The rumour mill has kicked into high gear after Bloomberg reported last week that Apple will release a smaller iPad by the end of this year to compete with Amazon’s Kindle Fire and the new Google Nexus 7. The Wall Street Journal followed with a separate report that seemed to confirm the news. These reports follow rumours earlier this year saying that Apple was considering a 7-inch or 8-inch iPad, but hadn’t made a firm decision yet.
After wading through various reports and analysis pieces, we believe that Apple has very good reasons to make a smaller iPad. Here’s a rundown of the arguments.
The Arguments For
Apple has several reasons to make an iPad mini:
- Proven demand. Amazon’s Kindle Fire, which has a 7-inch screen, was a strong seller over the holidays (see chart), and the 7-inch Samsung says its Galaxy Note has sold 7 million units since its launch in October, despite being slammed by tech reviewers. Now, Google’s new Nexus 7 tablet is getting very strong reviews. If Apple is missing potential sales by not making a smaller tablet, why sit out the market?
- A cheaper content consumption device. While PC enthusiasts continue to maintain that the iPad is ill-suited for content creation, lots of people are in fact using it that way, and Apple has encouraged it with apps like Garage Band (music), iMovie (video), and iWork (productivity). But that leaves a market gap: consumers who want a device with a screen that’s big enough to read magazines and books and watch videos, but who don’t need or want to pay for the full power of the iPad. (The iPhone and iPod Touch are OK for consumption if people are on the go, but sub-optimal for sitting at home on the couch.) This is exactly the niche Amazon and now Google are filling.
- A better remote control. A smaller iPad could also be more convenient to use as a remote control with the long-rumoured Apple iTV — it can be held in one hand unlike the current iPad, but the screen is big enough to comfortably display many different viewing options (channels, video on demand services, iTunes video, and so on).
- Prevent disruption to the iPad. The classic path of a disruptor is to introduce a cheaper, less powerful competitor. Customers discover the cheaper product is good enough for a lot of their needs. Then, the competitor gradually moves up market, leaving less and less room for the incumbent. This is precisely what Amazon and Google are doing with the Kindle Fire and Nexus 7 — introducing low-cost, heavily subsidized tablets that lack iPad features like the high-resolution display. Apple has two choices: cede this low-end tablet market to keep its profit margins high, or compete to maintain its dominance across the board. We don’t know for sure how Apple thinks, but the company is certainly familiar with the classic model of tech disruption, as the iPhone and iPad have proven to be massive disruptions to the PC market. Also, Apple has proven willing to disrupt itself several times before — the iPod Nano replaced the very successful iPod Mini, and the iPad competed against the MacBook line. In both cases, the new products grew to be more successful and profitable than the products they disrupted.
The Arguments Against
The arguments against a smaller iPad run as follows:
- Steve Jobs didn’t like them. On an earnings call in 2010, Apple’s Steve Jobs denigrated 7-inch tablets as “tweeners” that would not be significantly additive to the smartphones most users are already carrying, and suggested that the smaller screen was a bad idea for a tablet because the active touch points would be too small to use comfortably.
- Fragmentation. Adding another screen size would be a first step toward the kind of fragmentation that’s plagued Android devices and made development complicated. (Read more about Android fragmentation in our special report, Android: A Platform In Transition.)
- Lower margins. Apple has huge margins on the current iPad — estimates put them over 50%. It would not be able to maintain anything close to those margins on a competitively priced ($199) iPad mini. The mini would also compete against the larger iPad, putting Apple into competition with one of its most profitable products.
But as John Gruber aptly pointed out, however, these arguments have holes in them.Jobs also dismissed the idea of mobile video players and tablets, and said Apple would never enter the cell phone market. Moreover, Jobs was specifically talking about 7-inch Android tablets on the market at that time, which featured a version of Android that was poorly suited for larger screens.
Moreover, Gruber reports that he’s heard the iPad mini would have a 7.85-inch screen, not a 7-inch screen, and estimates that apps developed for this size screen under Apple’s specs would have the same-size touch points as the iPhone (although not the iPad), eliminating fragmentation.
Finally, Gruber argues that Apple might be willing to sacrifice margins in the short-term to ensure it holds onto its current dominance in tablets, which the company views as the next-generation of “post-PC” computing.
THE BOTTOM LINE: The rumours of a smaller iPad seem credible, and there are strong business reasons for Apple to follow through. Apple may have purposely leaked the rumours now in order to freeze the market, hoping that consumers would hold off on buying the Nexus 7 or next Kindle Fire to wait for Apple’s offering instead. Competitors will have a few short months to establish their smaller tablets as the leaders in this niche before Apple comes in with the powerful iPad brand.
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