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iPad Mini: Possible Cannibalization and Innovation

October 03, 2012 | About:
Two days ago, there was a rumor that Apple (AAPL) would send out invitation letters to the iPad mini launch event on October 10. There is therefore a high probability that the iPad mini will be released to the market in the middle of October this year. The mini iPad, which is referred to as iPad Air, is a smaller and cheaper version of the regular iPad, with a 7.85-inch screen.

On Monday, the Japanese blog Macotakara reported that the production of the iPad mini is currently underway at a Brazilian factory. It is commonly known that most of Apple’s devices are assembled in China, but it is still unknown whether the units were also built there.

The cheaper version will be in a similar market segment with Google (GOOG)'s Nexus 7, Amazon (AMZN)'s Kindle Fire and Barnes & Noble (BKS)'s Nook. Apple’s iPad is considered a higher-end product compared with Nexus 7, Kindle Fire and Nook. It was previously sold at a much higher price. With the iPad mini, Apple is moving down to the cheaper market segment, and cannibalization with the normal iPad is inevitable. Actually, in order to keep growing for the future, Apple has to keep being innovative with the new products, and the new products will cannibalize old products. The iPod was cannibalized by the iPhone, the iPad is cannibalizing the Mac and the iPad Mini will probably cannibalize the regular iPad.

The incredible growth story of Apple rests mainly on the competent management talent of Steve Jobs. He shared his major mistake during the course of Walter Isaacson’s interviews, to let profitability go in front of passion: “My passion has been to build an enduring company where people were motivated to make great products. The products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It's a subtle difference, but it ends up meaning everything."

In Apple, only one person is responsible for the profit and loss: the CFO. An executive who has worked for both Apple and Microsoft (MSFT) commented on the differences in the way of thinking of both companies: “Microsoft (MSFT) tries to find pockets of unrealized revenue and then figures out what to make. Apple is just the opposite: It thinks of great products, and then sells them. Prototypes and demos always come before spreadsheets."

The iPad Mini, with a cheaper price and smaller design, will penetrate in the lower end of the market. Apple will likely have less profit margin with the iPad Mini compared to the normal iPad, but it solved two main issues for the mobile world: portability and pricing.

However, after the iPad Mini, Apple needs to keep innovating new products with greater user experience, and Apple’s management needs to follow Steve Jobs’ advice in order to keep growing: “Prototypes and demos always come before spreadsheets.”

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


Rating: 3.7/5 (9 votes)

Comments

yhlbb
Yhlbb - 1 year ago
Apple has to have the iPad Mini to kill those popular 7" Android devices (Nexus 7 and Kindle Fire). I really like this move. iPad Mini will not be great money making devices for Apple (iPhone is). But not offering a 7" tablet will be a huge mistake for Apple.

Think this way: if a new user likes iPad Mini (because of the lower price point), s/he will likely consider buying an iPad and/or an iPhone (instead of an Android device) when the budget affords.

Also, think about the number of young kids having an iPad Mini as a X'mas gift. These kids will be future iPhone and iPad buyers when they grow up. This is why the release of iPad mini for sale during Nov. and Dec. is a brilliant move for Apple. (And, I think the price hike of the new iPod Touch is a push for more people to buy the iPad Mini, killing the sales of 7" Androids).

MicleArons
MicleArons - 1 year ago
Since Apple launched its first iPad Mini some three years back, the world took notice and thronged in herds [louis vuitton ipad mini case to get ...

cool ipad 2 cases

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