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

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.