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Professor Alex is a Math Professor.
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  • It's the App Store, stupid.
    Here is a simple question: The last time you were on a packed subway train, how many of those distinctive white wired ear buds could you see? Take a moment. A fair number I'll wager, and such is the brilliance of Apple's marketing machine, they stand for the Ipod, Itunes and the whole Apple music provision ecosystem. It's simple really, people love music; people, increasingly, have mobile lives and want to take the things they love with them. Simple. Now the music on those Ipods music comes from somewhere, which may or may not be the Itunes store - possibly from an old CD collection or downloaded illegally or copied from a friend, and so on...

    Now fast forward a few years and look around you. If you, like me and any sensible forward looking person, have a vision of the Ipad representing a similar kind of media revolution to that which the Ipod provided, then the picture will be a little different, with people escaping not only from their auditory environment and the monotonous noise of the subway carriage rocking back and forth as it trundles along, but the other ends of peoples' white ear buds will be connected in great number to a device which removes them from their immediate visual experience as well. That device, is the Ipad.

    Such is my vision of the future. And if you take the Ipad to represent a contribution to Apple's fortunes as something like (number of Ipads sold) x (average profit made on each Ipad sale) then that's already looking good.

    But the key question, which in my view has been grossly overlooked by commentators and analysts alike, is the following:

    What will people be doing on their Ipads, and what does that mean for Apple?

    Well the first part of the question has an obvious answer: People will be using an App of some description or another. Where did they get that App from? It can only have been from Apple. (Assuming that the person in question are not one of a very small jail-breaking niche.) An elementary point really, but simply because there will be no alternative providers of rich content for the Ipad, all that rich visual content for the Ipad has to come from the App store or one of it's Apple provided cousins.

    (This, incidentally, is why Apple will *never* allow the use of flash on the iphone, ipod or ipad, because it kills the above argument.)

    So having established that all the rich content is going to come via Apple, the next question is what people will pay for it. This is where things get interesting, and it is worth reflecting on the average price of a game for the Nintendo DS, or the price people pay for Microsoft Office (is it a dream to far to imagine the Microsoft Word app being sold through the App store?) or the price people pay for a subscription to the Wall Street Journal. 

    The rest of my argument can be filled in from what I've said above, but the conclusion is that Apple are going to make an absolute boatload of money from the Ipad and it's associated ecosystem. Much more than people think.

    And one final comment which may remind you of your youth saving up for the latest video game. Apple has now saved up just about enough money to buy Nintendo. That surely is a dream too far...

    Disclosure: Long on Apple.




    Disclosure: Long on Apple.
    Tags: AAPL
    Mar 14 12:24 PM | Link | Comment!
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