Apple (NASDAQ: AAPL) is expected to unveil a new version of its iPad on Wednesday with added features like a new camera, a faster processor, and more memory. But for Apple, it has never been about having more features than its competitors. The source of Apple's innovation often involves surprising the tech industry with what it decides to leave out of its products.
Apple was, after all, the company that gutted the floppy disk out of our PC, stripped the buttons off of our MP3 player, jacked the keypad from our mobile phone, and booted the stylus from our tablet.
And Apple clearly relishes its role as a filter between the (good guy) consumers and the (bad guy) tech hordes brandishing unlimited functionality. Here is Apple CEO Steve Jobs discussing the iPad at the All Things Digital Conference last June, when he was asked how he could justify cutting widely expected functionality from his new products.
We don't think this is part of what makes a great product. We are going to leave it out...customers pay us to make those choices.
Yes, they do (see Apple's Q1 2011 conference call transcript). But for companies left out of the Apple ecosystem, the consequences can be steep. To get an idea of the stakes involved, recall the very bitter, and very public, feud between Apple and Adobe (NASDAQ: ADBE) over Flash.
Pick me, pick me!
A year ago, the tech world lit up with stories about what wasn't included in the first generation iPad. Here are just a few of the key components missing from the iPad and some companies that weren't part of Apple's tablet launch.
- Flash - Sorry, Adobe, please try again.
- Hard drive - Sorry, Western Digital (WDC), we're just not that in to you.
- PC operating system - Sorry, Microsoft (MSFT), what did you expect?
- Third party processor - Sorry, Intel (NASDAQ: INTC), and AMD (NYSE: AMD), maybe next time.
All of these missing pieces, of course, didn't get in the way of great sales numbers and record customer satisfaction, so it seems unlikely that Apple regrets its decision to leave so many traditional tech players of the nascent tablet industry.
What's at stake is larger than just the tablet market, though. After a few months of selling hard drive free iPads, Apple announced that hard drives would not be included in its new MacBook Air laptop line. Producers of flash memory storage are dancing in the streets at their rising fortunes but hard drive producers like Seagate (STX) can't be too happy.
The next iPad could offer similar clues about where Apple may be moving the rest of its product lines; clues to the next tech mainstay that could be bounced. So, who else might get left out of iPad 2? Who won't be part of Apple's vision for the future of mobile computing?
A few possibilities:
No more data contracts.
If the iPad 2 keeps the data billing structure of the first iPad, Apple will have dealt a critical blow to the long-term data contract for tablets. Sprint (NYSE: S), AT&T (NYSE: T) and Verizon (NYSE: VZ) are the main losers in this scenario but at least AT&T and Verizon stand to be compensated with new customers and semi-exclusive access to the Apple ecosystem.
No more upgrades.
Assuming the new iPad is still impossible to upgrade, the days of buying a tech product from the manufacturer and then pimping it out with component upgrades from other companies may be numbered. If you want to tweak your tablet with an upgrade, you'll have to wait until Apple puts out the next version. Down the line, especially if this is more widely adopted through Apple's product line, this could hurt component manufacturers like Nvidia (NASDAQ: NVDA).
No more voice calls.
Apple designed and marketed the iPad with the goal of making it the best consumer product for 1) surfing the web, 2) light emailing, and 3) consuming content like books, photos, and video. If the new iPad attempts to add a 4th pillar to that list, there are several good options (mobile game player, for example, giving Nintendo (NTDOY.PK) even more to worry about).
But I believe the most likely major use case that Apple could add is as a communication device. After all, Apple has been trying to put people face-to-face ever since it made the camera standard in all of its monitors. And FaceTime, Apple's communication software, has been rolled out to the entire product line except for one glaring exception: the iPad.
If communication becomes Apple's next iPad goal, then smartphone producers like Motorola (NYSE: MSI) and Nokia (NYSE: NOK) can assume that Apple wants to take just one more piece of technology out of our phone conversations and, unfortunately for them, it's the phone itself.
Disclosure: I am long AAPL, NTDOY.PK.
