Back in June 2009 I conceived of what Apple’s, then rumored, touchscreen device might look like and how it might be used. One month ago Apple finally unveiled the iPad ; it only mildly resembles my conceptual model but it does embody a simple yet versatile multimedia device with a lot of potential. Since its introduction some have dismissed the iPad as nothing more than an oversized iTouch and while this description is relatively accurate it fails the recognize its intrinsic utility and why it will be such a huge success.

My presupposition of the iPad on the left and Steve Jobs’ actual product on the right.

The iPad’s intuitive user interface will appeal to less tech-savy users. As mentioned in the January 31 podcast of Six Pixels of Separation the device will remove a lot of “metaphors and architecture… inherent to laptops that deter many older users from using those devices.” For similar reasons, as well as its compelling gaming and media apps, the iPad will also attract younger users, even perhaps pre-adolescents. It was probably with this segment in mind the Paint App was demoed during the iPad presentation. The next generation of children will probably be mastering a touchscreen interface long before a keyboard or mouse. With its lower price point and conformability for recreational purposes, I also think that the iPad will become the cool, if not the standard, educational tool for younger users, replacing laptops as the device students tote from classrooms to recess. Therefore it should come as no surprise that a recent AdMob survey indicates that the Pad will be particularly popular with both the young and the old.

I also believe that the iPad will find fans in other segments such as at-home moms or dads, and sales people; as said on the Marketing for Coffee February 3 podcast, “(the iPad) will be a sales machine in a box… a good presentation tool,” echoing my similar prediction in June.

Although these segments will likely provide the initial demand for the iPad, I sincerely believe that it will find a very broad acceptance in the long run, and that it will become the device for consuming media on a personal level, just as a television is the device for group consumption. How often have you seen somebody use a laptop or BlackBerry while watching television? It is pretty much commonplace but neither device is ideal- a laptop is large and sometimes unwieldy, and a BlackBerry or any other “phone” device  is too small and limited. Although the iPhone and iTouch greatly expanded the range of the latter category, they are still a bit too small. The iPad is the “Goldilocks” solution that fits the situation just right.

So if the iPad is so great, how many will Apple sell? Pricing is the critical factor to consider. Apple announced six different initial models, probably to give options for every budget and to increase market penetration. The lowest priced model, a 16GB Wifi iPad, will cost $499 while the high end 64GB 3G model will cost $829. It is worth remembering that the iPod Touch sold over 13 million during its first 15 months, and began at price points of $299 for 8GB and $399 for 16GB, not too far from the low end iPad model. It is also worth noting that the iPod Touch is Apple’s undercover hit- iTouches are estimated to be 40% of the 58 million iPhone OS devices sold worldwide. Given it genuine utility and the market performance of the iTouch , I believe that the iPad will exceed most analysts’ sales predictions, which range from 1.1 to 7 million units for the first year.

An article today in the Financial Times mentions how Apple is supposedly pressuring TV networks to cut their episode pricing on iTunes in half, from $1.99 to $1. The price cut indicates that television sales have been lackluster. While exact iTunes sales information isn’t offered, it is known that Apple had accumulated sales of 15 million TV episodes in February 2006, 50 million in January 2007 and 200 million in October 2008. Based on this, in a recent in November 2009 I projected that Apple should have then reached sales of 86 million episodes.

I extrapolated the videos sold at December 2008 and 2008 on the speeds implied between official announcements. For example:

(200MM at Oct 16, 08 - 50MM at Jan 10, 07) = 150MM/645 days = 230K sales/day

50MM at Jan 10, 07 + (230K sales/day x 355 days) = 132.6MM sales at December 31, 2007

Utilizing this information I then calculated the average sales per user. Based on my calculations these average sales have dropped since 2007.

The bottom line is that Apple needs to rework its video strategy. The price cut attempts to address the issue. Why should iTunes customers pay $1.99 for a one-hour TV episode when they can spend the same amount for a game that they can play hours with? Apple understands that iTunes customers make this comparison, and that a TV episode, which is watched perhaps twice or three times, especially when repeat viewing require a user to store the video, taking up half a gigabyte of drive space, resulting yet another deterrent.

It’s also possible that Apple’s current roster of video platforms (iMac, MacBook, iPod Classic, iTouch, iPhone, Apple TV etc.) are simply not “fantastically great” enough for video watching due to portability (in the case of the computers) or screen size (in the case of the portable devices). Tomorrow Apple is presenting a new device, which could turn out to be the perfect device for video watching. It might finally convince iTunes customers to buy more TV episodes. It may also persuade Apple’s TV production partners to go along with the new iTunes pricing plan.

This week’s new iPhone launch piqued my interest again in Apple’s 10-inch touchscreen device, which is rumored to be released before the end of this year.

This device, let’s call it the iTablet iPad (Microsoft has a hold on the “tablet” category name), will be like a larger version of the iTouch. See below for what I estimated the size and shape to be, and how it would relate to Apple’s existing lineup of small electronic devices; from left to right: Shuffle, Nano, iPod, iTouch and iPhone.

The device can be seen as an extension of the iPod family, but what will it do? The iPad will probably have the following features:

• Multi-touch user interface, similar to the iTouch and iPhone.
• Accelerometer, although the functionality of this will be somewhat different given the larger size of the device.
• Rear or side external audio speakers, similar to iTouch.
• Video and audio output, a first for an Apple small device, but necessary in order to support many of the functions I believe this device will fulfill.
• Wifi for web browsing and connecting to iTunes and the App Store.
• Bluetooth for external devices (headset, keyboard, mouse, game controllers) and for peer-to-peer applications.
• Run on the new iPhone OS 3.0, which offers a variety of new functions including direct App Store movie and TV show downloading, In-App purchasing, Peer-to-Peer connectivity, Voice over Internet functions and Push Notification.

Given these features the iPad will transcend all current product categories since it will fill a variety of functions:

• Game Platform: The iPhone and iTouch have clearly demonstrated their ability to compete in the portable gaming market. I believe that Sony’s latest PlayStation Portable (PSP), the 3.8 inch screen PSP Go, revealed last May and releasing in October, is a direct response to Apple’s smaller gaming products. A 10-inch screen will extend Apple’s presence in the gaming market, towards the higher end. Also, since the iPhone OS 3.0 communicates with many accessories, the iPad may probably support Bluetooth gaming controls, which will make the iPad Apple’s first entry into the console game market. There are also rumors of Apple launching a premium game section in the App Store, which might be the direct software component of this strategy.
• E-reader: Clearly the Kindle is a device that has received great reviews and acceptance in the marketplace, but while its black and white digital ink technology facilitates text reading, it is not ideal for color periodicals. Apple is already beginning to cater to this market with iTouch and Iphones Apps like Iceberg Reader which offer both subscription or single pay systems through in-App purchasing. While the Kindle will probably remain the staunch choice for book readers the iPad could take the majority of the color periodical subscription market.
• Multimedia Display: I expect the iPad will become the choice device for multimedia-to-go. It would be much more practical and comfortable for watching movies on trips, instead of carrying around a portable DVD player or a laptop. It could also be shared for viewing between two people unlike an iTouch or iPhone. The new iPhone OS supports direct movie and TV show downloading, signaling where Apple might be going with the iPad.
• Presentation Device: The portable size and touch screen capabilities of this device will make it an innovative device for animated presentations. Just see how much touch screen technology is in vogue now, popping up every day on CNN’s Situation Room and in movies like Quantum of Solace. Salespeople who want show clients some extra pizazz will use the iPad.
• Sporty computer: I also believe that the iPad will be used by many as their ‘second computer.’ I am thinking about businesspeople who already have a company laptop. The iPad will fit that need as their fun computer, for using Facebook, reading Golf Digest online, and watching videos. For all the reasons I listed above, iPad will be the device that they take on vacations. Similar to how some people have two cars; iTablet will be the sporty roadster they use on the weekends.

There are probably a number of other functions I haven’t thought of; I never expected the iPhone to be used a medical device for example. All in all, the new versatile device is sure to overturn many established parameters about electronic device categories, which will appeal to many different consumer segments. If it launches before the Holiday season Apple has another breakout hit on their hands.