A very interesting ZDNet blog post/article has been circulating among Saugatuck research groups. It reflects some key tenets that we’ve been discussing with clients since the first iPad came out, to wit: If Apple wanted to, it could more or less decimate, if not destroy, competition in the large-format tablet market simply by delivering a low-cost iPad. Keeping the iPad2 in play while selling the iPad3 would be a nifty way to do that.
In the Triassic period of the first iPads, we heard much the same sort of speculation. It didn’t (and really couldn’t) happen then, because Apple has never been the type of vendor to deliver a low-cost/cheap hardware alternative to anything, let alone its first major release of said hardware.
By the time the iPad2/Jurassic tablet period emerged, we began thinking that Apple may, just may, consider keeping previous models in play to fulfill a lower-end niche. But again, Apple was not going to go low-end, because it did not need to. iPad2s – more powerful, more expensive – flew into the marketplace and multiplied at a greater rate than their ancestors.
So why should we or anyone consider that Apple might finally succumb to the low-end, almost-mass-market temptation and keep the iPad2 in-market while pushing the newer model?
Well, a similar type of strategy has worked with the iPod, which in fact has forked into multiple lines with multiple pricing levels. Apple has been able to maintain a sort of low-end/high-price level with the iPod, selling sleek/cool functionality at a significantly higher price than most MP3 competitors because of its exceptional mix of marketing, style, content, and channel.
iPads are definitely not iPods – although we can argue similar functionality between iPod Touch models and the iPad.. But the revenues and margins on iPads are simply awesome,and Apple needs to continue to be simply awesome in order to protect and advance its $500B market valuation. The user/consumer marketplace is not yet as saturated with tablets as they are with MP3 players, smartphones, and other devices that compete realistically with iPods. There’s still a lot of room left for Apple and its competitors to grow in the tablet marketplace, especially high-end, large-format (10”) tablets.
Were Apple to allow any price/margin encroachment to the iPad at this time, it would be seen as having to respond to lower-cost competitors – which it does not have to do at this time. Price-based competition would creep in, and Apple’s share price/market valuation/dominance/ability to raise capital would fall accordingly.
As competitors creep closer to iPad-like market presence (i.e., design+content+UI+function+cachet), then it makes sense for Apple to roll out/extend into the mid-market range, á la iPod marketing of today. And it will.
Of course, if Apple waits too long, it won’t be able to dominate tablet markets (including development, channel strategies, content strategies, design,et al) at the level it currently can and does. It will be a tricky bit of timing for the company to manage. But Apple has done a great job managing its offerings, markets, and competition for several years now, and we are not seeing anything today that will change that.