The Role of the iPad for Apple’s Growth

on September 17, 2013
Reading Time: 3 minutes

Analyzing the pricing strategy of the iPhone 5c has led me down some interesting trails of thought. Brian wrote yesterday that Apple simply doesn’t have the DNA to go down market.

I disagree with Brian here. I believe Apple has shown that they can make products for everyone with how they built out the iPod line. I simply don’t think the iPod lines downstream philosophy applies to the iPhone. I do, however, believe it applies to the iPad–at least to a degree. ((there is a difference between the iPod and the iPad. One is a computer the other is not.))

In my opinion, with where the market is right now, I believe it is more important for Apple to be aggressive (not cheap) with the iPad. ((The tablet segment in many regions is growing faster than the smartphone segment))

Stating My Case
The argument many are making about Apple’s need to be more aggressive about the price of the iPhone is to acquire customers at the $400 price range. The counter argument to this is to question the value of a customer in that price range to the ecosystem. The theory I would posit is that the customer of a lower price iPad is more valuable to the ecosystem then the customer of a lower price iPhone–at least right now.

I started thinking about this when I started digging through the results of our consumer research panel on late adopters. Specifically I intended to understand the intent to buy smartphones from those who had feature phones. What I found was interesting. The majority of those who still had feature phones were adamant that they did not need a smartphone. Many stated with confidence that all they do is make phone calls and many of the smartphone features were not of interest to them. What’s more is that 60% of these non-smartphone owners were interested in tablets.

I bring this up to make a point. I’d argue that there are large sections of the market who are not fully reaping the benefits of their smartphones. Perhaps even less so than we originally thought. Even if this segment was to get smartphones they would probably not contribute much to the ecosystem by way of apps, services, etc, at least not yet. Perhaps it’s possible that for a segment of the market even smartphones over serve their needs.

However, we know that tablets, and the iPad in particular is not the kind of product you buy to use for its basic features. People who buy these products are doing so for a vast majority of more computing centric reasons and many that infringe on the value of the traditional PC.

What if they can’t Afford Both?
While debating with myself on this topic, I brought up the point that what if the customer in this price range can’t buy both? This is a good point. But if the iPad was to be more aggressive in price, say less than $300 or even $250, perhaps said customer would opt for an even lower cost phone in order to save money to get an iPad.

I’m not insinuating this logic would represent the totality of this part of the market. I’m mostly just thinking out-loud. But I do think the competitive landscape not just on tablets but also more mid-range phones could face some interesting new dynamics if the cost of the iPad was to get even more aggressive. I also wonder the effect this would have on big phones in the few regions of the world where they are selling somewhat well.

The iPad may be the product that most closely emulates the halo strategy and gateway product to the Apple ecosystem that was the iPod. The time to be aggressive with the iPad is near. Apple has much less legitimate competition in this space and lowering the price would further exploit the vulnerability of the PC and potentially hurt Microsoft even more. The iPad is also the right product to lead Apple’s invasion strategy to China.

Tablets are an area of extreme growth despite what people may say about it slowing. Here is my firms chart showing what is happening in the overall PC space. Yes we count PCs as tablets because our research indicates that is exactly how consumers view them–as computers.

Screen Shot 2013-09-17 at 8.50.16 AM

Food for thought.