Sign on the Dotted Line: How Apple Could Redefine Tablet Pricing

Apple rules the tablet market, so much so that many people will just call it an iPad market. In addition to making up a stunning majority of sales, Apple is also setting the price for tablets.

How much does Apple rule the tablet space in terms of price? Aside from the sales numbers, surveys show that consumers need to see a $100 discount from the iPad price before considering an Android tablet, and as you approach the $250 price the interest in iPad alternatives increase dramatically.

Amazon is the first competitor to come in and undercut the iPad in a meaningful way, with an attractive tablet offering. The Kindle Fire looks like an amazing device, but many people are purchasing it as an iPad alternative because they don’t want to pay the $499 iPad price.

Apple will face stiff competition this holiday season because of the price disparity, but if Apple wanted to, they could price out the Kindle Fire with one action — selling the iPad on a contract.

The true cost of an iPhone 4S is thousands of dollars, not $200.

The Case for a $299 iPad

iPad 2 3GIf Apple allowed carriers to sell the iPad 2 WiFi+3G subsidized, they could redefine tablet pricing yet again. The iPhone 4S is estimated to cost Apple $188 for the 16GB version and $207 for the 32GB version. The iPad 2 3G with 32GB of Memory is estimated to cost Apple $333-336 depending on the carrier.

If Apple wanted to undercut the competition, they could allow carriers to sell the 16GB iPad 2 with 3G for $299 on a two-year contract. This pricing would be plausible given the $30 to $35 per month data plans that carriers could attach to the iPad 2 sold on contract.

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This would push the total cost of the iPad 2 to over $1,000 with a two-year contract, but the added value of 3G and the lower upfront price would be an attractive value for many buyers. I’m not sure if carriers would be happy with that small of a profit margin after the data plans, but it’s a possibility.

The biggest question is if Apple would be willing to make the price cut. The company certainly sells enough iPads, 11.2 million last quarter, so there may not be enough of a reason to offer a cheaper iPad with 3G yet, but with a new iPad 2S or iPad 3 rumored for 2012, we could be surprised.

That could change if the Kindle Fire starts eating away at the iPad’s lead, or as more consumers see the benefit of an always connected iPad.

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Comments

  1. Anonymous says

    Arguably, a contract iPad might be attractive and do acceptable business, but I don’t think it would be much competition for the Kindle Fire.  Amazon is targeting a largely different use case than Apple has with the iPad and I don’t think a contract iPad would fit that market very well.  At the very least, Amazon would be able to very quickly counter it with clearly-stated advertising showing the true, total cost of ownership of a device under contract.

    I think the premise of the article is faulty in that I doubt very many people are buying the Fire as a lower-cost alternative to the iPad.  Instead, I think that the Kindle brand itself has become well-established and admired by a significant, mainstream market.  Most people are rushing to buy this as a long-awaited Kindle that has color and can play movies rather than as a cheaper iPad.

    I do think that Apple could compete strongly with Amazon if they were to release their own smaller, lower-end tablet with a strong content-consumption focus.  Certainly the iTunes ecosystem is the closest competitor to Amazon’s.  It even exceeds what Amazon has to offer in some areas, particularly apps.  Even if the pricing came in at $50 or even $100 higher, I suspect that a 7-inch Apple tablet that is promoted as primarily for movies, music, and books/magazines would be extremely competitive.  They might even be wise to use the iPod branding instead of iPad in order to strengthen that focus.    Obviously, the big question is whether or not Apple wants to be in that market.  I would guess that if Amazon is as successful as most people are predicting, then Apple would have to at least take a serious look at it.

  2. Anonymous says

    It’s a bit misleading when you say, “If you do the math, the true cost of an iPhone 4S is thousands of dollars, not $200.” While that is true, it seems to imply that it is cheaper to pay the $649 retail price instead, but unless there is some secret free cell phone service available only to those who paid retail, don’t they have to pay the SAME monthy charge as I do with the 2 year contract to use their phone? Where is the savings in that?

    I paid the $200 when the iphone4 first came out and now in just under a month (Feb 24th) I can upgrade to the iphone4s with the full subsidized discount if I want. For me it’s win-win.

    I’ve been lusting after an ipad2 but I’ll wait until the carriers subsidize them too, as long as the monthly usage fee is reasonable. My only other choice is to pay some $500 for the wifi-only version and tether it to my iphone for $20/mo. Yeah, I know, there are free ways around that but I keep everything on the up and up.

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