iPad mini: How much would you pay for one?

iPad mini: How much would you pay for one?

Summary: The problem with the whole concept of the iPad mini is that no matter how much you massage the bill of materials, you can't come up with a compelling price point for the device.

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TOPICS: Apple, iOS, iPad, Mobility
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If the blogosphere is anything to go by, it seems that while the iPhone it too small, the iPad is also too big.

The endless speculation that Apple is planning to shrink the iPad while at the same time make the iPhone bigger continues. While I believe that there is a strong case for making the iPhone bigger, it's harder to make a compelling case for a larger iPad.

According to Patrick Moorhead, president and principal analyst of Moor Insights & Strategy, Apple needs a 7-inch tablet because without one the Cupertino-based giant face the prospect of losing market share and profit dollars.

"The Google Nexus 7 will sell well," writes Moorhead, "which is good for Google, Android, ASUS and NVIDIA, but bad for Apple, unless they act before the holidays".

The problem though, is price. "Apple may have redesigned some of the innards of the new iPad 2 as they lowered the price," writes Moorhead, "but not nearly enough to offset the $100 price reduction, so a mini-iPad would be additive, not dilutive like the $399 iPad 2".

The problem is massaging the numbers to make it work.

Take a look at the bill of materials estimate for the iPad 2 and iPad 3 drawn up in March by iSuppli Research:

Let's take the cost of a 16GB Wi-Fi iPad 2, listed as a little over $245 as a starting price for the mythical iPad mini. We can make a few common sense assumptions about any smaller iPad, for example, that it would have a smaller screen, a smaller touch screen and, one would assume, a smaller battery.

Problem is, it's hard to see this shaving much more than about $40 off the bill of materials. Let's push the numbers further by assuming that the component costs have dropped by some $20 since the original bill of materials was drawn up in March and we come up with a device that has an overall materials and manufacturing cost of around $185. This figure excludes costs associated with R&D, marketing and so on.

If the iPad mini costs around $185 to make, how much should Apple slap on the price sticker? $299 is the logical price point, pegging it at $100 cheaper than the current 16GB Wi-Fi iPad 2. On the face of it that seems like a healthy $115 above what it would cost to make.

However, scanning through the cost analysis we find that this would mean the iPad mini would have the smallest gap between the bill of materials plus manufacturing costs of any iPad.

In other words, this would mean that by releasing a 7-inch iPad Apple would be risking cannibalizing the sale of iPads with a better profit margin.

That doesn't sound like the Apple we know.

There's another problem with that $299 price point. Would the market stand a $100 price premium for the Apple logo on the back of the tablet when Amazon and Google already sell cracking tablets for $199? And what if Amazon slashes the price of the existing Kindle to $149? Where does that leave the iPad mini at $299?

In theory, a smaller and more portable iPad sounds great, but in practice, unless Apple is willing to massacre its profit margins to bring one to market, it's just not going to happen.

Image source: CNETiSuppli Research.

Topics: Apple, iOS, iPad, Mobility

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49 comments
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  • I think Jon Fortt's take was the most interesting

    He tweeted this, this morning:

    "Consider: To make their no-profit hw strategies work, $GOOG & $AMZN probably need $AAPL to stay out of the sub-$300 tablet mkt"

    If Apple enters this market then there is little or nothing to support the "give the hardware away" strategy that both Amazon and now Google are pursuing. It could well turn out to be a blood bath.
    jgpmolloy
    • That point was already raised in the article.

      Would Apple be worth the $100 premium?

      For me, it would not. I plan to buy two $159 Asus 7" Tablets. For my children. The $100 premium at this point is too much.

      Whilst it's worth paying a premium when you get past the $600 mark, yes, I can accept an extra $100 so long as it's worth paying. But the premium ratio between 600/700 and 200/300 is too great to warrant the extra expenditure for what is simply a logo.
      Bozzer
      • Based solely on a "bottom line" basis, your choice makes sense.

        However, factor in the Apple App and third party hardware accessory ecosystems and your choice could be much more interesting.
        kenosha77a
      • Your children

        They'll remember what you gave them and they are the ones who look after you when you get old.
        rfoto
        • Childre also need to learn the important lessons of "why pay more?"

          when they don't have to, especially when what they would be paying extra for, is a label or logo.

          Frugality is a very important lesson.
          adornoe
          • Frugality is bestowing a $200 gift on kids??

            Perhaps I'm just old-fashioned, but giving kids expensive devices seems excessive. If they're getting iPad minis or equivalent at a young age, and tablets, laptops, and personal TV sets all before they're 16, what will they expect later? A car for graduation? All-expense paid college and graduate school? And summers in Europe, along with free cruises?

            It seems to me it contributes to a culture of unreasonable expectations--and of instant gratification without working for what you want.

            I'd be much more concerned about teaching the work ethic.

            Apologies! Haven't had my morning cereal yet, so my curmudgeon side comes out! :-)

            I think Bozzer's main point-- that $100 is a much bigger premium percentage wise at the low than at the high end is well taken. A 50% premium for an Apple mini iPad ($200 to $300) will be harder to bear than a 16-20% premium when you're up in the $500-600 range.

            And, adornoe knows full well that the premium for Apple products isn't just for the logo--you are getting Apple quality in design, ease of use, responsiveness, and manufacturing-- and 3rd party apps. Plus, the iPad came in at an earth-shaking $500 instead of the expected $800 starting point. Apple is clearly willing to go after market share.

            In spite of these cost analyses, I'll bet a $250 price for an iPad mini 8gb device and $300 for a 16gb one.
            astromacman
          • Market share

            I do agree that they are willing to go after market share, reference the iPad 2 now at $399, 3GS for free and 4 for $99 as examples. That being said I don't think market share is their ultimate goal otherwise they would be cutting deeper into their margins to crush the competition on price alone.
            non-biased
          • Lessons

            No, they'd be paying extra for a device that actually works.
            I own several Android tablets, do you?
            .DeusExMachina.
          • Oh, and could you PLEASE learn how to properly use commas?!?

            .DeusExMachina.
          • Something you never learned as a child

            Is that your opinion does not apply to everyone else. You think the additional money is simply for a label or logo but that opinion is based solely on your bias against Apple. I and I alone determine what is a better value for my money, not you. For me based on actual experience with the competing product (and assuming similar experience with iPad versions) I would find spending a bit more on the iPad 7 to still be a better value than the cheaper option, in this case the Fire. You post has nothing to do with frugality and everything to do with bias which I hope is not what you teach your kids.
            non-biased
      • Based on experience

        I don't have the need or desire for a 7" tablet but based on my experience with the Fire I would be more than happy to pay at least $250 for a 7" iPad versus $199 for the Fire. The Nexus 7 sounds like a better value than the Fire but again I would be willing to spend more for the 7" iPad. In this case due to no experience with the Nexus 7 it comes down to the ecosystem that I am already invested in.
        non-biased
    • Apple simply can't go for "give the hardware away" strategy

      Consider the true Google's revenue stream is advertising, it really doesn't matter for Google to giving tablet away. They have been doing that for Andriod for the whole time.

      As for Amazon, all they do is selling content and it has been very successful for them. There nothing to lose for them.

      Apple on the other hand, live and die by their profit margins. It's just too much of a risk of cannibalizing other highend iPads by pricing iPad mini too low. Just look at how iPhone cannibalized iPod and iPad cannibalizing Macs over the years.
      The problem for Apple is Google is offering similar UX price that is so low they're practically giving away and Apple's business simply have not prepare for that.
      Samic
      • Big difference

        There is a big difference between Google giving away the OS to their partners and giving away actually hardware that has a fixed cost. Yes, both are made to drive ad dollars but they are not the same.

        Also Apple has a continued revenue stream from the iOS devices just like Google and Amazon, it's called iTunes and the App Store.
        non-biased
  • iPad mini: How much would you pay for one?

    $99 and that's if I was feeling really generous.
    Loverock Davidson-
    • I got to admit. That was one of your better zingers.

      One question, Loverock. Have you ever posted a ZDNet comment that zinged the Microsoft universe? Just curious. Grin.
      kenosha77a
  • Let 'em kill each other

    There is probably money to be made by figuring out whether the market for 7" tablets is truly a market for 7" tablets, or a market for $199 tablets that so happen to also be 7" tablets.

    If I were Apple, I would put a 7" tablet out there at the same margin as the 10" unit, even if that means the price ends up over $300. The bet is that there are people who want the additional portability, but don't want something that was designed to be sold for $199 or less.

    By all accounts, Apple is currently supply-constrained on the 10" iPads, and they just started selling them in China. So selling 7-inchers won't really take away from the sale of 10" iPads, they will be incremental. So Apple can sit there at $350 or something and skim the cream while Google and Amazon beat each other over the head.
    Robert Hahn
  • iPad mini: How much would you pay for one?

    In the negative, you'd actually need to pay me to use any Apple product.
    lepoete73
    • Waggoner-Edstrom strikes again

      Oh look, another user name consisting of a random string followed by numbers!
      Robert Hahn
    • Clever

      oh so clever
      non-biased
  • What I really want...

    What I really want is an 5" AMOLED or other high resolution display on a Windows 8 phone. That would be the perfect combo of size and functionality. If the device does not include phone functionality, I might as well carry a small laptop. It's amazing to me that I see folks buying iPads and then adding cases, keyboards, various adapter cords and other accessories, and then still end up carrying a phone and a laptop.

    When asked, the user usually explains that they use the iPad for email, light web browsing and playing music or watching videos, the laptop for real work (other than email), and the phone for phone and email.

    Realistically, I'm of the opinion that most folks own an iPad more as a status symbol, and don't really offload much of their real work to the device.

    As an IT Professional, and I could never replace a laptop with an iPad. Just too many things it can not do or do well. I currently carry a reasonably sized laptop and a phone. That is more than enough for me.

    In simpler terms, it's all about size and functionality. I can do everything I need with two devices. Why add a third (or fourth) to the mix?
    corton