not on Apple's Mac OS, to accommodate the tens of thousands of apps that were built for the iPhone. The iPad could very well accelerate the app-ification of computer software, in which little islands of software code designed to do very small, specific tasks overtake traditional, complex software programs such as Microsoft Office. There are rumors that Microsoft, which declined to comment, might be developing a slate device of its own, but Microsoft faces much bigger questions about how its existing operating systems and software programs need to evolve to serve customers who are increasingly mobile, and who "snack" on -- and discard -- software programs in an increasingly casual way.

Perhaps the company best positioned to match the iPad in a holistic way is Google. (The iPad did get Google's competitive juices flowing: Days before Jobs' announcement it released photos of a prototype Net appliance in an attempt to preempt the Apple tablet.) Google has developed an app-friendly mobile operating system, Android, and its forthcoming Chrome OS will also make it easy for developers to create applications. Is a Google slate coming? Google will only say it plans to launch a netbook running its Chrome operating system.

Yet there's good reason for the computing industry to root for the iPad, and that's the iPhone. When Apple introduced the mobile device in 2007, Research in Motion (RIMM) had the only multimedia phone that mattered, and it was used primarily for business. The iPhone changed that and helped create demand for other smartphones too: The Droid, MyTouch, and others all owe a debt to Apple, which has done very well but has only 14.4% of the overall smartphone market. The iPad could lift the entire computing industry -- if rivals step up. If they don't Apple has shown it can dominate a market -- just look at MP3 players. Without competition, instead of becoming the iPhone of tablets, the iPad could end up as the category's iPod.

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About This Author
Michael Copeland
Michael Copeland

Michael V. Copeland joined FORTUNE as a senior writer in September 2007. Copeland has covered everything from electric cars to e-readers. He is a creator of Tech Mate, an irreverent video series in which he debates (and skewers) digital issues of the day. Before joining FORTUNE, Copeland was a senior writer at Business 2.0. Copeland graduated from the University of Pennsylvania.

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