iPad Mini with iPad and iPhone

The iPad Mini, or whatever the new smaller iPad will actually be called, is as confirmed as an unannounced product can ever be. Of course we don’t know for sure it will ever ship, but The Verge, AllThingsD, BGR and of course Daring Fireball agreeing with one another must be a sign: the iPad Mini is coming and it will be made public at an event in October.

And a nice little product it could be. 7.85 inch screen, same resolution as the iPad 1 and 2 (1024 x 768), lighter and thinner and of course: cheaper. But how much cheaper exactly?

Price Umbrella

In July Ryan Jones made a good point about why a lower priced iPad would make a lot of sense for Apple. It would remove its so called price umbrella:

A price umbrella is when a company with dominant market share maintains high prices, leaving an opening for new competitors to enter at lower price points.

In the case of the iPad that price umbrella right now is $399, so Ryan argues, supported by a nice info graphic, that Apple needs to cover the $199 to $399 price range.

Infographic with iPad pricing

So much for a price that makes sense within the iPad family, but what about the other smaller form factor tablets out there?

The competition

Size wise the iPad Mini would go up against the $249 Galaxy Nexus 7 and the just announced $199 Kindle Fire HD (in both cases the 16GB versions). I’m leaving all other 7-ish inch tablets out of the comparison because these two are the only ones that have proven to be good (Nexus 7) or good selling (Kindle Fire).

Amazon has more or less said that they are not breaking even at this price, instead they count on the tablet owners spending more money on Amazon’s content. Google on the other hand should be able to make at least some profit out of selling the Nexus 7, although it can’t be too much.

Apple is known to have the highest profit margins in the industry, on the other hand they also have by far the most cash so if they wanted to they could easily introduce a product with a little less margins.

With regards to its competitors my gut feeling would rule out the $199 price point for Apple. Amazon is already making a loss at this price point and Google only sells you an 8GB version for $199. $249 or more would be my bet after checking out Apple’s competition. But there is still one more factor to look at: The newly refreshed iPod touch.

The internal competition

Apart from finding the right place within the iPad family the iPad Mini would also need to fit in with Apple’s other product lines. Specifically the iPod touch. A hypothetical 16GB iPad Mini and a 16GB iPod touch differ only in one thing: Size. Of course the two maybe have different use cases, nevertheless an iPad that has the same price as an iPod touch? Would that make sense?

This topic was recently discussed in the latest Vergecast and general tone was: Who would buy the iPod touch if you could have an iPad Mini for the same price? Even more so now that the new iPod touch starts at $299.

Well, I think there are a couple of things to consider. First, Apple does not offer a current generation $199 16GB iPod touch. The $299 model has 32GB of storage, so double than what it used to have. Although there actually still is a 16GB iPod touch for $199, it’s just that it is form the previous generation.

The other thing to consider is the pretty high price jumps when choosing models with more storage. For iPad and iPod touch you pay $100 more for doubling your storage (16GB => 32GB => 64GB) which to me always seemed ridiculously much. Maybe that is only me, but I would always go for the lowest storage option, because the markup seems too high for a device that can’t hold all your content anyway. And paying an extra $100 going from $199 to $299 is relatively seen much more than going from $499 to $599.

Putting these two together the iPod touch pricing to me seems a bit weird (and it always has although I used to have a 2nd generation one, but that was in a bundle with the MacBook Pro as a student). And that maybe makes finding the right price for the iPad Mini a bit more of a challenge.

Conclusion

But then again, maybe not. To make this a bit easier, let’s try and put a price on the iPad Mini. After writing all the existing prices in Apple’s lineup and it’s competitors on a piece of paper there remain only two logical price points: $249 or $299. Agree? Let’s go with the lower one for now and see how it fits.

A 16GB iPad Mini for $249 is $150 cheaper than the cheapest iPad (the iPad 2) for $399 and would have the same price as the Galaxy Nexus 7. A 32GB version would cost $349 and a 64GB version $449, still cheaper than the cheapest current iPad at $499. The iPad Mini base version would then also be $50 cheaper than the cheapest current generation iPod touch, but have only half the storage. Maybe then it will be priced at $299. Ether get a 16 GB iPad Mini, or if you need the portability get a 32GB iPod touch for the same price. That could work.

In the end it all boils down to how aggressive Apple wants to enter the smaller tablet market. $249 would be quite aggressive, $299 would bring them closer to their usual profit margins. If I’d have to bet, I’d say $249.

This would be irresistible.

Image credit: iOS family and Price Umbrella info graphic