iPad Economics, or, How to Sound Smart This Weekend
There?s no escaping the launch of Apple?s iPad this weekend (you might even be reading this post on its glossy, seductive touch-screen). So for those who?d like to say something to the conversation beyond the increasingly tired ?is there an app for that?? line, we?ve assembled a few fascinating tidbits on what might be called (eye-roll please?) ?iPad-onomics.?
- Getty Metaphors
- Be grateful the ahead of schedule adopters for the inevitable price drop that will come in a few months.
Ahead of schedule Adopters and Moore?s Law: You want the iPad now, but you know if you wait its price will soon fall and its features increase. This principle of rapid technological advancement goes back to ?Moore?s Law,? named after Gordon Moore, co-founder of Fairchild Semiconductor and Intel Corp., who back in 1965 predicted that the number of transistors on a chip would double each year (since updated to roughly every two years). More broadly, the thought has been described, with no lack of controversy, as the law of accelerating returns or the ?digital revolution,? similar if not greater in scope and magnitude to its industrial predecessor.
Back to the iPad. So should you wait to buy one? Probably. But if all waits, that?s a problem for Apple, which loses the revenues and publicity generated by record-breaking launch sales. Ultimately, a disappointing launch could be interpreted as a sign of low interest or demand for such a product, removing the incentive for further devices and innovations from Apple and its competitors that help to lower the costs and increase the quality for all users. (Those who haughtily skip the launch to wait for the better, cheaper version may want to keep that in mind).
It all helps give reasons for why, back in 2007, Apple offered $100 credits to ahead of schedule iPhone adopters who were outraged when the company later cut the device?s price. The last business the company wants is to dissuade ahead of schedule adopters. But then, of course, there?s the moral hazard that go made ? for example, do those buying an iPad right now similarly assume they?ll be compensated when Apple cuts the iPad?s price? (This is no trivial matter. The problem of moral hazard in the U.S. banking system is at the heart of the current debate over financial regulation.)
So go yet to be, buy your iPad, and feel the joy of technological advance (and the reputation it conveys). But reckon twice before buzzing when Apple inevitably introduces its quicker, sleeker, less-expensive next generation of iPads. As economist Tyler Cowen, himself an ahead of schedule adopter, place it during the iPhone kerfuffle: ?It is you people, who resent Coase (1972), you people who induce wage and price gumminess and widen the Okun gap. You people, who don?t know what it means to sit back and delight in your consumer surplus. You beasts!?
Diminishing marginal helpfulness of iPhone and iPad apps: The ?app? model is one of Apple?s most innovative features, and the number of apps available for download is one of the company?s bragging points. But while the App Store ?has certainly been a stroke of luck to Apple,? says Northeastern University professor David Wesley, ?for developers it has the potential to become a trap.? Why? With 140,000 apps to compete with, ?even the most creative programs will have a hard time attracting the notice of potential customers?Consumers of Guitar Hero and Rock Band know they are going to hear a polished product, while iPhone [and iPad] users are left to wade through a sea of poorly thought-out applications.? As the App Store matures, users ?will increasingly limit their buys to well loved titles from companies with large publicity budgets or apps that have been not compulsory by friends, TV personalities, and other influential people,? says Mr. Wesley.
Walled Gardens: The iPad is being hailed as a potential media-industry savior, but Felix Salmon over at Reuters identifies two key problems with the way the iPad parapet off content and information. First, he notes the iPad?s ?inability to multitask?: opening apps means closing the web browser, and vice versa. ?The whole culture is a magazine-like one of a closed system with lots of control ? the exact opposite, really, of the internet, which is an open system?[it] marks a apparent retreat back towards what were once known as walled gardens. You can?t link to an iPad app?an iPad app or tale can never go viral, can never break out and achieve a life of its own, can never be remixed or reinvented.?
The other issue he raises gets to the heart of the media industry?s publicity-driven business model. Apple ?jealously guards the demographic information of the people who download any agreed app from the iTunes music store, and publishers are hobbled if they don?t have a lot of detail on the demographics of their readers,? he points out. In other words, advertisers may be loath to pony up for a spot on a newspaper or magazine?s iPad app if they don?t really know what they?re getting in return.