Why Apple Needs a 7 Inch Tablet

by Patrick Moorhead   |   July 2nd, 2012

Last week, most of the tech industry was consumed with Google I/O, Google’s annual event to woo software and hardware developers to Googlenexus 7 and consequently away from Apple and Microsoft.  In addition to Google Glass-adorned daredevils jumping out of blimps and scaling down the sides of buildings, the Nexus 7 Tablet, the first full-featured, no-compromise tablet was launched at $199.  What’s very clear is that the Google Nexus 7 will sell well and take business away from Apple’s $399 iPad 2.  This is exactly why Apple needs a 7” tablet or else face the prospect of losing market share and profit dollars.

The Kindle Fire was released back in September 2011 to big fanfare.  I was accurate in stating it would take share away from the $499 iPad 2, which was true until the iPad 3 was launched and iPad 2 reduced down to $399 back in February.  The situation has changed now as the Fire is slogging away and is losing share to the iPad 2 and even to the $199 Nook Tablet and the $169 Nook Color.  It makes sense, as the Fire is a stripped down tablet and the iPad 2 is not, and many consumers were willing to pay the extra $200 to have the full experience.  The Fire used a smartphone operating system, had an SD display and users got a large smartphone experience.  It wan’t a great experience, but it wasn’t horrible, particularly at the ground-breaking price point.  The Fire also lacked access to the broad Google Play content and application environment, too, which, to some, was limiting.

The Google Nexus 7 Tablet is an entirely different animal.  It comes with the top of the line NVIDIA Tegra 3 with 4-PLUS-1 processor, the latest Android Jelly Bean OS, NFC, an HD display, camera, microphone and full access to the Google Play store. After seeing Jelly Bean in action, it is a marked improvement over prior Android operating systems  I have used that just didn’t quite feel right and toward which I have been so critical.  The Google Nexus 7 will sell well, which is good for Google, Android, ASUS and NVIDIA, but bad for Apple, unless they act before the holidays.

Historically, Apple has been OK taking the high road on unit market share, particularly in PCs.  The situation changed with the iPod, iPhone and the same is true for iPad.  Apple wants market share and will do what it takes to get it, as long as it’s profitable, they can deliver a great experience, and stay true to their brand. Apple could do just this with a 7”, $299 tablet. Apple would be very profitable as well, as the most expensive piece-parts of a tablet are the display and touch-screen, which are priced somewhat linear with size. Apple may have redesigned some of the innards of the new iPad 2 as they lowered the price, but not nearly enough to offset the $100 price reduction, so a mini-iPad would be additive, not dilutive like the $399 iPad 2.

Would consumers pay $100 for the Apple brand and experience?  In most traditional geographies, yes, they would, as consumers have shown the willingness to pay more than $99 more for iPods and $199 more for iPads.  This is exactly what the mini-iPad would be; a large iPod.  That’s not bad, that is good in the sense that  the iPod is still the most popular full-featured personal media player out there.

Will Apple productize what they undoubtedly have running in their labs?  I will leave that to the numerous Apple rumor sites, but one major occurrence suggests they will not, and that was one of the great proclamations from the late Steve Jobs.  According to Wired, in October of 2010, Jobs apparently said the following during an earnings call: “7-inch tablets are tweeners: too big to compete with a smartphone and too small to compete with the iPad. These are among the reasons that the current crop of 7-inch tablets are going to be DOA — dead on arrival.” Does this say Apple would never do a 7” tablet?  Actually it does not, as it is really a statement about non-Apple products and  Jobs left Apple some wiggle room to maneuver.  What I know for sure is that Apple must act in the next few months or risk tablet share degradation to the Google Nexus 7.

Patrick Moorhead

Patrick Moorhead was ranked the #1 technology industry analyst by Apollo Research for the U.S. and EMEA in May, 2013.. He is President and Principal Analyst of Moor Insights & Strategy, a high tech analyst firm focused on the ecosystem intersections of the phone, tablet, PC, TV, datacenter and cloud. Moorhead departed AMD in 2011 where he served as Corporate Vice President and Corporate Fellow in the strategy group. There, he developed long-term strategies for mobile computing devices and personal computers. In his 11 years at AMD he also led product management, business planning, product marketing, regional marketing, channel marketing, and corporate marketing. Moorhead worked at Compaq Computer Corp. during their run to the #1 market share leader position in personal computers. Moorhead also served as an executive at AltaVista E-commerce during their peak and pioneered cost per click e-commerce models.