Apple 2.0

Covering the business that Steve Jobs built

The iPad and the failings of the computer industry

April 4, 2010: 6:31 PM ET

Steve Jobs' latest creation drew big crowds; why can't his competitors manage the same magic? And isn't it time for Apple to show who can think big inside besides Jobs?

Can anyone copy Apple's commandments?

Measured by its contribution to Apple's (AAPL) bottom line, the launch of the iPad last weekend -- with its attendant media frenzy and lines of customers snaking around city blocks and suburban malls -- was not a particularly big deal.

Let's look at the most optimistic scenarios. Even if the initial enthusiasm for the device doesn't wear off. Even if no serious performance or production issues emerge. Even if Apple sells the 6-plus million iPads in 2010 that Goldman Sachs and Morgan Stanley have predicted -- estimates, we might add, that are considerably higher than the Street's consensus of 3 million to 4 million. Even if the demand for more memory and access to AT&T's network manages to push the average selling price to $650. Even if all those things come to pass, the $3.9 billion revenue stream the iPad would generate in 2010 doesn't mean that much to the $50 billion company Apple has become.

Apple can sell $3.9 billion worth of Macs in a single quarter, and nearly twice that in iPhones.

But measured almost every other way, the iPad is a very big deal indeed -- not just to Apple, but to the whole computer industry.

Apple CEO Steve Jobs saw an opportunity to create a third mobile screen -- more than a smartphone, less than a laptop -- and he seems to have succeeded where everybody else, including Bill Gates, failed.

It's probably too early to say whether the device will prove to be a runaway hit like the iPod (250 million sold) and iPhone (45 million) before it, or a upscale niche product like the Macintosh (U.S. PC market share: 7.4%). Die-hard Apple fans could well account for the bulk of the more than 300,000 customers who bought iPads on Saturday.

But we do know that it's not another below-the-radar "hobby" like Apple TV.

And more important, we know that Apple still has what it takes to imagine, design, build and deliver on schedule and at an affordable price a jewel-like piece of computer technology that inspires consumer lust.

There ought to be some soul searching going on right now among Apple's competitors. For this is not the first time the company has picked up a discredited idea and created not just a successful product, but a whole new industry. There were MP3 players before the iPod. There were smartphones before the iPhone. And there were plenty of tablet computers before the iPad, even if they did run Windows.

Certainly building something like this is not an easy thing to do. It requires world-class design teams, dependable supply chains, impeccable quality control, first-rate marketing, an army of high-maintenance developers and the foresight to build a tightly integrated software environment in which all the parts -- software, hardware, retail, networking -- fit seamlessly together.

Every other computer and software company can claim to own pieces of that chain. Microsoft (MSFT) has well-integrated operating system and application suite. Sony (SNE) has the hardware and software designers, as well as the stores. Dell (DELL) and HP (HPQ) can turn out devices quickly and know how to appeal to consumers. But somehow none of that is enough to transform an industry again and again and again.

To do that requires, to paraphrase Jobs' favorite Wayne Gretzky quote, skating to where the puck is going to be, not where it has been.

By the few accounts have leaked out of Apple's tightly sealed PR machine, the iPad would appear to be Steve Jobs' baby. First there were the reports that Jobs was pouring all his attention on the iPad, even while he was on medical leave, rejecting design after design until he was fully satisfied. He is said to have told friends and colleagues that the device was the "most important thing" he has ever done.

But as always when credit for a new product -- no matter how undue -- goes to Apple's high-profile CEO, the issue of his succession arises.

COO Tim Cook and the rest of Apple's executive team have persuaded Wall Street that they can run the company -- and run it well -- even when Jobs is out of commission. But will they be able to dream up the next iPad when he is gone?

Or will it fall to someone we've never heard of -- a couple of guys or gals in a garage, perhaps -- to show us the way?

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[Follow Philip Elmer-DeWitt on Twitter @philiped]

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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