Apple News, Analysis and Podcasts

Not too long ago Apple started building a new sales model. Apple made a shift when selling a new iPhone, as they continued to offer the dated version of the iPhone, but at a lower price point. The forthcoming iPad 2 launch is believed to be no different.

Apple first started this sales model with the release of the iPhone 3GS at $199, while the iPhone 3G stayed in the lineup, dropping to $99. Apple repeated this product positioning with their iPhone 4 launch, slotting the iPhone 3GS to $99. How successful has this sales model been? Apple never reveals a breakdown of iPhone sales by model, delivering only a total number of iPhone sales per quarter, but iPhone 3GS is AT&T's third best selling smart phone (coming in behind a Samsung Android and the number one selling iPhone 4).

Apple's iPhone sales model has been a success, as people opting for subsidized products heavily weigh up-front costs vs hefty monthly fees. That may seem like illogical reasoning, but it's what consumers do and Apple has tapped into that thought process.

The iPad 2 is nearing launch and it comes at a time when virtually every new tablet vendors is attempting to undercut iPad's $499 price point, thus they are delivering smaller screen devices and subsidizing them via carriers in an effort to hide cost. Add a camera or two, come in below Apple's price points, and that should be enough to create a new sub-category of tablets eating into iPad's success.

Will Apple be able to compete in this lower-price market in 2011? Jobs made it clear during the September quarterly conference call that Apple will not be entering the 7" tablet space as he believes those devices will quickly fail. But for Apple to squelch any market trying to hide below iPad's $499 pricing umbrella, a lower priced iPad will need to exist. Based on iPhone's product launch history, Apple will deliver the current iPad for $399, while the new iPad 2 will drop in at $499.

As iPad 2 launches, Apple cannot shut off current iPad manufacturing. Apple must continue to produce the current iPad for nearly a year after the iPad 2 launch, as iPad will be relatively new in many markets around the globe. In order to keep the original iPad's component pricing down, producing as many original iPads as possible is key, while it also throws a massive wrench into 7" competitors at or above the $399 price point.

One outstanding issue revolves around FaceTime. Apple is intent on having FaceTime on virtually every iOS and OS X portable device, and begs the question - will the base $399 iPad gain at least a front facing camera? Apple has already proven that the same specifications and lower price point on iPhones compete in the open market during their second year of production without needing a hardware update. We believe iPad will be no different. Both the iPad price point and iPad 2 features should set Apple's sales on fire, while sending the competition into an absolute panic.

2 Comments

1. Jim Crittenden ~ December 17, 2010 16:23
   Best insight of 2010, even if mainstream won't pick it up. Thanks for sharing. Best Wishes.
2. DaveMTL ~ December 17, 2010 21:05
   My predictions as well! In fact they could offer an 8G model for slightly less. Let's say around 379$. With WIFI and all the streaming available they could maximize the run of Apple TV manufacturing at the same time.

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