A Swing and a Miss With the iPad Mini Retina

With Apple's (AAPL 1.27%) 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 (GOOGL 0.55%) 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 (AMZN -1.64%) 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.

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.