Tablets, Clouds, and Ponzi

Barnes & Noble has finally brought out a true (if dated) Android version for their color Nook, which likely makes it the cheapest tablet around.  It’s clear from both the performance and features of the new release and the pronouncements of the company that this isn’t intended to be a general-purpose tablet, but it’s also pretty clear that it presages a price war in the tablet space. That will have profound impacts on everything in the online world.

The Nook could, and likely will, launch a kind of e-reader/tablet price war that inevitably spills over into the broader Android tablet space.  Sony also announced its own pair of tablets, one roughly iPad sized and the other a five-by-five inch fold-screen model, which shows that more and more device players are jumping in, and jumping on Android.  The result of this is likely to mirror the smartphone trends; Android has already taken the lead and isn’t likely to lose it.  That would be bad for Apple because it confronts them with the same problem they had in PCs; a choice to sustain margins and control ARPU by creating a more closed ecosystem costs you market share forever.  That makes you a second-tier player in a market you created.

The other dimension of the tablet market that’s critical is the impact of the tablet on 3G/4G planning, policy, and deployment.  Nobody believes that we’re moving to unlimited-use broadband wireless even now; it’s clear that everyone will do a combination of usage pricing and a usage tier that imposes rate-limiting to constrain video at a certain point.  Even with those accommodations, wireless capacity needs will be much higher as tablets deploy.  That means more backhaul and metro, less wireline access and core.  Most financial analysts are matching our December forecast that wireless will be where growth is, and that operators will constrain wireline spending.  Wireless impacts metro, and primarily Ethernet, as well as (obviously) the radio network.  This could have a very favorable impact on vendors with strong RAN capability matched by support for Ethernet transport/backhaul and mobile/LTE voice elements.

We’re going to reach an equilibrium with content.  A lot of people will use tablets and OTT video to supplement their TV viewing, but that’s where it will stop except for a few users.  And the growing pressure to impose usage pricing in wireline won’t help one bit.  This is why TV Everywhere and multi-screen strategies are so critical.  Ultimately, that suggests that players who have TV broadcast capability and who can create content are the only ones who are truly safe.  Even Netflix faces headwinds.

The cloud is another area where recent news points out the universal tendency to over-hype every development beyond the reach of any possible fulfillment.  Research is now showing that even SMBs aren’t jumping to the cloud as fast as many believed.  Part of the reason is that the hype wave hasn’t really built any level of buyer literacy, and part is that the costs are higher than most SMBs expected and the benefits lower.  My own research shows that SMBs’ own estimates of cloud adoption have been based on the presumption that they’d get Internet-based applications for nothing.  That’s an easy benefit case to make, but not a very plausible one to present as a seller.

A final issue is growing evidence that “entitlements” are more of a problem than we thought.  No, I don’t mean that Social Security or Medicare is less financial stable (how could they be without collapsing?), I mean that we’re also seeing unrealistic assumptions about other pension and retirement health care plans coming under pressure.  Pew estimates that state pension fund deficits have increased by over 25%, and there has already been a political battle to curb the traditionally generous retirement benefits of government workers.  It will be much harder to talk about changes to “public” programs like Social Security while you continue to fund more generous programs for government workers.

All of modern economics is a Ponzi scheme of sorts.  Bubbles in financial instruments clearly are, and so is the politics of benefits.  We’d all like to believe our future is secured at no cost to our present, and in a period of strong growth that may appear to be true.  More players in the classic pyramid scams delays the inevitable.  We could fix the current problems in both economics and deficits/shortfalls by creating financial regulations that forced capital to work in partnership with labor and raw materials to create wealth.  Instead we’ve worked to figure out how to make capital an end unto itself.  That’s inherently the biggest Ponzi scheme of all.


Leave a Reply