Why the iPad Mini Is Priced at $329

How important is the iPad Mini to Apple’s tablet strategy? And even at this price, will it be successful?

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As soon as Apple’s iPad Mini was announced with a price tag of $329, many journalists and bloggers started criticizing the price of this new, smaller iPad. They did so because there were rumors that it might be as low as $249 — they also hoped that it would at least be $299 or less. They believed that at a lower price it could take on tablets that are $199 or less, and that an all-out tablet war would erupt.

When it was finally known that Apple came in a bit higher in price, it actually started clearing up a lot of confusion with consumers. In fact, Amazon said that immediately its orders increased for the Kindle Fire HD, which is priced at $199. Now consumers know that they have one class of mini tablets under $200 and a more upscale version from Apple at $329.

Personally, I was not surprised by Apple’s pricing. In fact, if you have followed much of Apple’s history, you know that Apple often prices its first generation of a product at somewhat of a premium, and over time rides the pricing curve down. When the iPod first came out, the five-gigabyte model cost $399. Now look at iPod prices.

It seems that a lot of the media don’t really understand the economics of Apple products, which almost always has them expecting Apple’s products to be priced closer to its competition. But while Apple is very aware of its competition, the company’s goal is to create the best product in its class, even if it has to be priced higher at first.

The higher starting price for new Apple products is really an economic one. Apple is quite unique from most vendors since to manufacture its products, it sometimes has to actually invent the machines and manufacturing processes itself. This is in stark contrast to almost all competitors, who either take products from an ODM (original design manufacturer) that uses existing manufacturing equipment to make them, or use off-the-shelf products and rebrand them as their own.

If you look closely at Apple’s product designs, you will always see sleek lines, beautiful curves and no space between seams. That delivers seamless integration in the hardware itself. In many instances, Apple has to actually invent the manufacturing methods to deliver such precisely designed products. That means added cost to the product at first. In essence, Apple has to build these extra manufacturing costs into first generation devices. Then over time, Apple either adds more features for the same price, or like the iPod, it eventually gets to an economy of scale, which brings the prices down.

Apple knows full well that at first, the iPad Mini will attract what we call early adopters. But this time, Apple expects to see more first time tablet buyers purchasing iPad Minis, too. And the number of iPad Minis Apple sells in the first 6-12 months will determine how fast it can drive the prices down on this product. Given what Apple did with the iPad 2 as well as iPods, I would not be surprised to see this same product priced around $$270-$299 when the next generation comes out.

Of course, competitors will use a similar model. A company like Amazon will most likely price the next Kindle Fire around $149-$159 if it, too, can drive down the costs of manufacturing and bill of materials (BOM). Amazon basically sells the Kindle Fire HD at cost and makes money on the services purchased through their tablet, so the company especially has some wiggle room with its pricing.

So how important is the iPad Mini to Apple’s tablet strategy? And even at this price, will it be successful?

At the strategic level, it is quite important for a couple of reasons. The most obvious one is that it gives Apple a competitive product in the 7-inch tablet space – a space that is getting a lot of interest from consumers. And it allows Apple to emphasize that the iPad Mini is a great consumption device that is an ideal size for reading books, watching movies and TV and listening to music. It works really well as a highly mobile web browsing device, too.

But I see it as being strategic for another reason. I believe that the iPad Mini is a core building block in Apple’s future TV plans. In fact, if you have an iPad Mini or get to see it in a store, you are probably holding the eventual remote control for Apple’s future TV products. If you already have an iPad, you kind of know that it’s a great mobile device for accessing TV Guide and program guides for Comcast, AT&T or Time Warner cable while sitting on the couch. Or using IMDb to check out the history of the movie you are watching, or to search Google or Wikipedia for that actor you’re interested in at that moment.

Interestingly, a recent survey shows that well over 70% of iPad owners use them when sitting in front of the TV. But in the future, besides being a TV controller, Apple could do deals with Hollywood that also tie in key info about the show you are watching. Or when watching a commercial, you could be sent a coupon for that product with the touch of a button. My point is that today’s remotes are worthless in an interactive TV environment, and an iPad Mini tied intricately to Apple’s TV product, what ever it ends up being, could be quite compelling.

I believe the iPad Mini is also strategic because with it, Apple adds another key screen to its line of products. It is my belief that in the future, all of us will have many screens in our lives that we use to access all of our “stuff” that’s in the cloud. And the screen we have closest to us at the time we need our stuff becomes the most important to us. With the iPad Mini, Apple adds a most portable, but highly readable screen to its line up. And Apple has the broadest range of screens available to users, from the iPod Nano to the iPod Touch to iPhones, iPads and iMacs, giving the company more available interconnected screens than any of its competitors.

Although the iPad Mini is priced higher than competitors, it is the gold standard in mini tablets today. And while a lot of people will want lower priced tablets, there is a very large group of people who can afford these prices today — as well as many others who will scrape enough money together to buy them, too. These are folks that want to tap into the rich ecosystem Apple already has, as well as the design aesthetics that make Apple products “cool.” We at Creative Strategies believe that Apple will sell at least five million iPad Minis in November and five million in December, which, along with record iPhone sales, will help Apple have its best quarter ever.

Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every Monday on TIME Tech.

40 comments
jpadhiyar
jpadhiyar

The iPod price range analogy is good but the technologies involved back then were really costly; things have changed a lot since then and so even tech analysts in the loop expect Apple to relinquish the high-end pricing strategy. Not that Apple's going to do it anyway. But a very good breakdown of what goes in Apple's philosophy when deciding product specs and prices.

molerx
molerx

It' hilarious that people feel that Apple should create prices of their products according to their wishes. Few days ago some guy was crying about the iPad mini price and why increase from 16 to 32 GB is so expensive. He went and bought two 64GB iPad minis. His case shows that the price could (should) probably be even higher. I bet he has several older iPads already. 

USA is wasting the world's resources at dramatic speed and all you can talk is why is not even cheaper. You are destroying the future of your children morons!!!!

SmallSpeakHouse
SmallSpeakHouse

"[Apple] sometimes has to actually invent the machines and manufacturing processes itself." Can someone please tell me what exactly are these machines and processes? I'm just curious.

FernandoBorges
FernandoBorges

Apple.. If Newton only knew.. He would have sat under a lemon tree.. The price is simply outrageous. My Note 10.1 eats up the new Ipad in specs and perfomance. The nexus 7 gobbles the mini for breakfast and the Nexus 10 obliterates the Retina concept. Oh... the expert forgot that everything Apple builds comes from Samsung. Even the new Fusion Core is built on Samsung's SSD's. You are no expert in tech, maybe in Marketing.

cjentan
cjentan

Disagree with the point that Apple has to invest in manufacturing machinery. Doesn't Foxconn and it's army of labourers make the bulk of Apple hardware?

nontech
nontech

It is really difficult to understand why so many people would spend so much money on a device that is very unlikely to make their lives easier, make them happier, make them healthier, or really have any kind of positive impact on their lives whatsoever. We need to spend more time and energy thinking about why we buy the things we buy and what kind of effects our purchases have on our lives.

To think more about the effects of technology on our lives and our world, please take a look at my blog, non tech, at www.nontechblog.com.

gredav
gredav

This is easily the most pro-Apple article I've ever read, I feel like I'm almost reading words of one of those men in the Apple made ads

krisbradson
krisbradson

wtf? Gold standard? It hasn't even been out long enough for it to be a frickin bronze standard. Could you slob on Apples stem any more aggressively?

ChristopherFisher
ChristopherFisher

A general rule of thumb for most Apple products (at least where computers are concerned) is to take the price of every individual component (CPU, RAM, GPU, PSU, Mobo) and double it. That's how Apple pricing works quite literally. 

KennethCooper
KennethCooper

Good article.  Well written.  We've all read recently where the sum of the cost of parts for an iPad Mini is $188.  Beyond the added obvious cost of design, engineering, and manufacture, you've done a good job of explaining that other cost, the cost of having to invent not just the product, but the apparatus and process involved in the build of the product.

kieranmullen
kieranmullen

No mention of the Google Nexus tablet which has better specs than the kindle and has more apps available?

Synthmeister
Synthmeister

The iPad mini is Apple’s answer to smaller Android tablets from the likes of Amazon and Google. But there’s a good reason why it doesn’t come with the same $200 price tag. A teardown has revealed that the new iOS device costs at least $188 to build, and that price rises when you add bigger storage options and 4G connectivity.Analysts at research firm IHS, previously known as iSuppli, have torn apart Apple’s iPad mini — not for the first time — and found that the entry-level 16GB device costs a minimum of $188 to build. The 32GB model costs an additional $31, while the 64GB model costs an additional $64.Taking those prices into account, then, it’s clear why Apple cannot sell the iPad mini from $199 to compete with the Nexus 7 or the Kindle Fire HD. Once you add in other costs involved with the device — such as marketing, shipping, packaging, and more — the Cupertino company would see very little profit from its tiny tablet.IHS also found during its teardown that the iPad mini’s 7.9-inch display, supplied by LG Display and AU Optronics, accounts for about 43% of the bill of materials (BOM) for the device at $80. According to its report, the panel uses a new technology known as GF2, which allows the display to be thinner than previous iPad displays.However, that technology also pushes the cost of the display up a little bit. All Things D reports:Andrew Rassweiler, an IHS analyst and head of the company’s teardown team, says that the new technology is proving somewhat problematic to manufacture, which is, for the moment, driving costs on the display up. But as kinks in the manufacturing process are worked out, those costs will come down.

SteveLionbird
SteveLionbird

This article is pretty ridiculous and I'd be surprised if it wasn't supplied by Apple PR. The hands-down "gold standard" "mini tablet" is the Nexus 7 which is not even mentioned in this article. The iPad mini is Apple's lame entry (seemingly knee-jerk reaction to the success of the 7 inch Android bunch) into the 7 inch space - a space that Jobs dismissed in 2010 claiming that 10 inches was the "minimum size required to create great tablet apps". The fact is that with the iPad mini, not only are you paying more but you're getting less. They are wonderful marketers and have an extremely powerful brand so good for them that people want to blindly throw them their money.

KevinReene
KevinReene

I find it ironic that you can consider yourself both a technical "expert" and place the sentence "Although the iPad Mini is priced higher than competitors, it is the gold standard in mini tablets today."

Incorporating technology that has been out for months if not years, utilizing tech that has been incorporated in 7" tablets for years at a resolution that is sub-par in the realm of 7" tablets, this showing from apple is not only unworthy of its price, its a downright smack in the face to those who were actually considering one. It's no wonder Kindle HD sales increased an order of magnitude in the light of the pricing of the Ipad mini, the ends dont justify the means. Maybe when they come out with a high-resolution (red: higher than 200ppi) device with tech that is revolutionary instead of mainstream, I will look into buying into the hype. Remote control you say? Lets have a look at the android remote controls... there are 4-5 great options which also allow for control of HD boxes remotely etc. etc. etc. For now, my Kindle HD is in the mail and I will enjoy my extra $130 in my pocket, perhaps I will go buy a second tablet for the wifey while only throwing in ~$70.

dontbelievethehype
dontbelievethehype

How can you claim that the iPad mini is the 'gold standard in mini tablets today' when they have only been on sale for 3 days, and have no track record on reliability and ease of use.  You state in your piece that Kindle Fire sales jumped after the Mini's price was announced, so clearly, the Mini has not proven itself as the 'gold standard.'  I am an iPad 2 owner and love it, but let the product sell itself on its own merit, and not stoke the hype that turns the masses into bumbling fools running to the store to buy a product just because it is 'Apple.'

Synthmeister
Synthmeister

Apple always goes for 30 - 40% margins on hardware. (AppleTV probably the only exception.)

In a year, Apple will have an iPad mini in the $200 range and still have 30% margins while Google, Amazon, B&N will still be selling stuff at cost.

tzoller
tzoller

The reason the price is high is due mainly to Apple first people who must have the product at any cost. Some tech sights recently did a tear down of the mini and found the parts to be about $150. They did the same for Google and Amazon and found the parts to cost almost the retail price of the tablet. Apple charges more because they have a loyal customer base (CULT) that is beyond financial reasoning. Build it and price it high...they will come..

daveinpublic
daveinpublic

I think the price of the iPad mini is fair - the Nexus 7 costs less, but it's also sold with no profit.  Why does Apple need to sell something for no profit - they're the ones that are leading the race, not the ones behind.  Also, for the extra money, you get a tablet with incredible hardware.  The size, weight, and feel of the hardware are years ahead of other tablets, and people do care about that.

RobertAndrewShowalter
RobertAndrewShowalter

There's a difference between being some kind of new, premium technology that is high priced because it needs wide-spread adoptance to have the prices come down.  That makes sense.  The tech in the iPad and especially the Mini is not revolutionary, it's simply riding the coattails of the fact that the tablet as we now know it started with the iPad.  The iPad Mini is just smaller with less of everything from its big brother iPad.  Apple made a foolish, greedy move and there's no reason justify it.  But then, that's about all I expect from today's Apple.

Ralphd
Ralphd

@molerx  well if that is your concern that perhaps you should appreciate Apple, as they are attempting to minimize resources.  In addition, while they cost more, they tend to be used more (vs cheap one that people buy and throw away bc they don't work well) or those cheap plastic models that break.  I have 2008 MacBook Air that has functional almost like new as well as 2006 iMac... what are you working on?

Ralphd
Ralphd

@SmallSpeakHouse One item is the processors.  They design the chips and currently have Samsung print them.  The cost of design and testing chips is not trivial.   

Ralphd
Ralphd

@FernandoBorges  your comments sound like a typical droid tool. So what have you produced using your crap? Spec are nothing without really software and utility. As for your comments towards Barjarin perhaps you should get a life.

FernandoBorges
FernandoBorges

Bajarin, you should resign and stop taking money from people who don't see the light too often. Time, you honestly give this n00b a space to comment? How many iMacs did Apple provide to your reporters to allow this guys to public an opinion piece? How many iPad Mini were given to subsidize this journalistic massacre? C'mon Time... How I wish something like "Newsroom" was real. Putting all of you to shame.

Ralphd
Ralphd

@cjentan Who developed the machine for the unibody laptop frame that a lot of the computer companies are using now?  Hint it doesn't begin with a F or S, yep Apple.  They invest in developing some of the machinery.

ScriptedPixels
ScriptedPixels

@kieranmullen but the quality of the apps are no where near the same as the quality available for the iPad let alone the iPhone. The Google apps are SCALED to fit on to the nexus. The same will happen for the Nexus 10. This is what sets the two apart ( apple and Google ). Developers need to make apps for the specific Google device. Scalable Apps are good - but only if done right.

KevinReene
KevinReene

@Synthmeister Do you not understand, or have you simply just ignored, that the KINDLE HD AND NEXUS 7 both have identical build costs? They are sold at no profit, but make their money off sales VIA the device (books, apps, etc.). I wouldn't expect someone who copies and pastes "facts" without doing research on the other side of the coin to know that though.

SteveLionbird
SteveLionbird

@Synthmeister from a consumer standpoint, build cost, manufacturing processes and business model are completely irrelevant. It's like trying to justify why a lemonade stand charges a premium for their lemonade that is inferior to the competition's because they pay more money for crappy lemons. The consumer just wants to know how does it taste and how much does it cost .. and does the glass have a shiny Apple logo etched into it because that might trump the other two.

Ralphd
Ralphd

@SteveLionbird Apple had a 7 incher years ago but decided the 10' platform was better. The Nexus and Fire are strictly consumption toys, one can actually conduct work on iPad ecosystem.

Ralphd
Ralphd

@tzoller very insightful tzoller, since it known from the start the kindle was a store front provided by Amazon at cost to get consumers into their e-store.  And for the Nexus, Google NEEDS this to sell as most of the previous droid tablets are crap as seen by their usage.

krisbradson
krisbradson

@daveinpublic how does one lead the race from behind exactly? They released a 7in tablet years after others have already done so. Thats called following not leading homie.

JustinMcNair
JustinMcNair

@daveinpublic What hardware in the iPad Mini is especially "incredible"? Perhaps the case, but even that's a bit of a reach.

Synthmeister
Synthmeister

@RobertAndrewShowalter 

Yes, Apple is riding the coattails of the entire iOS ecosystem, but this is still a first generation product for Apple and they they made it lighter, thinner and stronger than anything else in its class, yet with a bigger screen and similar battery life.

It's not foolish or greedy for a for-profit company to leverage their supply chain, inventory, component pricing and design chops to create products that people will prefer over the competition and force the competition to sell their products at cost even while Apple takes 30% margins.

What's foolish is Google and Amazon selling their devices at cost with no end in sight. They are trapped by Apple's supply chain, hardware chops and component pricing power. If they try to go for 30% margins, no one would even think of buying their tablets.

uber.germ
uber.germ

@Ralphd @molerx I have PC XT from the 1988 still working in my garage. What point does it prove? Apple is using fan boys like you to propagate it's superiority myth. It could be true few years back but today most of the high end Android products beat or match Apple in quality and price.

uber.germ
uber.germ

@Ralphd @SmallSpeakHouse are you implying that Apple invented processors? Ridiculous.  Designing processors is not cheap but it's not that expensive either. Plus, the manufacturing process of the processors was not invented by Apple either.

uber.germ
uber.germ

@ScriptedPixels @kieranmullen Not true anymore. Keep rehashing the same old fan boy argument and all your fan boy members of the Apple cult will hum in unison with you.

KevinReene
KevinReene

@Synthmeister I should clarify the build costs are nearly identical to the iPad mini, not just each other.

Ralphd
Ralphd

@SteveLionbird @Synthmeister SLB that also explains why more internet tablet traffic and online purchases were on iPad than droids....you must be a pink lemonade.

Ralphd
Ralphd

@Synthmeister @RobertAndrewShowalter That is so true, if Google and Amazon could they would charge more.  You think of those companies are out to give products for free? The string is obviously that they hope to recoup via ads for G and sales for Am.    

Ralphd
Ralphd

@uber.germ what is your issue, that you have to resort to name calling. What about my statement is not true?  Obviously, your are acknowledging what I said is true, a few years back?  A few years back the only tablet was the iPad.  As for your claim most of the "HIGH END" androids, so what  they are cost basically the same too including higher prices for more memory, so shut up.

Ralphd
Ralphd

@uber.germ @Ralphd @SmallSpeakHouse  uber.dope what is ridiculous is your inability to read or talk about facts.  Where did I say or imply that Apple invented the processors?  What I stated was that they design their processor, are you refuting that?  SSH was asking for clarification, and that is what I gave... without name calling, so again grow up and shut up.