It's been two years since Apple (NASDAQ:AAPL) officially entered the market for small tablets with the original iPad Mini. During that time, the Mac maker's strategy has shifted each and every year, and 2014 is no different. Apple's strategic shift this year is its biggest change yet -- and possibly for the worse.
How Apple's strategy has changed
The original iPad Mini launched at $329 in 2012, which many considered high at the time given the availability of Android tablets at the $200 price point, many of which were respectable contenders like Google's Nexus 7, among others.
Of course, Apple was always destined to take the high road, charging a premium but also finding numerous ways to justify the added expense. That also put a $170 difference between the iPad Mini and full-sized flagship, but that $170 bought you a larger display and much beefier internal specs.
In 2013, when Apple launched the Retina iPad Mini, it increased the price to $399 but also simplified its product strategy by bringing the new model to near spec parity with the iPad Air. Both iPads had nearly identical specs, including the same A7 processor. The price difference slimmed to $100, but the decision was simpler because the only difference was display size. It was a strong lineup, even if Apple ended up reporting flat unit shipments during Q4 2013.
Yet, Apple has reintroduced compromises within its 2014 iPad Mini lineup, and the iPad Mini 3 is easily the worst value of the bunch. The only addition to this year's model is Touch ID, yet it costs $100 more than the iPad Mini 2. Touch ID is an incredible feature with unrivaled underlying technology, but it doesn't justify a 33% premium by itself. I don't consider the addition of a gold option a meaningful new feature, either.
Why it matters for investors
As it stands, it seems likely that sales should gravitate toward the $299 iPad Mini 2. The $50 difference from the Mini 1 to the Mini 2 includes a much faster processor (by 2 generations) along with a Retina display -- well worth it. That has several implications for investors to keep an eye on over the next year until the next iPad cycle.
First off, it may put continued downward pressure on iPad average selling prices. This would be the continuation of an ongoing trend that Apple has been experiencing ever since it entered the small-tablet market. The flip side is that Apple could boost unit sales, which it could use right about now considering the broader tablet market's current deceleration.
In terms of gross margins, the iPad Mini has long been below Apple's corporate average. The iPad Mini 3 will inevitably enjoy much higher margins, since the cost of adding of Touch ID won't even compare to the $100 price difference. It's still difficult to estimate the iPad Mini 2's margin profile, since we'd have to know how Apple's component costs have declined.
It should be telling that Apple literally spent less than a minute discussing the iPad Mini 3 at the event last week. Perhaps the company is encouraging upsells to the flagship iPad Air 2, or maybe it simply doesn't care about the small tablet market anymore.
Evan Niu, CFA owns shares of Apple. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.