iPad Predictions, Revisited

I wrote about my expectations for tomorrow’s iPad event back in August in an article entitled The iPad is like the iPod, not the iPhone. The introduction:

Most folks seem to instinctively compare the iPad and the tablet market to the iPhone and smartphone market, and it’s easy to see why. They share the same OS, the same competitor, many of the same apps, and, of course, the same time period – the present.

But in reality – and this touches on many of the themes of this blog – an overt focus on product similarities misses many crucial factors that, in my opinion, make iPhones and iPads very different. In fact, I believe the business we should be looking at to understand where Apple might take the iPad is the iPod, not the iPhone.

And the conclusion:

I believe the iPad is much more like the iPod than the iPhone, and I expect Apple to treat it as such. For structural reasons, Apple can’t and won’t match Google and Amazon pricing, but I believe they will be more aggressive than most people expect with this year’s upgrade cycle.

My prediction was a new A6 non-retina mini for $249, a retina mini for $399, and the end of the old big iPad for $399 strategy.

I’m wavering on a few of these.

  • New big iPad for $499 – this is the easy one. No changes.
  • End of the old big iPad for $399 strategy. I still think this is the case; it’s likely Apple will make better margins on a $399 mini than they would last year’s big iPad at the same price. However, I got a lot of pushback that the big iPad at a more aggressive price point is a big deal for education. Perhaps the iPad 2 stays available eMac style?
  • Retina mini for $399. I still think this is the case. Moving to retina in the big iPad increased the BOM by $30, and while the price didn’t increase, the iPad 2 had a lot more margin to play with. Not so on the iPad mini.
  • A6 non-retina mini for $249. First off, I expect Apple to continue selling the current mini with the A5, not an A6 (see the iPhone 4S rocking its 30-pin, A5, 3.5 inch screen in the current iPhone lineup).

    I’m also conflicted on the price. For much of the month of August I was on this weird fantasy that Apple would price this fall’s products much lower than expected. I eventually came around on the iPhone, all but predicting $550, but I still wonder about the iPad.

How much will the old iPad Mini cost?1

From The iPad is like the iPod, not the iPhone:

There is one final point that deserves discussion, and that is price. One of the most interesting things about the iPod is that it was always price-competitive [lots of data about prices]…In thinking about where Apple will take the iPad, I’m reminded of two quotes in particular.

First, Steve Jobs on the mistakes made with the Macintosh:

At the critical juncture in the late ’80s, when they should have gone for market share, they went for profits. They made obscene profits for several years. And their products became mediocre. And then their monopoly ended with Windows 95. They behaved like a monopoly, and it came back to bite them, which always happens.

Secondly, Tim Cook on iPad pricing:

One thing we’ll make sure is that we don’t leave a price umbrella for people

A price umbrella is when an incumbent maintains high prices, allowing low-cost competitors into the argument. Apple ruthlessly eliminated the price umbrella in music players, but while they closed the umbrella somewhat with the iPad mini, the competition isn’t exactly getting wet.

If Apple can wrangle a 10% decrease in the iPad Mini’s BOM, that would be good for a $30 decrease in the final price at the same margin, i.e. $299. And, given the 5C, the argument can and should be made that Apple will always preserve its margins.

More importantly, it is increasingly clear that Apple’s iPhone strategy is to increase value, not lower price, in part by setting up Apple as an aspirational lifestyle brand. Presuming this is a company strategy and not just an iPhone one, then perhaps $299 as a floor makes sense.

And yet, this in some ways invalidates a major point of my thesis that the iPad is more like the iPod, and it absolutely invalidates Tim Cook’s claim of not leaving a price umbrella.

Moreover, the iPad hasn’t been doing as great as you would think for the last few quarters. Some of that may be due to a slower-replacement cycle in the tablet market relative to smartphones, but Android tablets in particular are making a push not just in the uber-low end but in the $200 range as well. If ever Apple is going to be aggressive with pricing and trade margin for market share, this is the time and place to do just that.

  1. Assuming it continues to be sold, obviously []