The iPad isn’t a computer, it’s a distribution channel
14th April 2010
The iPad by itself would be just another physical product living in a nearly linear world. Doubling revenue would require Apple to double the number manufactured; and that would mean roughly doubling labor costs etc. It could be profitable, and there are advantages to building at scale, but not in the greater-than-linear leveraged manner that software or content can deliver. As Apple well knows, a business built on that model builds enterprise value linearly with unit sales. But… the iPad as a distribution channel for fungible goods reasserts the non-linear leverage that Microsoft enjoyed back in the day.
One interesting twist is how the iPad combines network effects and constrained distribution. The bright shiny object design of the iPad leads to network effects at the app store which in turn drives more consumers back to the device itself. Then to the degree that those two forces hold consumers in thrall of the device, Apple can use the device as the point of sale for content worth more than the device itself. The leverage is linked – the first leads to market presence, and then the market presence makes for stronger monetization opportunities in the device-hosted channel.