Apple’s iPad: Great Expectations

Steve Jobs cranked up his technolust juggernaut yesterday by announcing what we Apple freaks have all been waiting for — the iPad tablet.  (Even though I am not planning on buying one straight out of the gate, I am slightly — but only slightly — ashamed to admit that I knew with certainty the day of the big announcement and completely forgot that the State of the Union Address was the same evening.)

CNNMoney reported gyrations in Apple’s stock around the announcement:

chart_apple_stock2topIn the 12 hours running up to the event, there were some pretty bold statements being made about how the announcement would be more about content creation than just cool hardware.

To wit, Wired reported the following very early yesterday morning:

Apple’s goal is to offer a new platform for content creators to reinvent books, magazines and online content — in addition to offering a new avenue for content producers to make money. That platform will likely be far broader than just a tablet device, and will extend to every device or computer that iTunes touches.

So what’s the connection?  I think there’s something to be learned about expectations and loss aversion here.  Just a hunch (and looking at these things through the retrospectroscope can be wildly misleading), but here’s where I’m headed.  Just before the party started, people probably expected two things: the announcement would transcend cool hardware and show off an entire mobile content ecosystem, and the device would cost about a thousand bucks (maybe less with a contract).

And here’s how the facts unfolded yesterday.  First, it became clear that this was mostly about a device; a device that could immediately run apps for the iPhone, but certainly not the content creation ecosystem that Wired suggested hours earlier.  Because we were expecting more, this looks like a loss.  Stock price?  Slump-o.

Then Jobs announced the pricing: less than $500 for the entry-level model, a relatively modest $1 a day plan for all-you-can-use 3G data, and the ability to cancel the data service at any time.  These price points were uniformly more attractive than people were expecting; there’s an expected loss avoided.  Stock price? Surge-o.

Expectations matter because they set the reference point for how we evaluate options and opportunities: If reality looks worse than we expected, it’s a loss.  And setting expectations is critical for new products that people have no idea how to value.  One wonders what would have happened had the expectation of that ecosystem not been set.

(Note: this entry originally appeared at consumerology.com)

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