Will iPad Mini 2 be $249? Will it affect Kindle Fire sales?

Of all the iPad Mini 2 rumors currently circulating, the most interesting one to me is –

  1. A rumor that claims that there were big problems making Retina displays for iPad Mini 2.
  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 –

  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. 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.
  6. Higher sales numbers would make up somewhat for lower profit margins. Higher sales numbers would ensure total revenues and total profits don’t fall.
  7. 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.
  8. 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 –

  1. An increase in iPad Mini sales. Obviously.
  2. 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.
  3. 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.
  4. 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.
  5. 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.

Will Windows 8 and Android Tablets take down iPad and iPad Mini?

Well, on a long enough timeline, there is definitely some Tablet or some device that will take down iPad and iPad Mini. So, for the purposes of this post, let’s restrict our question to a 5 year timeline.

Do we see something happening in the next 5 years that will take down iPad and iPad Mini?

Here are my thoughts and some rough strategy.

I. Yes, iPad and iPad Mini are going to fall to being the #2 or #3 Tablet Device within 5 Years

This is an easy one.

If we’re talking about market share, then iPad and iPad Mini will definitely get overtaken. We’ve seen it with how iPhone lost market share due to its stubbornness to give users what they wanted (larger screens, availability on more networks, a lower priced model). We’ll see it again with iPad and iPad Mini.

It might take 2 to 3 years. iPad would still have the ‘high profit’ upper end of the Tablet Market. However, we will definitely see iPad Mini and iPad become the 2nd or 3rd bestselling Tablet Brand.

Note: No hedging of bets here. No ‘This will happen IF X and Y happen.’. The decline of the iPad just seems very, very inevitable. It wouldn’t be Apple if it didn’t cede market share to focus on profit.

II. Windows 8 Tablets have a strong strategy (Entertainment + Productivity) but it might not work

The fundamental problem with Windows 8 is that it’s sacrificing what users are used to (desktops and laptops), to create something that may or may not be the future (mobile and Tablets).

A Tablet that can be used for BOTH Productivity and Entertainment is a strong, strong thing. An exceptionally strong product that cannot be beaten if done right. However, morphing the Desktop OS to be more like a Tablet OS is the wrong direction.

You don’t meddle with the product that’s absolutely dominant in its market to try to give a leg up to a product that’s a distant #5 in its market.

Microsoft would have been better off saying –

  1. We have Desktops and Laptops and let’s make them better – for Desktop and Laptop users.
  2. Let’s keep fighting with our Mobile products.
  3. Let’s figure out the Next Wave – Wearable computing? Motion and Gesture Based Computing? Let’s focus on that and use that to beat smartphones and Tablets. To be fair, Kinect is a big step in this direction.

So the Windows 8 Tablet strategy is strong. Use Entertainment + Productivity Tablets to go up against Entertainment Tablets. Just not sure the methods/tools used to implement the strategy are the right ones. In fact, they are probably the completely wrong tools.

III. Android Tablets have a strong strategy too (Cheap + Free Software) and it probably will work

Google is doing a lot right with Android. That is what has helped it get huge market share in smartphones.

With Tablets it may very well repeat its success. We can already see how Google (and Amazon) have scared Apple into releasing iPad Mini. Over the next few years we might see one of two realities play out –

  1. Apple transforms into a company focused on market share and keeps cutting its profitability. Note: This is why there is such a big sell-off in Apple stock (in addition to capital gains issues). People see Apple make a fundamental shift in its profitability focus.
  2. Apple decides it’s better to have 70% of the Profits and just 10% of the Market Share.

In either case Android will beat iPad and iPad Mini in market share. In the second case because Apple chooses profits over market share. In the first case because Apple doesn’t really know how to win this war.

That’s Apple’s biggest problem. It can choose the known (high profits, low market share) or it can choose the unknown. The unknown promises the dream scenario of high profits and high market share. However, the unknown might also lead to other scenarios that would be more nightmare than dream.

IV. The Dark Horse is going to be a company like Vizio or Razr or Jawbone or GoPro

We need a hungry company.

Not a $50 billion cash in the bank company. Not a company where there are 20,000 people who all feel like special cogs in a special machine – but deep down they know they are still just a replaceable, meaningless cog.

The way the Internet and Technology is going it’s setting up a lot of ‘Platform takes all the Value’ ecosystems. It’s hard for the next big company to rise from software because the Platforms control too much.

Look at all the ‘big’ new software technology companies from the last 3-4 years and a few things are missing – profits, control of their destiny, their own channel to customers.

However, all of that changes when you look at the device side.

That’s where REAL companies are being formed. Companies that sell to users. Companies that control their destiny.

$50 billion cash in the bank means nothing if a (relatively) small company like Vizio or Jawbone comes out with a product that is better, easier to use, prettier, cooler.

My money is on a company like this coming out of left field and just decimating the cash cows Apple has. This isn’t painfully apparent yet but Apple’s cool is GONE. It might never come back.

A company like Vizio or GoPro or Razr is going to do to Apple what Apple did to RIMM and Nokia. Tyrannosaurus Rex should watch out for the harmless looking mammals.

V. iPad Mini is going to finish off iPad before anything else does

Perhaps the most delicious aspect of all of this is that Apple got so worried of someone hurting the iPad that it decided to beat them to it.

In Apple’s mind the iPad Mini would affect smaller Tablets and not the iPad. In reality we will see Apple refuse to break out iPad and iPad Mini sales numbers in 2013.

In theory it seems a good idea to cannibalize your product before someone else does. However, the reality is that iPad Mini makes a LOT less profit than iPad. So Apple would have to probably sell 2 to 2.5 iPad Minis for every lost iPad sale. That’s just not feasible. We don’t know whether the ‘Will buy Apple Tablets’ market is that big. In fact, the entire Tablet Market might not be that big. Furthermore, we don’t know if iPad Mini can completely decimate 7″ Tablets.

VI. iPad Mini represents a fundamental shift for Apple, and one that goes against its core strengths

Apple was already losing some of its ‘status signalling’ qualities. The iPad Mini takes it down to a new level of commonness.

It might sell better in China and India because more people who want to show how much disposable income they have will be able to afford it. However, what about the people above them. If you reach 20 million new users, the 5 million above them aren’t too happy to lose the status signalling abilities.

They will search for something else. If Apple loses them then it would have exchanged customers who buy $2,000 products for customers who buy $300 products.

If we think of it as bands of people with different amounts of disposable income – Apple is trying to capture the next lower band while keeping its current one. The current band, however, will soon realize that it suddenly shares ‘status’ with a lot of people it has never shared ‘status’ with. If you own a Porsche would you want to be clubbed with people driving Yugos?

VII. Where does that leave us?

Apple has now opened itself up to attacks in two areas –

  1. Its premium band of customers are vulnerable. If companies like Jawbone and Razr can bring out ‘exclusive’ products, that let these premium customers signal to others that they can afford stuff the unwashed masses carrying iPad Minis can’t, then Apple loses these premium customers. Why settle for something 100 million people own when you can have something only 5 million people can afford?
  2. It is appealing to a new band of customers who already have lots and lots of people vying for their attention. People who might be better served by Google and Amazon and Vizio.

So now Apple has to fight the war on two fronts.

VIII. Amazon

Why mention Amazon last?

Because Amazon is both the most dangerous enemy and the least dangerous enemy.

  1. It’s the most dangerous because it has the customer trust, relationships, buying patterns information, credit card numbers, and deep pockets to challenge Apple for a long, long time. It has Jeff Bezos while Apple no longer has Steve Jobs.
  2. It’s the least dangerous because Amazon wants ALL bands of customers. It’s not going to be happy until iPad customers and Google customers and Microsoft customers and ChinaTablet customers all become Amazon customers. There are a lot of markets to pick off first before it focuses fully on the iPad.

Amazon is not very dangerous in our 5-year discussion. If this were a discussion of the next 20 years then you could bet your house that Jeff Bezos would completely decimate Apple. It isn’t. So we might not see Amazon take over the Tablet market any time soon. However, the things Amazon is doing are worth noting. It is building Tablets that are selling channels right from the start. When we get into things like recurring revenue and revenue per user, Amazon is going to simply destroy other Tablet Makers. I can’t explain this fully – After having worked for two companies that made the shift to recurring revenues it is hard to fully explain just how huge of a shift it is and how far behind Amazon will leave everyone if it can pull off what it is trying to do.

iPad Mini – Feature Wish List

A rumor consistently making headlines is the expected launch of iPad Mini – a 7.85” Tablet from Apple. It is expected to be announced in the month of September (September 12th 2012 supposedly). Apple has not made any official announcements on the iPad Mini yet.

Will an iPad Mini arrive in September? There is a good chance that the iPad Mini will be launched. Whether it actually ships in September is a different question. If it gets launched at the expected prices ($199 – $299), we might see Apple take away a huge chunk of the High Value Tablet Market. Which would make life difficult for Kindle Fire, Nook Tablet, and even Google Nexus 7.

The other possibility is that Apple does not directly compete with the Google Nexus 7 and Amazon Kindle Fire and position iPad Mini as a $350 or $400 ‘premium’ 7″ Tablet.

That’s the possibility that’s more interesting to us and it’s worth wondering what those premium differentiators would be? Can Apple recreate the magic it created with the original iPhone and with the first iPad? How can Apple differentiate the iPad Mini from its competition?  What features would you like to see in the new iPad Mini, if it is launched?

Let the guessing and wishing begin.

iPad Mini – Feature wish list

  • Retina display – The iPad’s retina display is extremely impressive. Why not bring it to the iPad Mini as well? The cost is an obvious hindrance but Apple can release a separate Retina iPad Mini model.
  • 3G/4G (LTE), 802.11n Wi-Fi – I guess we can expect Wi-Fi, but if Apple can include a 4G (LTE) connection in the iPad Mini, it would be a huge selling point over Google Nexus 7 and Amazon Kindle Fire. If 4G is going to be too expensive, we would at least like to see a 3G connection.
  • Built-In Memory – All the tablets (including the iPad) make this mistake. They include a laughable amount of memory (up to 16 GB) and try to charge a premium for it! When the small iPod Touch can come with 64 GB of memory, why not the iPad Mini or iPad for that matter? You know what? Consumers are used to 512 GB/1 TB on their desktops/laptops these days! Asking them to downgrade to 8 GB seems like a joke. Especially when RAM is available quite cheaply these days.
  • Expandable Memory – We don’t want to keep everything in the cloud simply because we may not be able to access the Internet everywhere we go. Or the speeds may not always be good enough for streaming media. That’s why it is very important that an SD Card slot that allows adding at least 32 GB of memory is included with a tablet. Follow the great example set by B&N’s Nook Tablet (which is now just $199). Of course, it’s Apple and the chances of Apple including an SD Card instead of charging users $100 extra for extra in-built memory are pretty much zero.
  • Face Time/Video Calling – Apple iPad and iPhone come with Face Time, which is a feature that allows people to see and talk to each other (basically video calling) on Apple devices. It’s a pretty cool feature which might be extended to iPad Mini as well. Let’s hope Apple includes a Mega Pixel camera in the front (instead of the VGA camera present on the iPad). If cost is an issue, how about ditching or downgrading the higher capacity camera on the back for taking photos? We already have enough people looking funny using their Tablets as Cameras.
  • Siri – Apple has generated so much buzz with Siri (voice recognition app) for the iPhone, it’s strange that it hasn’t been brought to the iPad! We want to see it on the iPad Mini. For Siri iPad Mini would probably need a 3G/4G card (since Siri requires data sent to Apple’s servers and answers brought back.
  • Flash Integration – Ha ha ha ha ha. Even some Linux distributions come integrated with Flash these days! Flash is a proprietary technology to display video, used in certain sites. It’s high time we see it both on iPad Mini and iPad 4.
  • Optional Keyboard dock – Asus Transformer Pad allows one to attach a keyboard. Not an after-thought third-party keyboard. A keyboard that works super well and was designed in parallel with the Tablet. That’s exactly what we need from the iPad Mini. Apple can keep it optional, as including it might cost more. Microsoft is going to bring it anyway with the Surface, so Apple Beware.
  • HDMI Out – There are times when we want to see movies on the iPad Mini, but there are times when we want to see them on a larger screen. So, including a HDMI output port might be useful.
  • Longer Battery Life – An absolute must.
  • Sleek, Lightweight – Apple should try to make the iPad Mini lighter than Kindle Fire and Nook Tablet (despite iPad Mini probably having a slightly larger screen). This will make it easier to hold it in one hand for a long time.
  • 7.85 Inches Screen – The 7.85” might be a strange screen-size, but I am sold on this. It might be just perfect – Not too small, not too large.
  • iOS 6 – Well, this is totally up to Apple. Can we expect a new OS for the iPhone 5 & the iPad Mini?
  • GPS, Maps – I guess we can expect these.
  • Gaming, Gyro-Sensor – The iPad already has some games designed to use the Gyro-sensor, so we can expect it on the iPad Mini as well. Though it might sound audacious, if hard button based gaming controls can be included (and games developed for them), the iPad Mini might attract gamers as well. This is, however, very unlikely to happen.
  • eBooks – If the iPad Mini can include physical page turn buttons (just two of them, on either side), it would become great for reading. This, again, is super unlikely to happen.
  • Bluetooth – If we are able to pair up the iPad Mini with the iPhone, Speakers, Headsets, etc using Bluetooth, it would be great.
  • USB Port – Not the mini one, we need a full-fledged USB port that can do everything it does on a PC/Mac. Very unlikely that Apple would include this.
  • Audio Recording/VOIP – It would be good if these features were supported.

Come on Apple, surprise us!