Apple's iPad mini: it's all about price elasticity

How many iPads can Apple sell into a market? It all depends on how low you can go.


"[They] are bold attempts to shatter the common wisdom that Apple makes gorgeous, expensive things. For the first time in its history, Apple has begun to make gorgeous, inexpensive things."

Quick, who said it? If you answered New York Times tech reviewer David Pogue, you're right.

When did he say it? In 2005. The products? Apple's iPod shuffle and Mac mini, two diminutive versions of existing products.

For years, smaller consumer electronics meant more expensive. I recall paying quite a premium for a 12.1-inch Dell laptop years ago because I didn't want to deal with the weight of the then-conventional 15-inch version.

Somewhere along the way -- perhaps 2009? It wasn't long ago -- this dynamic reversed. The miniature became the market manipulator. 

Apple, known for editing its product portfolio down into only a handful of UPCs, has been practicing this for quite awhile now, before our eyes: the iPod begot the iPod mini begot the iPod nano begot the iPod shuffle, thus taking a $499 device and scaling it down to just $49 -- even as Apple preserved the high price point with newer, more robust "standard" models. Ditto the Mac and Mac mini. Ditto the Macbook Pro and Air, once Apple realized that the latter was not sustainable as a premium product and revamped it for the entry-level. It's as much supply chain math on the back-end as it is value creation on the front-end.

Dimensions aside, if you want to know the value of the iPad mini, do the math. At $329 to start, Apple's smaller tablet puts an iPad model 17 percent closer to someone who wants one, but has been holding out -- just as the iPad 2 put the device 20 percent closer to people who balked at the $499 starting price on the third-generation model.

The point of this is not to undermine existing customers, but open the product lineup to new ones. The strategy has worked fairly well for the iPhone in the U.S.: once Apple exhausted its $199-and-up segment, it looked to the $99-and-up group. And then $49. And then free. The tactic helped it keep all of its devices on NPD's regular top 5 list, resisting attacks from Android-based handsets.

The difference here is that there seems to be a technical limitation to how low Apple can go. Given the current hardware options -- in particular the display and the battery -- it doesn't seem that Apple can introduce a demonstrably cheaper full-size iPad just yet. Parts prices haven't dropped that quickly. So the quickest way to get there is to shrink the parts: less screen requires less battery requires less outlay.

Preserve the margin and attract new customers? Sounds like a plan.