Of all the iPad Mini 2 rumors currently circulating, the most interesting one to me is –
- A rumor that claims that there were big problems making Retina displays for iPad Mini 2.
- It also claims that to avoid losing sales due to delays in shipping iPad Mini Retina, Apple might release a lower priced iPad Mini 2.
Given that iPad Mini is $329, it’s not inconceivable that this cheaper, stop-gap iPad Mini 2 comes in at $249.
Will iPad Mini 2 be $249?
Let’s look at the reasons this might happen –
- Economies of Scale. Apple has probably reduced iPad Mini component and manufacturing costs by at least 25%. Perhaps even by 35%. Just the number of iPad Minis being sold suggests that economies of scale are being achieved. That price savings are available to be passed on to users.
- Android Tablets are beginning to catch up to iPad Mini and iPad. Depending on what statistics/analyst report/survey you look at, it seems that either Android Tablets are nipping at the heels of iPad Mini and iPad, or have already outpaced them. In either case, Apple needs a new iPad Mini (and a new iPad) to drive sales and win back market share. A $249 iPad Mini 2 would do the job.
- Apple must protect iPad Mini revenues. iPad is Apple’s #2 Cash Cow. Apple can’t afford to lose sales. It might repeat its earlier strategy (release an iPad Mini to continue to generate iPad overall sales, even though profit margins fall) and release an iPad Mini 2 that’s just $249. This would hold off the Android Tablets for another 6-9 months, perhaps longer.
- Apple might break iPad Mini into a high-end iPad Mini Retina line and a mid-end iPad Mini 2 line. This makes sense for a lot of reasons. The mid-end line is good for emerging markets and for holding off Android Tablets. The iPad Mini Retina caters to high-end customers.
- Android Tablets are getting better and better. You could even make an argument that both Kindle Fire and Nook HD are better hardware wise than iPad Mini. It’s the software polish and the strong ecosystem that’s keeping iPad Mini in the lead. A lower priced iPad Mini 2 would ensure that these cheaper and quite competent Android Tablets don’t steal too many sales.
- Higher sales numbers would make up somewhat for lower profit margins. Higher sales numbers would ensure total revenues and total profits don’t fall.
- A cheaper iPad Mini 2 not only increases the number of iPads, it also slows down the rise of Android Tablets. Apple needed a $329 iPad Mini to fight off $199 Android Tablets. Now it might need a $249 iPad Mini 2 to fight off stronger, cheaper Android Tablets.
- Apple is a little lost. Apple either has to ship magical new products or it has to fight on dimensions it would normally not fight on (price, volume, market share). If an Apple iTV or an iWatch doesn’t ship this year, then Apple needs something to boost revenues. A cheaper iPad Mini 2 might do the trick.
The more reasons we list, the more likely it seems that Apple will release a cheaper iPad Mini 2. This would boost sales and lead to higher total revenues and total profits. $249 is a good price because it maintains the illusion of ‘exclusivity’. $249 is still low enough for iPad Mini 2 to be more appealing financially than $149 and $199 Android Tablets.
What impact would a $249 iPad Mini 2 have?
A $249 iPad Mini 2 would slow down Android tablet sales. Android might continue to gain market share – however, it’d be at a slower rate. A $249 iPad Mini 2 would hold off the Android Armies of $149 and $199 Tablets for perhaps another 6-9 months. By then Apple would have iPad Mini Retina ready to ship. By then Apple would have iTV and iWatch shipping and one or both would be cash cows. iPad wouldn’t be as important to Apple.
The main impacts of a $249 iPad Mini 2 would be –
- An increase in iPad Mini sales. Obviously.
- Apple might continue to hold the lead in Tablet sales. This is a bit unlikely due to the fast rate of growth of Android Tablet sales. However, an iPad Mini 2 at $249 would give Apple a fighting chance.
- One or more Android Tablet makers might have to kill their offerings. It’s obvious from the frequent discounts on Kindle Fire HD 8.9″ and Nook HD+ that 9″ Android Tablets are really suffering due to iPad Mini being $329. A $249 iPad Mini 2 might have a similar effect on $199 Android Tablets. That might mean the death of Nook HD and Kindle Fire HD. Perhaps even the Nexus 7. The only path forward for Android Tablet makers would be to go down to $149.
- An increase in total Tablet sales. Most Tablet manufacturers would reduce prices to compete with iPad Mini. That would mean a LOT more people could afford tablets.
- A further reduction in Apple’s profit margins. If iPad Mini 2 ends up taking sales that would have gone to iPad and iPad Mini, then it might even mean lower total profits.
A cheaper iPad Mini 2 would have a big impact on the Tablet Market. It would extend Apple’s run as the top Tablet Maker. It would, however, reduce profits for all Tablet makers. It would be a strange move by Apple. It might be a move Apple needs to make to avoid getting marginalized by super cheap Android Tablets.
How would an iPad Mini 2 at $249 affect Kindle Fire Sales?
It would definitely have a negative impact. Depending on how Amazon counters, the impact might be massive (a 50% or more drop in sales) or reasonable (merely a 25% drop in sales).
Kindle Fire HD’s big advantage right now is price. At $199 it’s a full $130 cheaper than iPad Mini. There are other big advantages too – Amazon brand, Amazon infrastructure, etc. However, price is the big differentiator for Kindle Fire HD. If Kindle Fire HD and iPad Mini were the same price or close, perhaps 80% of people would pick an iPad Mini (just an assumption).
If iPad Mini 2 is just $249, then the $50 price difference becomes almost negligible. Amazon would have to drop Kindle Fire HD to $149. Amazon might not have the economies of scale to pull off such a move. Keep in mind that the various Android Tablets have different screen sizes and don’t share the same components. None of them is selling more than 10 million units a year. Android Tablets just don’t have the type of economies of scale (and the related cost savings) that Apple’s iPad and iPad Mini do.
Fundamentally, a $249 iPad Mini 2 is likely to extend Apple’s run as the Top Tablet Maker. It’ll also strike a heavy blow against Android Tablet Makers. It’s not a smart move for Apple in terms of profit margins. However, it might be the only move Apple can make to stave off the Android Barbarians at the Gate.