A Letter to Keystone XL Opposers

Dear Keystone XL opposers: I consider myself an environmentalist who is deeply concerned about the future of our planet, and yet I can’t help but think your opposition of this project is somewhat unfounded. Here’s why.

I think this country’s dependence on oil is greater than you think. Yes, that can be changed and yes, there are alternative, renewable energy sources. The problem is that none of those solutions are viable at the moment. Right now, all we can hope for is to slowly reduce our oil consumption and move to the alternatives. But it’ll take decades, whether we like it or not.

Now, having said that, we need to ask ourselves how much liquid, easily extractable oil still remains worldwide. Based on what I read, I think the answer is: not enough. Without counting the tar sands and other unconventional oil sources, I believe this country will experience a severe “peak oil” event not too long from now. Most major oil wells worldwide are currently drying up, which means that, if you consider China’s seemingly infinite appetite for oil, the US is going to have a hard time procuring oil in the next couple of decades.

Without unconventional oil, I believe we are heading for a potentially disastrous scenario in which oil prices rise dramatically (think several times what they are today), bringing disastrous results if it happens too soon, at a time when the country still runs on oil. You’d likely see severe economic collapse at that point — and it would happen long before we’d see any global warming or other environment effects. I’m talking massive price increases in transportation, food, you name it. The infrastructure in this country isn’t even close to being able to run on anything other than oil. At least not yet.

Bottom line: Projects like the tar sands and Keystone XL are ugly and dirty, but it’s too late to stop them — we’re addicted to oil, and abruptly interrupting its supply would have catastrophic repercussions. Think of Keystone XL as a bandaid — something to keep us going for a few more decades until we can truly solve this problem.

I think that’s why Obama is supporting it. I think the administration has done the analysis and somewhere in Washington there’s a file that says that without these types of solution, this country is at risk of a real economic meltdown. This will happen when liquid oil availability runs low, regardless of whether it’s for political reasons to do with some of the least stable OPEC nations, or due to simple supply and demand reasons. Basically, I think Obama has no real choice.

At the same time, I do think it’s hugely important to invest in alternative energy technologies. That’s how we’ll get out of this problem: Not by blocking oil-related projects, but rather by pushing and supporting alternative, renewable energy technologies. These two things need to happen simultaneously.

Like it or not, the iPad is different.

The iPad 2

Many experts agree that the iPhone’s competitors sell primarily on price. Make the iPhone cheaper than all Android competitors, and Android would be pushed to the sidelines.

Ever since the iPad came out in April 2010, I’ve been hearing the same mantra whenever I talk about the iPad: Apple’s got about a year before they start losing market share. There’s no way they would maintain their dominance of the tablet market, and they stand to lose market share very rapidly, just as they lost it with the iPhone. Eventually the iPad would become just another speck in the tablet marketplace.

My first impression has been that this is probably true. After all, how would Apple — a premium, high-end brand — retain such a significant lead in the ultra-price-sensitive consumer electronics industry, and particularly with tablets — a product category that every major manufacturer has got their eyes on? That’s almost like Porsche aiming to outsell Toyota.

But I believe the iPad is different. It’s different because with iPad, Apple seems to take a somewhat different approach. Rather than pricing it as high as they could afford to (which is clearly what they’ve been doing with most of their products), they’ve priced this one in preparation for a fierce pricing battle with their competitors. It looks as though with iPad, Apple finally compromised and went with minimal margins, determined to maintain long-term market dominance.

Now, many experts agree that the iPhone’s competitors sell primarily on price. Make the iPhone cheaper than all Android competitors, and Android would be pushed to the sidelines. How many consumers (not counting developers/early-adopters/tech-geeks) do you know that would intentionally pick Android over iPhone, if it weren’t for the price difference? I don’t think I’ve ever met one.

Before you try and argue with that one, try and compare smartphone market share by price. Rather than comparing overall iPhone vs. Android sales, compare $600 Android phones vs. the iPhone (which sells for roughly $600 to operators). You might be surprised to learn that the (admittedly few) iPhone competitors selling at that price range are selling at insignificant quantities compared to the iPhone. In other words, there’s a reason why Apple is making all this money: They are successfully selling their amazingly-expensive iPhones in massive quantities. They may not hold the largest market share, but they are by far the most profitable player in this business.

What would happen if Apple were to give up their “Apple tax”, and compromise on lower margins in an effort to achieve and maintain market share?

The question I’d like to ask is: What would happen if Apple were to give up their “Apple tax”, and compromise on lower margins in an effort to achieve and maintain market share? I believe that is what’s happening with the iPad. Let’s take a look at some numbers.

The Average Selling Price (ASP) of the iPhone is around $630, and iSuppli estimated its Bill of Materials (BOM) at around $180. The ASP of the iPad is also around $630, but can you guess its BOM? Around $250 for the entry level model.

iPad iPhone
Estimated ASP $630 $635
Estimated BOM $250 $182
Estimated Gross Margin 40% 60%

In other words, with the iPad Apple clearly chose to forego some of their profits in order to achieve extremely competitive pricing. And here’s the other point: While a 40% gross margin may sound generous, it is based on the extremely aggressive pricing Apple gets from its manufacturing partners and component vendors due to Apple’s massive manufacturing volumes. This means that for most of Apple’s competitors, competing with the iPad on pricing is going to be damn near impossible.

So the question remains: Assuming the iPad remains one of the cheapest tablets around, what would possibly entice consumers to choose their competitor’s products?

I believe the answer is that unless competitors release products with significant functional advantages, or alternatively, with significant pricing advantages (highly unlikely, in my opinion), Apple will easily maintain its market dominance, at least for the foreseeable future.

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Nokia is Losing. And Faster Than it Seems.


As is slowly becoming common-knowledge, Nokia’s handset business seems to be slowly decaying. Their margins are eroding, and their market presence is shifting towards the very bottom of the mobile handset food chain. Today we got just a few more indicators on how this is happening.

Nokia likes to push their massive sales volumes as evidence of their market domination (110 million units in Q3 of 2010), but that number only proves that Nokia is only selling low-margin commodities, and that their competitors have taken over the lucrative high-end sectors of the market.

Comparing the average handset sale price of Apple vs. Nokia is quite interesting. Based on latest figures from both companies, it looks like Apple is getting an average of $635 per unit, while Nokia is bringing in a measly $78. In my book, this means Nokia is now officially a low-end player.

I’d also completely ignore their smart-phone market presence figures, as they are clearly bogus. They reported 24 million smartphones sold this last quarter. Truthfully, I’d like to know the average sale price of those units, but I’m guessing it’s well below $200, and that they are absolutely NOT smartphones, and are therefore not comparable to Android and Apple devices sold in that same period. I believe Nokia has actually lost the smartphone battle a while ago, and are now holding on to low-end Symbian devices that are not in any way comparable to iPhone and Android devices.

How many real $400+ smartphones has Nokia sold from it’s high-end portfolio? I’m guessing it’s an embarrassing number.

Still, it’s clearly too early to write Nokia’s eulogy just yet — can it reinvent itself and get back in the game? Time will tell.

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