Just Thinking- The $399 iPad

March 1, 2011 § Leave a comment

I have always wanted to launch a speculative post series that poses tantalizing questions that are not entirely out of the realm of possibility. The first of them is a recently speculated possibility [1][2][3] of Apple dropping the price of the iPad to $399 at its event on March 2. The reason why this makes sense are as follows:

  1. Considering Apple’s margins with the iPad, $399 seems entirely possible and still profitable.
  2. Apple’s supply chain heroics are legendary including the purchase of bulk volume parts recently. They could use that to their favor here.
  3. A year since the launch of the original iPad, the Bill of Materials might be more in Apple’s favor.
  4. While Apple’s competitors [1][2] are trying to match the $499 cost and struggling to do so, Apple could lower the bar of entry on the iPad further, thereby decimating its competition.
  5. The upcoming app store changes for publishing apps and the 30% cut for Apple could more than make for the loss in margins on the iPad.

A move to $399 would really kill the competition in the short term until they can figure out a way to compete in price with the iPad. I had questioned Motorola’s pricing strategy in an earlier post and stick to the hypothesis that a true iPad killer or even rival would have to compete on specs, ease of use and price. While it is easy to match the former two, the issue of price is much harder to alleviate. Sanjay Jha, the CEO of Motorola Mobility went on record defending the pricing of Xoom and saying that it made perfect sense for a world class tablet that in some sense was better than the iPad. While he could be right in his defense of the quality of the product (the Xoom has released to relatively good reviews[1][2][3]), by not price competing with the vastly popular iPad, he was settling for a second place in a fledgling battle. This definitely was/ is a disappointment to Android enthusiasts. At $399, the new iPad would further strengthen this argument and make the Xoom a not so compelling buy.

It boils down to this: Will Apple want to hold onto its juicy margins with the iPad and be content with its current position or want to kill off the fledgling competition, once and for all?

The March 2 event will hopefully reveal the truth.

Update: Unfortunately, the speculation stayed unfounded. Apple just launched iPad 2 for the same price of $499. Remains the most compelling tablet in the market for the price.

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