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Devon Dorrity
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Devon Dorrity is the President and CEO of Digital Business Integration, the provider of hh2 Web Services. He graduated with a Business Degree from BYU's Marriott School of Management. He has over 11 years of experience in the software industry, 9 of which is in the construction industry. He has... More
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  • Reality Distortion and the iPad 2 0 comments
    Mar 13, 2011 2:03 PM | about stocks: AAPL, GOOG, GOOG
    With the release of the iPad 2, the ‘Reality Distortion Field’ dialogue has picked up once again. For those not familiar with the phrase, it refers to the alleged superpower of Apple to create so much hype around their products. With so many hoping to tap into the nearly $10 billion the iPad made in its first nine months, competitors are doing everything they can to prevent the masses from purchasing the new iPad 2, including creating reality distortions of their own.

    Understanding the tablet market is essential to understanding the stock prices of the companies in it.  The iPad 2 sales will have major impacts on the stock of Apple, its suppliers (Toshiba, Texas Instruments, Broadcom...etc.), and its competitors (Motorola, Samsung, HP, Dell and a host of others).  In examining how the iPad 2 stacks up, I will compare it against the most capable competing tablet that currently exists in the market, the Motorola Xoom. It runs Android’s long awaited Honeycomb tablet OS.

    CPU & Memory

    The Motorola Xoom features a dual core 1 Ghz Tegra 2 processor designed by Nvidia and has 1 GB of volatile system memory (NASDAQ:DRAM). The new iPad 2 runs a dual core 1Ghz A5 processor designed in-house and only has 512 MB of volatile system memory. Apple simply states that it is up to twice as fast as the original A4 in the first generation iPad and has nine times the graphics performance.

    The Reality Distortion

    It has been claimed that the Nvidia Tegra 2 with 1GB of system memory gives the Xoom a major performance advantage over the iPad 2. AnandTech, a hardware analysis firm, has benchmarked the two and found that the iPad 2 outperforms the Xoom in all but one of its page load tests and beats the Xoom in the Sunspider Javascript Benchmark. Apple benefits from tight control of hardware and software to ensure optimal real-world performance. Claims that state performance advantages based on paper specs aren’t based on reality.

    Storage and SD Cards

    The Motorola Xoom, currently $799 at Best Buy, has 32GB of internal NAND Flash Storage and an SD Card expansion slot allowing additional memory to be added or swapped out, at will. The 32GB iPad 2 3G model has 32GB of internal NAND Flash with no SD Expansion slot and retails for $729. The iPad 2 3G also comes in a 64GB size for $829.

    The Reality Distortion

    Both devices have a 32GB option with the iPad 2 being $70 cheaper. To take advantage of the SD Card slot and beef up the Xoom to 64GB, a user must purchase a 32GB SD Card, currently $99 at Best Buy. That makes at total of $898 for the 64GB Xoom and $829 for the 64GB iPad 2. Internal NAND Flash Storage outperforms SD Card storage, and is more reliable. Also, Honeycomb does not currently support the SD Card slot. Only in a distorted reality does a lower quality but more expensive and unreleased option give the advantage.

    Front and Rear Cameras

    The Xoom has a 2MP front facing camera and a 5MP rear facing still camera and records video at 1280x720 at 30 frames per second (fps). The Xoom also sports a LED camera flash. The iPad 2’s cameras are both less than 1MP and lack a LED Flash, but it records video at 1280x720 at 30fps.

    The Reality Distortion

    The Xoom’s ability to take still images is clearly superior. But the video recording capabilities of the Xoom and the iPad 2 are identical. The reality distortion is how big of a deal some are making of this. Most tablet users are likely to have a high resolution camera on their smartphone. Apple proved that they can sell well over 15 million of the original iPads without a camera of any kind. The Xoom’s cameras are superior, but this is not the critical issue some are trying to make it.

    4G Network Connectivity

    Neither the iPad 2 nor the Xoom support 4G. Motorola says the Xoom will be upgradable to 4G later this year.

    The Reality Distortion

    You won’t find a more distorted reality than in the claims the American wireless industry about 4G. Sprint has the biggest head start but is not getting a consistent speed increase over the top performing 3G networks. T-Mobile claims to have a 4G network but is using similar technology as AT&T’s 3G network. Both Verizon and AT&T will be using LTE and are in various stages of deployment. Verizon has a decent head start, but it is going to be a few years before speeds and coverage will make 4G ready for prime-time. Only on paper are tablets superior because they support 4G in 2011.

    iOS vs. Honeycomb

    Honeycomb is a brand new operating system that innovates in so many areas it is hard to keep track. The operating system and apps that ship with it are impressive, but are works in progress and have received mixed reviews. There are currently very few Honeycomb optimized third party apps. When in doubt, Android gives the user the power and choice to use new features, even if it pushes the limits of existing hardware.

    iOS 4.3 is a tested and proven operating system that is simple to learn and simple to operate. Apple goes to great lengths to preserve the simplicity and user experience of its devices. The apps produced by Apple show a great attention to detail and a high degree of polish. The iPad 2 has over 65,000 iPad optimized apps at its disposal. In general, Apple has not released new features unless it can do it simply and elegantly with its existing hardware.

    The Reality Distortion

    You will see a great many claims by Android fans about all the features that are available in Android vs. iOS. These claims are for the most part true. Google has consistently shown its ambition in developing Android and Honeycomb. The distortion of reality is that all these features make Android a better operating system for the masses. There will be some that want the flexibility that Honeycomb provides, but iOS based devices have proven over and over again to have a lower learning curve and return rate, while having higher loyalty and customer satisfaction levels. Bottom line is that you are pitting power and flexibility vs. simplicity and elegance. For most people, simplicity is power and that tips the scale in favor of iOS.

    App Store vs. Android Market

    The Google Market is estimated to have over 250,000 Android apps, with their tablet-optimized apps numbering in the hundreds. Apple has confirmed its App Store to have over 350,000 unique apps with over 65,000 apps dedicated to the iPad. The App Store recently hit its 10 billionth app download.

    Apple has a formal review and approval process to get an app approved in its App store. App submissions are checked to see that they don’t misrepresent their stated function and that they install and do not crash during normal usage. They are also checked to make sure they don’t do anything grossly malicious and that they don’t use undocumented API’s that could cause instability. Apple also enforces strict rules about what an app can do under the covers. Apple has banned pornographic apps, and apps that only provide marketing information. In short, Apple dictates that an app must do something it deems as useful to be sold on its app store.

    The Android Market has few restrictions in comparison, and has no formal review process.

    The Reality Distortion

    To simply compare the number of apps available in Apple’s App Store vs. the Android Market and declare the winner is a gross over-simplification. The true test of a tablet is how useful the device is in the real world. And for that, we rely on not only the quantity, but quality and diversity of its apps.

    Android fans say that Apple is too controlling by having to get an app approved before it can be sold in Apple’s App Store. But the approval process gives the common customer much more confidence that they will be purchasing a higher quality app that does what it says it will do.

    Since the Apple App Store generates the vast majority of revenue for mobile app developers, it is where the majority of the development time and updates are being spent. Apple has recently announced that it has paid developers over $2 billion in revenue from selling apps on its App Store.

    Multitasking

    Full, unrestricted multitasking, is allowed in Honeycomb apps. Multiple apps are allows to run indefinitely, even when the app is moved to the background. In iOS, apps are suspended when moved to the background and are resumed when brought back into the foreground. Apple allows certain types of activities such as GPS, VOIP, and music to run indefinitely in the background. Also, certain tasks are allowed to run for a time when the app is moved to the background before the app is suspended.

    The Reality Distortion

    Many claim that Android background task system is vastly superior because it is unrestricted. The reality of the situation is that Android’s background task system is nonexistent by comparison. It simply allows apps to remain open until a user closes them, consuming power, memory, and CPU cycles in the meantime. Apple has taken a much higher road in order to protect the user experience by developing and enforcing a true background task management system. Most people would be hard pressed to come up with a real world example of something that Android can do in the background that iOS can’t be made to do as well. Any experienced iOS developer could illuminate the possibilities for you. The few real world advantages offered by Honeycomb in this regard are easily traded for the increased battery life and responsiveness of the iPad 2. In fact, when Engadget did a review of the Motorola Xoom, the reviewer did not get the battery life that Motorola claimed but indicated that he had a couple of apps running in the background and that was probably the culprit.

    Flash Support

    Currently, neither Honeycomb nor iOS supports flash. Google has announced an update to support flash is on its way.

    The Reality Distortion

    There are many sites out there that use flash. The majority of sites that do, don’t rely on flash for anything other than video or short multimedia presentations. The claim that iOS can’t access the full web because it doesn’t support Flash is a marketing tactic. Flash uses too many system resources to be efficient on a mobile device. Most Android users turn it off by choice and it’s not available on Honeycomb in the present.

    Conclusion

    In spite of the ‘Reality Distortion Field’ accusations leveled against Apple, they are one of the few firms you can count on to release the number of devices sold and the amount of revenue generated as a result. You don’t have to worry about the translations of “quite small” and “quite smooth” that Samsung investors have had to deal with.

    There is certainly a lot to like about the Motorola Xoom and Honeycomb. In some ways, they exceed the capabilities and specifications of the iPad 2. But when you are competing against a market leader who has superior branding, it is not enough to win on a few specifications. You must have a much better solution at a much cheaper price. The Xoom has neither. Android phones compete with the iPhone on price, and in order for Honeycomb tablets to achieve the same success, they must follow suit.

    It will be interesting to see if Steve Jobs’ prediction that 2011 will be ‘The Year of the iPad 2’ is going to prove itself out. But you can count on the competition spending billions to keep it from happening. Honeycomb will mature significantly. Nvidia has a quad core processor called Kal-El in the works. But the iPad 2 is ready to compete on its own merit. There is no need for Apple to spread misinformation or distort reality, “...the truth is far too much fun”. In order to get consumers to spend more money on an immature OS, unproven device, and without the apps available to the iPad 2, there will need to be some reality distortion...there is just too much money on the line to stick to the facts.

    Disclosure: I am long AAPL, INTC, MSFT.

    Additional disclosure: Digital Business Integration (DBI) is the provider of hh2 Web Services, an online solution for Payroll, HR, Service, and Project Management for the construction industry. DBI also makes apps for the iPhone and iPad that integrate with hh2 Web Services.
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