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The iPad Mini is a big dilemma for Apple

12 Nov

The question now is: Why would anyone want a full-sized iPad?

One thing I didn’t get into when talking about the iPad Mini the other day is its effect on Apple. As the markets have been indicating recently by sending shares tumbling, the device may indeed be a sign of bad things to come for the company.

At $329, the basic iPad Mini is still relatively expensive for a 7-inch-or-thereabouts tablet, but it’s almost $200 cheaper than the latest full-sized iPad. Yet, as I wrote last week, the Mini has a major advantage over its bigger cousin: it’s much smaller and lighter. The only thing it’s missing is a full Retina display, which we can be relatively sure will be in the next model at the same price some time next year. Is a couple inches of screen size and a faster processor inside worth $200? It’s a safe bet that most consumers don’t think so, which is why Apple sold three million a ton of Minis in no time flat.

Once the smaller device gets that Retina display, there’s going to be little reason for the mass market to buy full-sized iPads. The larger tablet, which has been criticized from many corners for being primarily a media consumption toy rather than a productivity device, may ironically see its main use become business situations. Visual artists or sales personnel who need the larger screen might turn out to be the only people who really want these larger tablets. The rest of the mainstream consumer market will likely be quite happy with the smaller, lighter and – most importantly – cheaper iPad Mini.

A cheaper tablet obviously means less profit for Apple. Not only is there less total revenue, competition in the smaller tablet market is considerably fiercer, with Google and Amazon both having strong contenders. That $329 price tag may be forced to go lower still.

The other pressure on Apple’s stock is coming from its bread and butter, the iPhone. A report the other day found that Samsung had moved more Galaxy S3 units than the iPhone in the most recent quarter, making it the new best-selling phone for the first time since Apple introduced its iconic device back in 2007. Apple is sure to dispute how those Samsung numbers were arrived at, but regardless, it’s clear that competitors have caught up.

That’s why so many industry observers were disappointed by the iPhone 5. For the past year or so, Apple has appeared to be a company that is merely iterating its products, with a tweak under the hood here for more horsepower, or a tweak there for sharper screens.

The problem is, the company didn’t get to where it is today by being iterative, it did so by being revolutionary and by inventing entirely new product categories. Add in the recent unceremonious dismissal of Scott Forstall, the former senior vice-president of iOS who was seen as the one remaining Apple executive cut from the same innovative-yet-mercurial cloth as Steve Jobs, and it’s no surprise that the market is beginning to turn on Apple.

If the company is to regain its lustre – or at least keep from losing even more of it – it’s going to need to stay away from iterative and get back to innovative. Now might be a good time to really focus on the television project that Jobs said he had “cracked.”

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5 Comments

Posted by on November 12, 2012 in apple, ipad

 

5 responses to “The iPad Mini is a big dilemma for Apple

  1. Marc Venot

    November 12, 2012 at 1:08 am

    We can dream of the gizmos that are in the movie “return for the future” but something simple would be the 3D display like the Nintendo DS?

     
  2. Justin Amirkhani

    November 12, 2012 at 1:16 am

    The plateau in innovation presents less of a problem when you don’t actually need to push new hardware every year. Apple’s brand has had the luxury of a dedicated fanbase that is willing to buy every iteration of the hardware, but when there’s nowhere left to go hardware sales will naturally stagnate.

    This isn’t as much of a problem as it seems though; while Apple may not move as many units per year, their largest return on investment comes through the App Store, which is still consistently growing.

     
  3. russellmcormond

    November 12, 2012 at 9:23 am

    I believe a company either innovates with an eye to the future, or litigates with an eye to the past.

    I believe all the patent wars started by Apple indicate they are looking towards its past and are going to remain incremental. I think them giving up the patent lawsuits will be an early sign that they recognized the need to look forward and innovate instead.

    Personally I would be happy to see Apple fade away given they have tended to be a political opponent to nearly all my beliefs around technology law (basic ownership questions and beyond), but even if were a different company the litigate-vs-innovate would still be there.

    I note that Microsoft isn’t cyber-rattling about patents in Linux and other competitors at the moment,which suggests to me that for at least the moment they are focused on the future. I wonder if this will mean in the next few years we’ll be talking about the mobile market dynamics between Android and Windows as #1/#2 with iOS being a distant third (and I still don’t see a future for RIM).

    As to the App Store, it is primarily tied to Apple controlled devices so as Apple device sales go down, so does the App/etc store.

     
  4. Simon

    November 12, 2012 at 11:19 am

    Actually Apple never revealed how many minis they sold. The BGR article is incorrect. Apple only stated they sold 3 million iPads that weekend, what percentage were minis is unknown. Also, just because the mini costs less than a full size iPad, doesn’t mean it’s less profitable than the full size unit. By using a cheaper, non-retina display and parts yanked from the iPad 2, their cost on minis might be giving them a healthy margin. Plus, volume has to be take into consideration. If the mini becomes the best selling iPad, as it likely will, and move more units that any iPad in the past, this more than offsets any drop in margin. So while I think the mini was mostly a defensive move on Apple’s part, and not an innovation in any sense, it could easily become one of the best moves they’ve ever made.

     
    • petenowak2000

      November 12, 2012 at 12:27 pm

      Good catch on the numbers sold – I’ve amended the post above to reflect that. As for profitability, tear-downs estimate the cost of the Mini at around $190, giving Apple a gross margin of 43%, which is higher than the 23-32% on the regular iPad. The margin might shrink a bit once the Retina display is added in, but the more important point is that the competition in smaller tablets is much fiercer than in the big ones. Applying what’s happened in phones, we can assume that Apple won’t dominate this field. Rather than creating a new market that it gets all to itself, it’s now entering a more mature market where it’s just another competitor – a very strong one, to be sure, but it’s not the only game in town.

       
 
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