Can Apple build an iPad Mini that wouldn't cannibalize iPad sales?

Can Apple build an iPad Mini that wouldn't cannibalize iPad sales?

Summary: It's possible for Apple to build an iPad Mini that wouldn't cannibalize full-size iPad sales, but it would mean turning to previous-generation technology to do it.

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TOPICS: Apple, iOS, iPad, Tablets
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Yesterday, ZDNet's James Kendrick suggested that Apple could rock the world with an iPad Mini, which he dubbed the iBook. Could Apple deliver to market such a product at a price that would work?

Let's see if we can make it work.

I'm not a big fan of the whole idea of an iPad Mini as the only real justification for the device is the fact that the likes of Google and Amazon have enjoyed some success with their 7-inch Android-powered tablets. If Amazon and Google have a 7-inch device, the reasoning goes, then so must Apple.

The problem with the iPad Mini is pricing. The iPad 3's pricing starts at $499 for the base model, while the iPad 2 starts at $399. An iPad Mini would ideally need to be priced at or below $299 in order to remain competitive in the face of the iPad 2 and 3.

Let's start with the bill of materials for the iPad 2 and iPad 3 as drawn up by iSuppli back in March:

The problem with trying to scale down the iPad 3 is that the numbers don't add up. Even assuming that making a smaller iPad costs 20 percent less than making a full-sized model -- factoring in that components are now cheaper than they were back in March -- the component and marketing costs of the devices would still be in the region of $250.

Believe it or not, shrinking an iPad doesn't shrink the price by that much.

It doesn't make economic any sense for Apple to sell a device at $299 that costs them $250 to make. It's not as though Apple needs to come up with a way to bump up the iOS market share. While I agree with Kendrick that "Apple would sell 10 million iBooks in just a few short months," it's likely that a great deal of these sales would be at the expense of full-sized iPad sales.

In effect, Apple would be cannibalizing sales of a more profitable product and putting market share over profits.

That just doesn't make sense.

Another option would be to take the iPad 2 -- which Apple still sells -- and use this as a base from which to create a smaller iPad. Right from the start this would mean a cheaper screen, cheaper battery, cheaper processor and a cheaper camera. Back in March it was estimated by iSuppli that the revamped iPad 2 cost Apple some $245 to make. If we assume that an iPad Mini based off of the iPad 2 would cost 20 percent less to make, this brings the total cost down to a more manageable $195.

All of a sudden that $299 price point seems doable, even taking into account Apple's bounteous profit margins.

This is a far better starting point for an iPad Mini. It does mean compromises, but for a device powering a smaller screen -- and perhaps aimed at a different market -- they matter less. Much of the improvements made to the internals of the iPad were to drive the new high-pixel-density Retina display panel. A scaled-down iPad Mini would after all require a lot less hardware to power it.

By basing the iPad Mini on previous-generation technology, it's possible that this would put a damper on cannibalization. Just as people can already choose an iPhone 4S, and iPhone 4 or an iPhone 3GS, or an iPad 3 and an iPad 2, a lower-spec iPad Mini wouldn't compete directly with the full-sized offerings.

This way the cheaper iPad Mini would be seen as a standalone device -- much like the iPod touch -- rather than a cheap alternative to a pricier device.

Gallery: Best tablet for those who don't want an iPad

Image source: Nickolay Lamm/InventHelp, iSuppli.

Topics: Apple, iOS, iPad, Tablets

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54 comments
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  • Going small will be huge!

    I have roundly criticized the iPad in the past because I think it is almost completely unsuitable for any purpose. It is, to put it mildly, a clunky, oversized device. Browsing on it is already an excruciating experience (as it is on all touch-screen-only devices) and made especially so by the lack of Flash and annoying page reloads. That leaves its role as a media consumption device. But it is also a pointless device for that, since the only time you would ever want to consume media on it is when you are away from home or work (at these places we have big TVs and monitors). When you are away from home, you will probably be on a bus or a train or in a restaurant with your five year old...in all those situations, the humungous 11" slab of burning hot computing is literally laughable. I have found myself chuckling at poor shmos trying to read a book on their iPad on a crowded bus many times.

    A kindle sized device, though, is much more usable. I think the mini will be a far superior device in almost every way, even if it is much less powerful. In fact, despite the fact that Apple products are now completely uncool (they're the Windows of mobile), I might find myself for the first time actually wanting one.

    I think there are a lot of other people who feel the same way.
    x I'm tc
    • Not part of the hundred million

      I guess we'll put you in the 'no' pile.
      Robert Hahn
    • iNote

      Forget about iPad mini.
      What Apple really needs to bring out is something like the Samsung Galaxy Note - the ultimate all-in-one.
      It will cannibalise iphone sales, but get with the times before the world passes by the pissant iphone.
      If they do bring out the 7" ipad mini, they shouldn't discount it based on size. Just price it the same as the 10" ipad. Give it the same features and if they prefer the 7" size, they can pay for it. This way they don't cannibalise ipad profits with more choice.
      warboat
    • Anybody still towing the 'It Doesn't Have Flash' Needs to Go Away

      Flash is old and unstable tech. I stopped reading as soon as I saw that.
      thenitewatch
      • Many mission-critical Web pages that I regularly view still depend on Flash

        I agree, it is a buggy piece of tech that we will all be better off without. But for now, it remains an essential buggy piece of tech that we can only dream of, someday, being without.
        x I'm tc
        • Adobe would disagree with you

          "But for now, it remains an essential buggy piece of tech"

          Adobe definitely doesn't see the mobile version of Flash as "essential".

          Adobe has recently discontinued support for the mobile version of Flash, and they will not continue to distribute it or upgrade it.

          You may love this "buggy piece of tech", but it is quickly being made extinct by HTML5 which is much less buggy, much smaller & faster to download and execute, and is fully supported in any Web browser natively.
          Harvey Lubin
          • Adobe doesn't see...

            ...The mobile version of Flash as cost effective for them to continue to produce.

            That's a different issue entirely.

            The simple fact of the matter is, browsing on a Playbook is a better experience than browsing on an iPad because the Playbook has a great implementation of Flash.
            x I'm tc
          • Actually, the simple fact

            is that your opinion is it's better. Doesn't make it fact that it is better. I have yet to have an issue with the iPad not having flash and certainly don't expect to in the future. It might be essential to your job (or your making it up) but it's not essential for most people.
            non-biased
      • why?

        Why go away when a multitude of flash-embedded websites STILL havn't "went away"?
        trob6969
      • Your Browser does not support Javascript!

        flash is just one thing.
        how about java support?
        If mobile safari is so wonderful why do we have so many web replacement apps just to do stuff that was easily done in a browser?
        Ask any web developer and they will tell you they use mobile Safari as the LOWEST COMMON DENOMINATOR when it comes to web page design and compatibility. Apple is solely responsible for lowering the standard of web pages!
        NEVER EVER DEFEND MOBILE SAFARI!
        warboat
        • Not defending Safari but don't have to either

          I will turn to a dedicated app to get me the info I want in a much more efficient manner than a browser no matter what it is every time.
          non-biased
    • iPAD Mini & iPOD Touch Next Generation

      Maybe the Apple iPAD Mini is actually a slightly bigger and squared iPOD Touch. Imagine Apple would distinguish the iPOD more from the new iPHONE by making its screen square (960 x 960), why not? By increasing the pixel size just a little bit it would easily be a mini 5" tablet ! Fits in your pocket. Has no 3G option and therefore is no real competition to the iPhone 5. 6 Columns of icons wide and 4 rows of icons + 1 dock in height! Maybe they throw in even a new GPS chip, blueTooth 4 and finally a stereo mic. Pricing at standard Apple iPOD Touch levels for 16GB, 32GB, 64GB and maybe even 128GB of RAM. By the way, upgrading the camera is a must if Apple wants to be taken seriously on the new iPOD Tablet. Best Guess would be a 2Mpix cam with 1920 x 1080 resolution in 16:9 ratio (Possibly 1600 x 1200 in 4:3 ratio) at maximum. Video has to be 1080p. Lets wait for september 12 shall we?
      Rhythmreactor
  • No, they can't

    That's a loaded question - even if just one person buys a 7 instead of a 10 inch, then it has cannibalized sales, insignificant as it is.

    Though we have seen a large drop in iPod sales apon the release of the iPhone (duplication of service), so yes, this would likely take sales away from the larger iPad.

    The trick is to get a greater profit marging out of the Mini so as to make it a possitive thing.
    William Farrel
  • Did iPod mini or iPod nano cannibalize sales of the original iPod?

    Or did it help Apple in growing the iPod market (and market share) overall, dominating the space for over a decade? Apple is still selling the iPod 'classics' today despite the slow overall sales in mp3 players (thanks to smart phones). I don't know anyone who looks back and say Apple shouldn't have release smaller size and cheaper iPods in the market.

    It will be the same with iPads. Keep in mind also once users get into the ecosystem and are purchasing lost of iOS apps, content, they're more than likely becomes repeat customers of that ecosystem. Who want's to repurchase all their content for another platform every year?
    dave95.
  • Can Apple build an iPad Mini that wouldn't cannibalize iPad sales?

    Nope. iPad mini sales will take from their main iPad sales and its going to be a huge loss. iPad mini will be about $299 on a guess, regular iPad is $820. That's over $500 they would lose in sales per device.
    Loverock Davidson-
    • Anybody can play this game

      Yeah, but those prices are competitive with the Surface, which on a guess will cost over $2,000.
      Robert Hahn
    • It's been well documented...

      that a large majority of the iPads sold have been of the $499 variety as opposed to the highend model, so your theory of $500 lost per iPad sale is a little flawed.

      I think it's well worthwhile for Apple to offer some iPad (whether smaller or not) at in the $200-300 range. There is a sizable market out there that won't buy tablets at $500, or even $400, but would bite on something cheaper. Even if Apple doesn't make as much per unit, it's well worth it to get such users into the Apple ecosystem now while they're still an "empty canvas" in terms of tablets. Between the ecosystem and customer satisfaction, such people will likely be buyers of higher end Apple products and services down the road.
      TroyMcClure
    • Come on Loverock

      As much as I hate to agree with that wanabee Bond dude he's got a point. The base iPad starts at $499 for an iPad 3 (yes AKA the iPad) and $399 for an iPad 2.

      http://store.apple.com/us/browse/home/shop_ipad/family/ipad

      So if an iPad mini starts at $299 for base then Apple would take a sales hit of $200 per device not $500 per device.

      Of course it's a risk... but it would also open up an iPad market that is more accessible to people with less disposable income... I'd consider buying a brand spanking new iPad mini for $299 vs a year old iPad 2 for $399. That would also depend on what Microsoft does with the Surface tablet as far as pricing and it's ability to run the programs I want it to run.
      athynz
    • Profit wise, no cannibalization will occur.

      I'd buy a mini. I bought the maxed out ipad 1 for 830. I bought the new ipad wifi 64 gb for 700 and I'd buy the mini for 300 in a second. Why? Portability. The iPad is for home. The mini is for the coffee-shop and lugging around.

      People who are price sensitive that buy the 299 mini may take away a bit from the 399 ipad2, or 499 new iPad, but that specific loss will be made up by taking sales from amazon, samsung, google, etc.. So no real money will be lost, but market share will be definitely be gained.

      Plus don't forget about people like me who will want both sizes.
      JSmithAtWork
    • Cannibals

      They're interested in eating into other mini tablet sales, too.

      If each mini sold replaces a Samsung or ?? Mini, Apple will be happy w the mktshare even if the net margin isn't that great.
      pk de cville