Apple in miniature
This week Apple faces two significant tablet challengers. The first is Microsoft, which is releasing its long-awaited Surface tablet on Friday. The second is… itself.
Yesterday, amidst the anticipation for the Surface and strong sales for the Kindle Fire, Apple announced a slew of new devices, the $329 iPad Mini the most intriguing among them.
The mobile era has been defined by Apple: iPod, iPhone, iPad, you know the drill. Apple ascended largely unchallenged, facing only a few stunned and weak rivals. By the time it got to tablets in 2010, Apple benefited from an unspeakably large pent-up demand for a device nobody had been clamoring for. Since then it’s sold more than 100 million iPads.
The market has matured in only two years. As Apple got wealthier, the competition got wiser. Unable to counter Apple in the larger tablet space, it started to produce smaller tablets that didn’t compromise on functionality (though, admittedly, they did on apps), some undercutting Apple’s price by 60 percent.
With that success proven — Amazon claims 22 percent for the Fire HD alone — Apple’s competitors started to move in on Apple’s territory — larger tablets. Amazon released the first Fire version 13 months ago, and now comes Microsoft’s Surface. Pre-orders are said to be brisk, but it will take a while to gauge traction. The device is light and portable and solves the one niggling criticism many still have about the iPad: Surface includes a physical keyboard that is cleverly incorporated into the cover. So while the device is a tablet it also doubles as a very small notebook. Not a bad trick.
What will make or break the Surface is whether it will fit comfortably into the world of mobile computing. It’s trying to be a tablet-netbook hybrid, a different vision of mobile computers than Apple.
Apple’s other adversary is itself. In releasing a smaller version of the iconic iPad to compete with Google, Amazon and others, it neglected to even approach their $200 price point. That price has lured some new customers away. By ignoring it, Apple is taking a big risk.
Apple’s betting that, as Henry Blodgett so colorfully put it, customer “lock-in” will persuade existing iPad owners to pony up $130 extra to get a smaller iPad instead of a smaller SomethingElse when it comes time to buy a new tablet. Perhaps, especially since Apple’s installed base has long shown it’s fine paying a premium. (The other reason it costs $329 is, as my most sage Apple aficionado friend puts it, so Apple can upgrade the Mini with a retina display and not have to raise the price.)
But what of the people who already have their seven-inchers, like me? I bought a Nexus 7 (and not a second iPad) when it was time to buy something a few months ago, even though I’m a power Apple user. I’m not sure what I would do today, but I don’t regret my timing or choice. I wrote most of this piece with the Nexus, standing on a moving train. I’m certainly not planning on buying another seven-inch tablet. At least not until this one breaks (or breaks my heart).
The surge of smaller tablets was more of a dilemma than an opportunity for Apple: it had to have them, but it couldn’t risk settling for a smaller profit margin from people trading their iPad…”Maxes?” for iPad Minis. If, as I’ve long suspected, seven-inch tablets become the dominant model, and Apple stopped making as much as a 32 percent margin on tablets (as it does for the large iPads), it would be catastrophic for Apple’s bottom line.
Even so, it’s not clear that the iPad Mini is small enough or cheap enough to be the breakout success that the full-sized version has been. The Mini seems more like a stab at protecting the high-end of the small tablet market rather than a full-throated battle to sew up the whole thing, top to bottom. Indeed, Apple also introduced another full-sized iPad on the same day as the highly-anticipated Mini. Coming only seven months after the last upgrade, it’s clear that Apple’s resources are not entirely devoted to the battle for the seven-inch niche.
Perhaps this is Steve Jobs’ legacy. Jobs was famously against a smaller iPad before he was for it. The official yarn was that he thought a seven-inch tablet’s keyboard would be too small — you’d have to “sandpaper” your fingers to be able to use it. But it’s more likely he knew Apple couldn’t compete on price.
But then Amazon disrupted the disrupter with a credible seven-inch model that the company sells at cost. It has a 20 percent market share, despite a bricks and mortar disadvantage (there are no “Amazon” stores where people can ooh and aah and touch and feel).
And now here comes Microsoft. The Surface will be running Microsoft’s spanking new mobile software, which has received fairly high marks.
The worst case scenario for Apple is this: Microsoft’s $500 Surface becomes the device that bridges the tablet and the ultra-light notebook (especially in the business community), making the iPad increasingly useless. Meanwhile, the seven-inch market continues to gravitate toward the cheaper options, leaving the iPad Mini as a boutique rather than a mainstream device.
Of course, chances are that Apple will sell lots of iPad Minis, but they have set a high bar for themselves. Apple’s stroll into the small tablet arena is cautious and proper, but not breathtaking. With an iterative iPhone 5 and a catch-up in tablets, Apple has me wondering how deep their bag of tricks really is.
PHOTO: Apple senior vice president of worldwide marketing Philip Schiller introduces the new iPad mini during an Apple event in San Jose, California October 23, 2012. REUTERS/Robert Galbraith