The Triple Crown

History shows us that when disruptive technologies appear, the battle lines are drawn between those who are empowered by the innovation and those who fear they lose such power. So it is with the iPad and its iOS platform, which has sparked a counter attack in direct proportion to the speed of its adoption across the computing landscape. From the desktop to the handheld, from the media it displaces to the media it rehomes, from the companies who benefit to those who are undermined — the pace is quickening.

As my daughter used to say in pre-school, let me undersplain something to one such victim, Microsoft. When you send out your troops to tell enterprises why the iPad sucks, be very careful to not include facts about Windows machines as proof of anything. As a longtime resident of OS/X, I have no use for Windows machines generally. But specifically, nothing about Microsoft-based products comes close to the worst aspects of the iPad circa Version 1.

You know the list: Flash, no Office, etc. These are features of the iPad, not problems. Investing in Flash is like putting money into a parking meter with a one-hour limit. After you reach the limit, the money goes in and doesn’t count for anything. Plus you can’t get it out. Office creates documents that require email to scatter unevenly across disorganized cc and forward silos where the resulting cloud of authority mangles both management and employee incentives. Etc. is everything else you might want to do on the iPad that Windows machines can do but don’t want to because it destabilizes legacy Microsoft revenue streams.

This last point is why comparing a shipping viral product to a non-existent OS-orphaned one is so absurd. But Microsoft is not stupid; they must think they can stall long enough to change the subject again. Which leads to the next surprising iOS data — Netflix streaming via Apple TV passing iPad streams. Actually, it’s intuitive if you use both products as I do. Netflix is a cute trick on the iPhone, a traveling companion on the iPad, made for Apple TV and the home screen. With Fox and ABC talking about dropping Hulu in favor of Netflix, Apple TV, and Xbox, the market may be compressing rapidly into a two-party system.

Netflix is interesting because it is the first service to follow the disruptive arc of the iPad. Every time the iPad is analyzed, the projections are anywhere from just plain wrong to what amounts to a niche. Doesn’t run applications… now there’s an AppStore. Doesn’t run Flash… now there’s a Flash converter app. Apps don’t support a magazine subscription model… Tuesday they will. Won’t be accepted by IT… 80% penetration. Will be overwhelmed by Android tablets… Apple will Verizon them with iPad 2.

Netflix: Doesn’t run this year’s shows… just announced limit of 2 simultaneous streams per subscription. Two problems that actually combine to further growth of the disruptive network. With 20 million subscribers already accounting for a big chance of YouTube style bandwidth, the studios are threatening to starve the service to protect cable and satellite and DVD pricing and windows. The solution: bump up to higher sub price to free up streams for family of four, producing high value customers that finance newer content. Also moving the service rapidly from DVD/Blue Ray to all streaming. What’s left? Live news and events, which Hulu Plus is talking of acquiring before Netflix gets too big.

What is reminiscent of iPadnomics is the speed with which the disruption is underestimated, the naiveté with which the backlash is orchestrated, and the resultant vaulting of the service into a near-incumbent position before the deposed incumbents can retrench from the initial mistaken counterattack. Netflix is already at the stage where iTunes was when the music cartel tried to cap it. While Amazon may be a cheaper service without so-called DRM, there’s no device comparable to Apple TV at the end of the value chain.

Instead there are the almostees like Google TV and Spotify, trying to patch together enough coverage to simulate the Netflix/Apple TV combination on the video side and iTunes/iOS on the music side. It’s not so much about Comcast replacement as they want you to think, because live programming has not been built out in this new Net model. A la carte programming is not yet worth piecing together from a cost perspective; it’s easier to keep the cable package and pay the on demand freight as Hollywood continues to roll out mediocre product.

Many of us are spending for a home theater experience plus cable/satellite and testing the broadband cap with streaming over Apple TV and Netflix. Right now for a family of four we’re spending $100 for first run and shifting the mid-tier to 8 bucks a pop plus the Netflix bill for the balance. The first news network to realize they are really competing (and losing – see Egypt) with Twitter and Facebook may talk with Hulu but will think twice before pissing off Apple or Netflix. Then we wait for HBO, or watch AMC or some such to replace them. Already Netflix at 20 million beats Showtime and Starz at between 17 and 18, with HBO not far enough ahead at 27.

Similarly, streaming has disrupted the technology business. Where Comcast and HBO have the most to lose to the Cloud in media, Microsoft and Office do in the enterprise. A generation of netizens is tweeting, retweeting, and @mentioning the stream, before emptying an InBox coming under attack behind the firewall. Microsoft can let some air out of the tire by announcing an OfficeTalk skunkworks project, but taking over the desktop from Outlook without a mobile strategy will be fighting the last war. Redmond is in between a rock and a hard place.

The next version iOS 4.3 supports advanced gestures for navigating between apps. As iPad developers support push notification in their next revs, the difference between micromessaging and the Inbox is secondary to the position in the alert queue. Microsoft could push these realtime messages to the front, but in doing so Outlook is further marginalized by competition with direct messages and @mentions. The Microsoft of the last few years could take part in a conversation about open data, but with Ozzie and Muglia gone and former-Office-now-Windows-chief Sinofsky cementing power, it’s a stretch to assume Microsoft won’t go classic in its bet on Office as the gatekeeper.

The wildcard here is Mac AppStore, where Apple has the opportunity to unify the social Office as a layer of cooperating apps. Write to the iPad, and run also on the Mac. If Microsoft decides to extend its OneNote iPhone app across Office, they will either up-port it to iPad (and implicitly replace native Mac with native Mac Apps) and damage WindowsPad, or push it to Android with even more disastrous consequences. With Apple TV on iOS, it’s write once run anyappware.

Watching Secretariat this weekend reminded me of the iPad/Netflix story arc. After close victories in shorter races at the Kentucky Derby and the Preakness, the Belmont Stakes shaped up as an endurance test thought to bring the speedy come-from-behind horse back to earth. Instead Secretariat broke from the gate and won going away, leaving the field far behind by 31 lengths. Perhaps we’re not at the same point in Apple’s race, or at the very moment when the studios pull the reins back on Netflix’ run. But I wouldn’t bet on it.