With iPad Mini, Apple poised to shake up tablet market. Again

Apple skirts the low-end line with a more affordable, but smaller version of its blockbuster iPad that could bring tablets even more into the mainstream.

See CNET's full coverage of Apple's iPad Mini event

Apple's smaller, lower-cost iPad Mini could hasten the company's goal of getting its products in every consumer's hands.

The iPad Mini, which will retail for as low $329 and features a 7.9-inch display, dramatically expands the base of customers for Apple, and gives the company a new area of growth at a time when its highly profitable iPhone, as well as its MacBook and iMac lines, reach maturity. The iPad Mini, which will sell at a 34 percent discount to its larger cousin, simultaneously puts the rest of the competition, including Amazon's Kindle Fire HD and Google's Nexus 7, on notice.

The original iPad redefined what a tablet could look and feel like, and what it could do, turning a once niche segment into a blockbuster success for Apple. The iPad Mini isn't anywhere near as revolutionary, and indeed is a response to other emerging low-cost alternatives, but could still transform the tablet's status from a luxury gadget to a mainstream item.

"At $329 you should expect more people getting into the tablet market," said Julien Blin, an analyst at Infonetics Research.

If nothing else, the iPad Mini is set to extend Apple's lead in the tablet business. The company already has a larger share in the tablet market than the rest of the competition combined, although Android is quickly catching up.

The new iPad Mini. James Martin/CNET

Apple's share of the global market is projected to be 53 percent this year, compared with 41 percent for Android, according to Gartner, which predicts Android will narrow the gap even more next year. A year ago, Apple's share was 61 percent, compared with 34 percent for Android.

Android's gains have been made on the backs of multiple vendors, including Samsung's Galaxy Tab and Note lines of tablets, Asus' Transformer tablets, and others, including Google's own Nexus 7. Amazon used a highly altered version of Android for its Kindle line of tablets.

The iPad Mini could throw a roadblock in front of Android's momentum, which has largely come from lower-end tablets. Apple's take on the more affordable tablet could appeal to budget-conscious consumers or those looking for a smaller, more portable device, but previously had to look at other options beyond the iPad.

Apple is estimated to sell 5 million iPad Mini units in December, according to Raymond James analyst Tavis McCourt.

Priced to sell
Apple's $329 starting price tag follows the company's well-worn strategy of pricing its products at a premium to the competition, avoiding the low end of the market and maintaining its image as a product that people aspire to buy, as opposed to settle on.

In comparison, an updated version of the original Kindle Fire sells for $159, while the Kindle Fire HD starts at $199. Google's Nexus 7, which was manufactured by Asus, also sells at $199, although an updated version with more memory and a cellular connection -- with a higher price tag -- is expected to be unveiled at an event hosted by Google next week. Barnes & Noble sells its 7-inch Nook HD for $199.

Alternative tablets were largely attractive because they were $200 or $300 less than the lowest-priced iPad, but now the difference has been narrowed considerably.

While it doesn't deal any deathblows to Apple's rivals, the iPad Mini's pricing is attractive enough to turn heads away from those lower-priced options. Some analysts believe the iPad Mini will be popular for families that already own larger iPads, and that the more affordable device could be headed to homes as a secondary tablet.

Demand for tablets has already spiked in the last few years, spurred on by the iPad. Tablet penetration has reached 27 percent in the U.S., according to Deloitte.

Targeting rivals
Apple's marketing chief, Philip Schiller, didn't pull any punches when comparing the iPad Mini with the competition.

"Others have tried to make smaller tablets, but they've failed," Schiller said before pulling up a photo of the Nexus 7.

He said the larger 7.9-inch display but smaller size -- enabled by a thinner design and smaller bezel -- gives the iPad Mini a better viewing experience.

Apple's biggest edge comes from its apps. The App Store boasts 700,000 iOS apps, and 275,000 iPad-specific apps, giving it far more versatility than the competition.

Apple iPad Mini vs. Google Nexus 7 vs. Amazon Kindle Fire HD

Consumers who are looking to buy a tablet now are still overwhelmingly looking at the iPad. In a recent survey taken by ChangeWave Research, 65 percent of people who said they were looking to buy a tablet in the next 90 days said they would consider the iPad, compared with the next most popular choice of Nexus 7 at 12 percent. Of the iPad-anxious buyers, 12 percent said they were looking at the iPad Mini.

In it for the money
Apple's $329 starting price point is a clear indication that the company is still in the game to make a profit.

Sounds obvious, right? But that hasn't been the strategy for some of its competitors. It's well-known that Amazon sells its line of Kindle e-readers and tablets at or around the cost to build them , scraping by with minimal profit or loss because the company knows it will make money off of the sale of goods or e-books over time.

Likewise, Google isn't selling the Nexus 7 because it will help its bottom line -- any profit from the tablet is miniscule relative to the vast profits it reaps off its core search display ad business -- and has priced its tablet aggressively to gain a foothold in the market.

Samsung, however, is like Apple in that it makes its money off of hardware sales, and offers a vast array of options. The high-end tablets, however, have only had mixed success, and haven't sold particularly well in the U.S. After all, why buy a high-end tablet if you can do more and run more apps with a similarly priced iPad?

That's why Amazon struck a chord with consumers when it unveiled its $199 Kindle Fire last year. The company changed expectations for how much a tablet could cost, kicking off a wave of lower-cost, smaller tablets. Apple, long known for going its own way, has been forced to follow suit.

"For the first time in its recent history it is responding to market pressures from its competitors...This reflects a fundamental change in the way Apple operates," said Ovum analyst Adam Leach.

What's more certain is there will be demand for this product. The smaller iPad could do a lot for the tablet market as a whole. The iPad Mini alone is expected to double the market for 7-inch tablets in 2013 over this year, according to IHS.

Most of Apple's products in recent years have generated an intense frenzy during their launches. The iPad Mini isn't going to break from that tradition.
 

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