With iPad3 release getting nearer, it is time for rumor watch. The hottest speculation is whether or not Apple will release a smaller 8 inch version of iPad. We don’t have any information as to what Apple will or won’t do, but we can sure analyze it rationally and see what makes sense for Apple to do.
The biggest argument in favor of an 8” iPad is the success of Amazon’s Kindle Fire. Apple surely wants to capture as much market as possible, and would like to do everything possible to expand its market reach. But a question needs to be asked – was the Kindle Fire’s success due to its smaller size or its $199 price tag. One can argue that it is due to a combination of both, but we think the price accounts for the larger share. So, if it is about price then does Apple need to release an 8” iPad? Only if a smaller screen size brings down the cost a lot, which we don’t think will happen. The screen size of current iPad is 9.7”, so the size reduction by itself is not that big to drastically reduce costs. Also, using two different screen sizes will hamper manufacturing economies of scale that Apple will achieve if all the screen sizes are same. Remember that rest of the circuitry is same regardless of the size, although Apple can certainly use lower processor and Flash memory (but that can be done with larger size iPad too). Now the question becomes, what else can Apple do to expand the market. We don’t need to look any further than what it did with iPhone. The company likes to call it “creating a bigger price umbrella”. With iPhone4S launch, they reduced iPhone 4 price by $100 and iPhone 3G by $200 (relative to 4S). So it is very reasonable to expect that Apple will price iPad2 at $399 when it releases iPad3. But will it go even further and have something at $299 price level. Apple can reduce the price for iPad1 to $299 for the cost conscious customers. After all, its specs will still be comparable to or better than Kindle Fire. Think for yourself, will you buy a Kindle Fire for $199 or pay $100 extra and get yourself an iPad?