A Swing and a Miss With the iPad Mini Retina

With Apple's (NASDAQ: AAPL  ) iPad mini with Retina display reported hitting physical and virtual store shelves, it makes sense to look at what this product could mean for the company. When the first iPad mini was introduced at a price of $329, many believed this was Apple beginning to realize that it had to lower prices to keep its tablet market share. However, with the latest mini priced at $399, the company seems to have reversed course and that may spell trouble for the iPad division.

Why small tablets?
It's well known that tablets are cannibalizing PC sales and that consumers are finding more and more reasons to own this type of device. Whether it's Apple showing a customer using FaceTime or Google (NASDAQ: GOOGL  ) featuring its Google Now service on an Android device, there are many reasons a tablet may be better than a traditional PC.

If you like reading, Amazon.com (NASDAQ: AMZN  ) hopes that you'll consider its Kindle Fire lineup to get your digital page turning fix. Of course, Samsung isn't going to cede market share to anyone, and the company is pushing the smartphone and tablet combination with the Galaxy Note III and also offers the Galaxy Note 8 if you want a true tablet experience.

According to IDC research, in the first quarter of this year one in every two tablets shipped was below eight inches in screen size. In addition, IDC expects smaller tablets to continue to grow in 2013 and beyond.

What customers wanted, and what they got
Going into the iPad lineup refresh, most expected a thinner, lighter, and better full-sized iPad, and that's pretty much what they got with the iPad Air. Apple kept to its practice of staying at the same price point and at $499 the iPad Air is without question the best full-sized iPad.

However, when it comes to the mini, Apple's magic of delivering the same price with better specs got left by the wayside. While the mini does sport the Retina display, a better processor, and other improvements, the price jumped from $329 to $399. While it's true the first generation mini dropped to $299, this hardly makes the first generation device a bargain.

In fact, you could make the argument that the first generation mini is one of the worst combinations of price and display quality.

Device

Price

PPI

PPI per $1 of cost

iPad mini Retina

$399

326  

$1.22

iPad mini first gen.

$299

163  

$1.83

Google Nexus 7"

$229

323  

$0.71

Kindle Fire HDX 7"

$229

323  

$0.71

Galaxy Note 8"

$379

189  

$2.02

Given that display quality is a key factor in selecting a tablet, the iPad mini first generation seems to lag most of its peers. Given that this device also uses a dual-core processor whereas most of its competition uses quad-core processors or better, the difference is even starker.

The data above suggests that consumers shouldn't choose the iPad mini first generation, but what about the iPad mini with Retina display? The truth is, Apple is almost begging customers to just spend the extra $100 and get the iPad Air. The iPad mini with Retina display is priced higher than any of the devices we've mentioned by as much as 70%.

In addition, the weight and size difference between the full-sized and iPad mini has narrowed. The previous generation of full-sized iPad used to weigh about 1.3 lbs. When you compared that to the 0.68 lbs. of the first generation mini, there was a significant reason to choose the smaller device. Today the difference is one lb. for the iPad Air and 0.74 lbs. for the mini. Given that Apple gave the iPad Air a smaller bezel, the difference in width has shrunk from two inches to 1.3.

A small device causes a big problem
The bottom line is, unless the consumer is heavily invested in the iOS ecosystem, the iPad mini is hard to recommend. If you are going to spend $399, you may as well spend $499 and get the extra screen real estate of the iPad Air. Apple did so well making the Air they may have unintentionally made the mini obsolete.

That being said, with most applications being available on either iOS or Android, it's hard to ignore the value that the Google Nexus 7 and Amazon Kindle Fire HDX 7" offer at just $229 each. Given the huge difference in price, it seems likely that Apple will continue losing tablet market share.

Apple had a chance to sell a premium small tablet that customers wanted at a reasonable price. Instead, the company decided to raise the price by more than 20%. With its current price structure, Apple may have alienated the small tablet market. Given the company's growth aspirations, that is a problem that is too big to ignore.

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Read/Post Comments (17) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 18, 2013, at 8:12 PM, bugnuts wrote:

    Whatever. If you don't want quality, there are plenty of cheap Android tablets out there.

    And yes, Apple will continue "losing market share" as even more cheap tablets are introduced. But Apple will continue owning the profitable portion of the market.

    And isn't that what it's all about? A reporter for a site supposedly focused on business should know that.

  • Report this Comment On November 18, 2013, at 8:20 PM, wessew wrote:

    Let's see. If Apple lowers its prices in order to capture market share, margins suffer and the stock goes down. If Apple raises prices to cover higher production costs and deliver a superior product the stock goes down. The company is in a now win position! However, it has never run its business to: 1) maximize market share, 2) compromise margins by competing with plain box companies on price, and 3) selling cheap products, etc. It has prospered and grown to be one of the largest and most profitable companies in the world by selling higher quality at a higher price along with a very compelling echo system. And you can buy this company now at a tiny fraction of the multiple of Amazon, Facebook, Google, et. al. I think their complete product refresh this fall is going to sell very well in the fourth quarter and into 2014.

  • Report this Comment On November 18, 2013, at 8:25 PM, FreeRange1 wrote:

    What absolute nonsense. You think Apple should lower its prices to be more competitive with companies that are losing money on every single device they sell? You are a business genius!

    The reality is that the cost of building the new iPad mini went up, and therefore the price increase. Further, the device is far superior to any of the other offerings, not by just a little. Better quality, better ecosystem, better support, longer life expectancy based on boing able to upgrade the OS even several years from now, better resale value when you buy your next device, etc. etc. etc. Time to get yourself a good education in running a business profitably.

  • Report this Comment On November 18, 2013, at 8:29 PM, FreeRange1 wrote:

    I just took a second look at your chart... You are seriously trying to measure the value of these devices by PPI per $1 of cost? Moronic at best!

  • Report this Comment On November 18, 2013, at 8:45 PM, givemeabreak wrote:

    Just more stupid Apple bashing from the fools. Where do they find these writers?

  • Report this Comment On November 18, 2013, at 8:56 PM, PedroHMG wrote:

    Another useless article. Why don't you do some real research before you try to write an article?

  • Report this Comment On November 18, 2013, at 8:59 PM, haifeng wrote:

    Customers buy iPad Mini not for the number of the pixels, it's the whole user experience package.

    And Apple can't make enough of these to satisfy demand, why lower the price.

  • Report this Comment On November 18, 2013, at 9:00 PM, Mathman6577 wrote:

    Apple doesn't really care about market share. Their focus is on masking a quality product and lots of profit.

  • Report this Comment On November 18, 2013, at 9:04 PM, DanManners wrote:

    I am still at work and I called my daughter to go to the Apple store and check out both the mini retina and the Air. I ordered one the first day on sale and got it this past Friday direct from Shenzen China.

    I read three dozen review and many say it is the best (retina mini). My daughter has an iPhone 5 and has not upgraded to IOS7 as she doesn't like it. I am curious to see what she says but she wants the mini now prior to seeing the comparison.

    The author is missing a point. Apple sells with a high price. People like that it is expensive. You see authors on Motly may not be payed to well. They don't seem to be dressed that great in the videos. Not one tie? But people pay up for a Mercedes so do your comparison with Mercedes, Honda and Toyota. They all get you there. Cheaper cars can be better made and safer. My Hondas last forever.

    Apple may fail. I think Cook is a terrible CEO, but a device that you might use everyday for hours is not something you might mind paying up for. When it comes to buying it for your kids you pay up as you know Apple is the device of choice in education. Gifts? Well the mini is more but it is still a beautiful device.

    Techcrunch said Apple Ipad Mini Retina is the best tablet on the market. Walt Mosckowitz said the same. It is a tv, camera, gps, toy, gamer, and 500,000 apps to make it many other things. You keep it 2-5 years. Not expensive. If the Android was $ 1 and Apple was $ 10. You would pay for the Apple. 399 is not alot of money for such a valuable device.

    Remember when you use something alot and you buy the wrong thing, you are reminded of that alot. Im so profound.

  • Report this Comment On November 18, 2013, at 9:12 PM, advisor13 wrote:

    This is a lame, pointless, and to be blunt... Moronic article. It was written simply to attract people to visit the site & spend some time logging on & commenting. Swing & miss? Seriously?

  • Report this Comment On November 18, 2013, at 9:31 PM, ValueMeal wrote:

    Ignore this. The speed of the processor, 64 bit tech and so on. Apple is going down the road of upper end, and I do believe that they will stay with that. The only fear I have is fully building out and filling in their ecosystem in the next 2 years of less. I don't think the value of the stock will stay here and rise without them speeding up the time table of marrying their existing and incremental tech with full control for the consumer for content and content delivery and squeezing in cloud storage, content storage, and home automation into a package that makes us all think of no other brand than Apple whenever we need to make our lives more fun, efficient, or faster and easier, all with a smile on our collective faces, as we wave our cards through the reader to make the purchase. Slow down, create the best, pull it all together - oh and hurry up.

  • Report this Comment On November 18, 2013, at 9:41 PM, zippero wrote:

    Nexus 7 and Kindle Fire's lack of resale value makes them more expensive to own in the end.

  • Report this Comment On November 18, 2013, at 9:50 PM, HiramWalker wrote:

    What a blatant commercial for the cheap tablets! Comparing the lightning fast 64 bit, larger screened, beautifully crafted Apple product that comes with a full ecosystem and has hundreds of thousands of tablet designed apps to the cheap ad infested portal to Amazon's store, or the spyware, malware infested blown up smartphones from Samsung, is the old story of you get what you pay for.

    Yes, Apple products cost more, but you get A LOT more. And your purchase lasts longer and gets updates to a constantly improving operating system that keeps them new and maintains resale value for years.

  • Report this Comment On November 18, 2013, at 10:05 PM, JT1951 wrote:

    This article underlines why this site is called THE MOTELY FOOL. No talent for understanding business. I guess they would value cars by the pound too. LOL

  • Report this Comment On November 19, 2013, at 12:54 AM, phrush wrote:

    I used to spend a lot of time on Motley Fool and felt that there was a good bit of valuable commentary. I almost never come back here now. And it is commentators like Chad Henage that have made this so.

    The quality of his business judgement is just stunningly off the mark. His competitive analysis is so sophomoric, I just don't know where to begin. The iPad mini does not compete directly with the other small tablets he mentions, and it is not competing for the low price tablet segment. Apple is not competing to be the biggest player in any of its businesses - it competes to be the best. And therefore it grabs the lion's share of profitability. Because it makes its products ones you are proud to own and ones that you will use, and use, and use.....And as the markets mature, it is this share of use that will indicate the winners.

    Please, people - find a commentator who makes you smarter. Mr. Henage, you should do the same.

  • Report this Comment On November 19, 2013, at 2:25 AM, werewuf wrote:
  • Report this Comment On November 19, 2013, at 11:09 AM, chadscards1274 wrote:

    Here is something that might surprise the readers who chose to comment. I own Apple stock, I own an iPad 3, and an iPhone 5c.

    My problem with the iPad Mini lineup is this: Apple usually keeps the same price and raises the specs. In the Retina Mini case, the company raised the price by over 20% to offer upgraded specs. This doesn't appear to make sense as the company upped the full-sized iPad to a Retina display and kept the same price.

    In addition, the iPad Mini first generation looks worse than the rest of the lineup by far. I'm a big fan of Apple, I like many of the company's products, but I don't like the price point of the iPad Mini Retina.

    The iPad Air and iPad Mini don't offer enough of a difference in size vs function. With only a difference of 0.25 lbs and just a few inches difference, the iPad Air is the much better value.

    I understand Apple is going after the high-end, but going from $329 to $399 just took the company out of the pricing game at anything around $300. You could argue the $329 price because it was Apple vs Google vs Amazon, but at a 20% higher price, the value proposition isn't very good.

    Oh and last, if someone else calls the iPad Mini Retina the best tablet they are flat wrong. These are my opinions feel free to disagree.

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