Why Apple doesn't need a 7-inch iPad

All Apple needs to do is watch while Amazon and Google simultaneously annihilates the competition and drives the price of Android tablets into the ground.
Written by Adrian Kingsley-Hughes, Senior Contributing Editor

Google's launch of the "Jelly Bean"-powered Nexus 7 has reinvigorated the discussion that Apple needs to augment the 9.7-inch iPad with a smaller 7-inch model.

However, just because Google does something doesn't mean that Apple needs to follow suit.

According to Patrick Moorhead, president and principal analyst of Moor Insights & Strategy, Apple needs a 7-inch tablet because without one the Cupertino 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".

Here I agree with Moorhead. Amazon's 7-inch Android-powered Kindle Fire has seen great success despite the fact that it remains a very basic tablet. In fact, while the Kindle Fire has undoubtedly stolen market share from Apple and its iPad, the biggest casualty of Amazon's tablet has been other Android tablets.

In the space of just a few months, the Kindle Fire became the most popular Android tablet, capturing 54 percent of the market and hammering the competition into the ground.

Moorhead also believes that Apple could find a 7-inch tablet profitable:

"Apple would be very profitable as well, as the most expensive piece-parts of a tablet are the display and touch-screen, which are priced somewhat linear with size. Apple may have redesigned some of the innards of the new iPad 2 as they lowered the price, but not nearly enough to offset the $100 price reduction, so a mini-iPad would be additive, not dilutive like the $399 iPad 2."

Let's put on one side for the moment the whole subject of how and why 7-inch tablets suck because the user interface is too fiddly and most content is either designed for 10-inch tablets or smartphones and concentrate on a single issue: price.

There's a price war coming. Amazon defined the budget-end price of 7-inch tablets with the Kindle Fire at $199, but now that Google has entered the market with the Nexus 7, and priced this far superior tablet also at $199, Amazon only has one line of attack open -- slash the price further.

Think that it's not possible for Amazon to cut the price of the Kindle Fire any further? Think again.

Last week a rumor surfaced claiming that Amazon was preparing to both unveil an updated Kindle Fire 2 tablet while slashing the price of the existing Kindle Fire to $149.

And this is why Apple doesn't need a 7-inch iPad.

The 7-inch tablet market is already racing to the bottom, and while there's no doubt that Google and Amazon are going to capture market share, it will be at the detriment of higher-priced Android tablets. We've already seen how effective the Kindle Fire has been against the Android-powered competition, and the Nexus 7 is just going to make it even harder for Android tablet OEMs to carve out a market.

All Apple has to do is sit back, watch while Amazon and Google simultaneously annihilates the competition and drives the price of Android tablets into the ground, and keep making 9.7-inch iPads and selling them at a healthy 30 percent profit margin.

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