Tech Stock Winners Demonstrate the Power of the Interface

By Michael Comeau  JUL 28, 2010 11:00 AM

Companies like Apple and Google get rewarded by the market, while those who go kicking and screaming into the future are left behind.


Success in technology isn't dictated by the effective manipulation of lines of code and silicon and gigahertz and megapixels.

It’s really all about the human interface -- how easy or fun it is for us regular people to access engineering magic. Making a new and great way to interact with gadgets and tech services is the ultimate challenge, and one that's overcome by only the best of the best.

Looking back over the past decade or so, I see three examples of interfaces that radically changed how we interact with technology:

1. Nintendo Wii

The idea of motion-based video games was completely off the public’s radar when the Nintendo Wii hit store shelves in 2006. But the novelty and ease-of-use of the Wii’s control system resulted in superior sales relative to the Microsoft (MSFT) Xbox 360 and Sony (SNE) PS3 -- a complete reversal from the prior console cycle where Nintendo came in dead last.

Fast-forward to 2010, and Microsoft and Sony are following in the Wii’s footsteps with their Kinect and Move products.

2. Apple iPhone

2007’s first-generation iPhone wasn't the first touchscreen smartphone, but it was, by far, the best implemented and the first one that could be deemed elegant. Apple (AAPL) offered the best mobile-Internet experience ever seen on a smartphone, and also completely integrated the capabilities of its predecessor product, the iPod. Most touchscreen phones before the iPhone were inaccurate and unresponsive, required a stylus, or were tied to horribly clunky software.

Nowadays, touchscreens aren't just for the cash registers at McDonald's (MCD); they’re on printers, digital cameras, monitors, and are the entire basis for tablet computers like the iPad.

3. Google Search

I'm rarely an early adopter, but I've been using Google (GOOG) since my dial-up days in the late 1990s. Google’s homepage was an enigma because it was empty aside from its logo and the search field. That let you know that Google was about one thing and one thing only: search. And since its homepage was empty, it was fast.

But Google’s basic interface proved that simple could work on the Web -- something to which innovators like Netflix (NFLX) and Twitter clearly paid attention.

Why Should Investors Care About the Interface?

Well, it’s simple.

Changing how we interact with technology is the ultimate in innovation, and it's what consumers respond to in the biggest way. That translates into demand, which translates into profits.

Powered by the Wii, Nintendo has significantly outperformed Sony and Microsoft in stock performance in this generation of consoles. Google’s stock is up fivefold since its IPO, while Yahoo (YHOO) is down substantially over the same time period.

And Apple’s stock price has more than doubled since the 2007 iPhone launch, while Research in Motion (RIMM), Motorola (MOT), Nokia (NOK), and Palm (PALM) have suffered huge declines.

The ultimate lesson is that companies that change how we interact with technology get rewarded by the market, while the ones that get dragged kicking and screaming into the future are left behind.

With this in mind, let’s shift the conversation to two news events, one past and one present.

The Announcement of Apple’s Magic Trackpad

Yesterday, Apple announced a seemingly unimportant product -- the $69 Magic Trackpad. The Magic Trackpad is an oversized, standalone version of the Macbook Pro’s Trackpad, adopted for desktop Macs.

Financially, there isn’t much impact here for Apple. It could sell 10 million Magic Trackpads and still not make a big dent in the bottom line.

But the Magic Trackpad does say a lot about Apple’s willingness to experiment with the user interface. The Trackpad is a baby step in transforming how we interact with desktop computers, and one you’ll see the competition copying very soon.

When Apple stops trying to change things, it’s time to get out.

Blackberry 6 Press Conference

On Tuesday, August 3, Research in Motion and AT&T (T) will hold a joint press conference, which in all likelihood will include a full unveiling of the BlackBerry 6 operating system.

BlackBerry 6 is big for Research in Motion because BlackBerry needs a fresh new interface to keep up with iPhone and Android.

The problem is, there’s nothing exciting about BlackBerry 6.

I’ve spent hours combing over BlackBerry 6 videos and articles over the past few weeks, and I don’t see a single feature or enhancement that changes the way we do anything. Improvements in Web browsing, apps, social networking, and multimedia features that should have happened two years ago aren't going to stop consumers from defecting to iPhone and Android.

And yes, BlackBerry is entrenched with enterprises, but 40% of new iPhone activations are for business users, and over 60% of the Fortune 500 are either trying it out or using it.

So do you think BlackBerry 6 actually changes anything? If you can’t say yes to that question, then why own the stock?
Position in AAPL.

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