Do people want a cheaper iPad, or a smaller iPad?

Do people want a cheaper iPad, or a smaller iPad?

Summary: If it's a cheaper iPad people want, Apple already has the winning formula to hand -- get the carriers to subsidize it.

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TOPICS: Apple, Hardware, iPhone, iPad
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There's continued speculation that Apple is planning to release a smaller iPad, dubbed the "iPad mini". The problem is that the numbers don't add up and it's hard to see how Apple could offer a smaller iPad at a competitive price point. 

Last week, engineer Ryan Jones published a note relating to the supposed iPad mini and highlighted how Apple has created market disruption by selling cheaper iPhones and iPods. Jones points out how Apple has used a combination of three strategies to bring cheaper products to market. These are:

  • Create a new product line;
  • Keep selling old hardware;
  • Get someone else to subsidize the product.

He also posted an interesting graphic showing every current model of iPhone, iPod, and iPad graphed by price. It's an interesting graphic that clearly shows the price point that Apple would need to hit for any smaller iPad. 

The space that the "iPad mini" would need to inhabit is clearly marked. The question is, can Apple fill that gap?

Whenever I come across chapter related to an "iPad mini," I'm never sure what people want. Do they want a smaller iPad -- that is, a device with a smaller footprint or form factor -- or are they looking for a cheaper iPad?

If they want a smaller iPad then Apple is going to have to get its thinking cap on and come up with a whole new class of device, and price it to fit into the blank space in the chart above. But if Apple wants to sell a cheaper iPad then the solution for this could be in the form of subsidized iPads.

Apple knows all about subsidy. Carriers already subsidize the iPhone to the tune of some $400; money that they claw back from the customer in the form of monthly payments. When Apple released the iPad it decided to not take the subsidy route and instead choose to sell the device outright to consumers and allow them to pick and choose a carrier and be tied to nothing more than a monthly rolling data contract. Maybe that was a way to limit the risk to the consumer? After all, the iPad was a totally new class of device and there was likely to be uncertainly at Apple as to whether people would be willing to commit themselves to long-term data contracts.

But sales of the iPad have been solid, sending a clear message to both Apple and the carriers that people want the iPad. Given this demand, it is likely that there's a massive strata of potential users out there who'd be happy to exchange a cheaper iPad for an 18- or 24-month data contract with a carrier.

This would be the easiest way for Apple to bring a cheaper iPad to market. A $400 carrier subsidy would bring the price of the cheapest iPad 3 down to an amazing $229, while the 3G iPad 2 would be slashed down to a steal at $129. This would totally blowing the competition out of the water, even going as far as putting enormous pressure on the mega-cheap Kindle Fire and Nexus 7.

Could a subsidized iPad be Apple's secret weapon again cheap Android-powered tablets? It's a formula that worked for the iPhone, and there's no doubt in my mind that it could work for the iPad too.

Image source: CNET, Ryan Jones.

Topics: Apple, Hardware, iPhone, iPad

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30 comments
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  • No ipad is my option

    Multitasking capabilities and Nexus 7 experience basically replace a need for any kind of Apple product.
    Uralbas
    • Good for you

      Now the point of your posting here was what?
      non-biased
  • ipad is dead

    With Win RT devices being released in a matter of weeks, iPad is dead. Next year they will only sell half the devices they sold this year. iPad will be throw out of corporate windows to make way for the new 'darling'... The Surface...
    owllnet
    • Apple sold 16 million iPads in this quarter, alone

      Even half those sales, per quarter, would still be significant. ;-)
      Wakemewhentrollsgone
    • win RT

      Yeah, win RT will be just as great as windows phone 7. With about the same sales numbers too.
      Jean-Pierre-
      • Real Soon Now

        Oh, leave him alone. They don't have any products -- at least none that sell worth a hoot -- so instead they beat their chests in the forums and talk about how rough and tough they are. On second thought, try kicking sand in his face. Maybe he'll go away.
        Robert Hahn
    • Don't mind me if I wait and see on this one...

      Heard similar predictions on the Nokia Lumia windows phone and it's been nothing more than a blip on the radar. Not saying the MS WinRT tabs won't be successful, but I'd like to see it before I buy in. Personally, I do want MS to have some success with this one, even as someone pretty entrenched in iOS devices. I see it filling a need for mobile devices for my users. The iPad works, but it's not perfect. That being said, while there's been allot of fireworks around MS's tablets, details and specifics are few and far between at this point..

      And, MS doesn't exactly have a strong track record in mobile, so I'm not as quick to go all in with my predictions as you.
      TroyMcClure
      • Re: Don't mind me if I wait and see on this one...

        @piousmonk

        What the heck?!? A reasonable and restraint comment ? Did you not get the memo?
        Weasel82
      • Competition is good

        That's why I want MS to have at least some success with WinRT, we all win then. Your right, there was a lot of fireworks around MS's tablets, for several days then it all but died off.
        non-biased
    • The "Surface RT" tablet will not decimates Apple sales ...

      ... because it will be introduced at competitive price-points but it WILL give Apple a run for its money with Windows users.
      M Wagner
    • Agreed

      Apple needs a stream of these new devices to justify their price points.
      pcook9
    • Rinse and repeat

      That's what it feels like because that's what we heard 2 years about about the iPhone since WP7 was about to come out. Then we heard the same thing a year ago because WP7 was just getting into it's stride. Now it starts all over again.
      non-biased
  • Losing formula

    Here's a great deal Adrian... I'll give you an iPad 3 wifi for $399 if you sign a legal contract ensuring you will pay me a total of $639 within the 24 months. I thank you in advance for the $140 you just gave me.

    If carriers subsidize it, it means a customer pays more money in the long haul. Your $100 smartphone contract costs you $2,400 over 2 years. Do you think the carrier minds subsidizing $400 to charge you $1,200 more than if you had a prepaid plan at $50 a month?

    Let's look at the current Verizon plan for $10 a month. You're paying an extra $240 over two years... it's not like it will be subsidized to a point where the carriers are going to take a hit. This is of course after you ignore that most iPads sold are wifi only.

    You are one foolish man.
    ikissfutebol
    • that is why

      i keep my $2,400 and still use my feature phone.
      ForeverSPb
  • They already do it in Germany

    An iPhone 4S + iPad 3 (WiFi + SIM) bundle is 99.95 € from T-Mobile:

    http://www.t-mobile.de/iphone-und-ipad-bundle

    Is this a German-only thing, or are operators also doing this in the UK, US, etc.?
    WilErz
  • I'm not sure subsidies are the answer...

    I think to Apple, the carriers are a necessary evil. With the iPhone, they had to play by the carriers rules (with some concessions on crapware and carrier control of updates) because it was a existing market and the carriers had all the control. With the iPad, there was no existing market, so Apple had much more flexibility. Plus, it's a little easier to set the price of a 10" tablet at $500+ when you're the only game in town (not to mention, a tablet, due to it's size warrants more $$$). With the iPhone, there's no way they could have made a dent in marketshare without coming in pricewise in the neighborhood of existing phones, so subsidies had to be in play.

    The graph says there's room for Apple to plug a smaller tablet in the range of $250-350. Yes, it's more than the Fire, Nook and Nexus, but it's not so far off it would deter allot of people. Plus, you have all those iPhone users who are already heavily invested in the Apple ecosystem. Which is worse, spending another $50 or $100 and having all your stuff work out of the box or having to go through migration hassles and have to repurchase all your paid apps?

    I know I have over $50 worth of paid apps (probably over $100) so any savings on a non-iOS device would be wiped out.

    As for what people want, a smaller iPad (although I do prefer the 10") at $250-350 would be attractive to those that want an eReader that can be held in one hand (plus some tablet functionality) and parents whose kids want something larger than an iPod touch but don't want to shell out $400 or more for an iPad.

    One other market might be the car. Apple's somewhat quietly done some things in this space if I recall, which could be the groundwork for something bigger. A 10" is too large for most people's taste to be mounted to the dash, but at the same time, a 3.5-4-5" screen is a little on the small side. A 7" could be the happy medium and be big enough to allow for an app(s) that could have GPS and control audio/multimedia without toggling between apps, which is important while driving.
    TroyMcClure
    • I respectfully disagree

      The last thing I want it my car to require iOS/iTunes updates. Will I get a 100' USB connector to reach to my computer?

      At $350, it is not a $50 nor $100 price difference, but $150. You're getting back into the range of just getting an iPad 2 or even paying an extra $50 (so $400) and getting two 7" $199 tablets. I understand you are already so heavily invested into iOS, but that does not mean everyone is equally invested (probably a higher proportion that read ZDNet relative to the rest of the population).

      Also, it has previously been said that many existing apps have a locked aspect ratio. Everything has to be able to scale properly, otherwise you would be losing a lot of app compatibility.

      I really wish people would wake up to the destructive power of subsidizing everything. It gives the carrier way more power. I do not have a contract, and do not intend on signing one with a subsidy attached ever again. It is nice to know that if I am no longer satisfied with my service, I simply stick a different SIM card in for another GSM carrier (which is extremely easy to access on my phone). ...oh and I pay zero ETFs. As long as I have half a brain about the monthly plan I am selecting (Verizon and ATT prepaid plans were quite expensive last I looked), I will still save money avoiding a contract, even if I buy an unlocked flagship phone for full price.
      ikissfutebol
      • Not talking a permanent fixture in your car...

        I'm not talking an in-dash system, I'm talking a tablet you take and mount in your car, much like a traditional Garmin GPS (and you can do updates over the air, so not really a need for a 100' cable).

        As for lock in, it's not just apps, so don't underestimate the iTunes music and movie/TV aspect. The iTunes store has been around for a long time, and they've done quite well in terms of sales. Certainly, you can convert your media to other formats if you move to another platform, but how many people know how or have the time (or interest) to convert a library of gigs of media?

        As for app compatibility, I suspect that if Apple does offer another size, they're going to address compatibility in some way that makes it a pretty painless for at least the serious app developers. Apple probably better than anyone else get's significance of the ecosystem, so I can't see them fubaring this if they choose to do so.
        TroyMcClure
      • Time to catch up

        You don't like the iPad, great, good for you and so on but if you are going to discount it please at least try to have an understanding at least of the release that has been out for almost a year. No iTunes or sync cable has been needed for almost a year now.
        non-biased
  • People don't really think about it but Amazon also subsidizes ...

    ... the Kindle Fire by tying its Prime Service to the Kindle Video service.

    But back to the point at hand ... the carrier subsidy idea would be very attractive for many without Wi-Fi at home but for the rest of us, having two cellular contracts (one for phone and one for tablet). Give users a tablet with voice capability and maybe you've got something but still.

    I have to say though that I have to agree that Apple really cannot fill those sub-$400 tablet price-points (and still make money) without some kind of subsidy.

    As for screen size, a 7" screen is certainly easier to carry around, and it is fine for multimedia but the screen remains too small for many content creation tasks. In the end, I think that if a user has $400 to $500 to spend on a tablet, they will almost always choose the 10" Apple iPad over any other tablet (as indicated by Apple's market share in the segment). The Amazon Kindle is successful not because of the smaller screen but because of the lower price.

    Apple simply cannot live on the razor-thin margins at these price-point. Nor can they trim enough out of their costs to be able to sell a 7" tablet for less than a 10" tablet.

    Short of the subsidy about which you write, the only way I can see a 7" iPad fitting into your graph above is if Apple REPLACED the iPad 2 with an "iPad 3 mini" at the same $400 price-point. Frankly, I don't think it would sell any better than the iPad 2.
    M Wagner