3 Reasons Apple’s iPad Won’t See a Price Drop
With Apple’s iPad slated for pre-orders next week and availability on April 3, we’re entering a new phase of iPad poker –are you in or are you folding? This round is different from the time immediately after the iPad’s introduction. Back then, folks were making snap decision commentary — betting blind without knowing what the hole cards were. But now it’s later in the game. People have spent more time thinking about what the iPad can or can’t do for them. And come Thursday Friday, when pre-orders start, they’re either all-in or walking away. Actually, there’s a third option and that’s to wait this hand out. I’m hearing more and more comments from people planning to wait for an iPad price decrease, but there are three reasons I think those folks will be waiting for nothing.
We’ve been here before
Much of this “wait for the price drop” sentiment stems from the original iPhone 4 GB and 8GB models, which debuted in late June of 2007 for $499 and $599, respectively. By September of that same year, the 4 GB model was scrapped and the 8 GB unit dropped $200 to $399. The situation generated an early adapter uproar by many — myself included — and Apple tried to make good with $100 Apple Store credits for those who paid the higher prices.
The entire event tarnished Apple’s luster in the eyes of consumers and this isn’t a company that repeats mistakes often. Apple learned a hard lesson in 2007 — you can correctly justify that technology pricing changes fast, but consumers don’t care. A 33% price drop on a hotly anticipated phone within two to three months of availability doesn’t sit well with people. We can argue supply and demand or say that people paid $599 because they felt it was worth it, but that has little to do with the public’s perception of the situation. Apple won’t tread this path again with the iPad.
Apple’s going it alone
Going back to 2007 again — there was another player involved with the iPhone. AT&T was, and still is, the exclusive U.S. carrier partner. For all intents and purposes, you can’t officially buy a new iPhone without AT&T involvement sans jailbreaking. The vast majority of iPhones use AT&T’s voice and data network, and AT&T earns much more from iPhone users than its other customers. Last year, Om noted AT&T’s iPhone addiction and the revenues it produces from each customer: “[t]he average iPhone user gave AT&T about $94.74 a month vs. an average postpaid AT&T customer, who spends about $59.21 a month with the company.”
The iPad is a different beast though. Yes, the iPad 3G model will work only on AT&T’s data network, but there’s no voice component, nor any 2-year AT&T contract like that of the iPhone. So there’s likely no subsidy paid to Apple from AT&T. You won’t be able to grab an iPad in AT&T’s retail locations, either. Simply put: this is an all Apple product so there’s no price or subsidy negotiation with a carrier about the device. I’m sure Apple and AT&T talked about the 3G service features since it’s a new approach — instead of a long-term commitment like the iPhone has, iPad users can simply enable 3G for a month at a time. Without subsidies or heavy carrier involvement, there are fewer pricing factors involved.
Product lines and pricing tiers
Apple going it alone doesn’t really prove that the iPad pricing might change. But since the company has control over the price, it’s worth looking at where that price fits in with other products across the Apple line. After the iPad introduction, the Boy Genius Report put this chart together showing Apple’s product line and base prices.
See the problem? There’s really not much room — if any — for the iPad prices to drop. Any price cuts and the iPad starts to contend with iPhone 3GS. On the surface, it’s easy to make the argument that the two devices are different because the iPhone offers cellular voice capability while the iPad doesn’t. However, if they’re priced the same, consumers will look deeper and see more similarities than differences — and that could influence purchase decisions on one or the other. And while I’m not the best representative of a mainstream customer, I did just drop my iPhone 3GS – why pay a monthly contract when I can have a similar or even better experience with a less expensive phone plan and an iPad, or an iPod Touch, for that matter? In either case, I”ll just use my MiFi device for a 3G signal over Wi-Fi — I’m already paying for MiFi 3G data plan, so why pay for a second one when I can share my mobile broadband connection with Wi-Fi devices?
The river card is new features
So maybe you’re still in this hand and not sure what to do. You’re on the fence and waiting to see that last card. I anticipate that it won’t reveal price cuts but will instead offer new features. The second generation of nearly any technology is better than the first. iPad prices are likely to stay put, but in as little as six months, a new model could hit with more features. An integrated camera is highly likely. More internal memory or a higher resolution display wouldn’t surprise me either. A price cut within a few months would, so I’m not betting on it. Are you?
Related research on GigaOM Pro (sub req’d):
4th reason, for anyone that follows pricing structure knows Apple usually has a bare minimum of 100% profit margin (double the manufacturing costs). reports are this device is costing anywhere from $220 – $270 to build. if thats true, Apple is already selling the iPad at the bottom level price. what that establishes is that Apple is somewhat leery of the market potential for this type of device so they started out aggressive on prices to ensure its success. Apple guessed this 1 right, it would have been a disaster to start out at a higher price point.
most companies dont have 100% profit margins, not even close. but most companies dont have Apples rabid fanbase or high quarterly profits (considering Apples rather low worldwide market sales). most companies make up for it in volume, which Apple is not much of a contender in.
@ TRBELLOW. Retail markup over BOM does not equate to profit margin. Most business have SG&A expense about 10% -12% of revenue and R&D 3%-5% of revenue. Uncle Sam also wants his part which in Apple’s case is about 30% of Operating Income. I agree that the price point is consistent with the BOM estimates and will not change in the short term. Apple is much more likely to add features in future releases rather then change pricing in the short-term.
i was dumbing it down, of course expenses have to be covered but i assume most people already know that. i was just trying to show a margin comparative Apple has to other companies.
for example, do you think most people know that average netbook is made for less than $150? so even these $300 netbooks are pulling in Apple level “profits”, technically more since its a saturated lower expense market. thats why the public & bloggers should ignore Dell/HP execs about “small margins” on netbooks, percentage wise it just isnt true. it does hurt Intel though, that much is true.
Ah, but that profit netbooks are “pulling in” are spread across the netbook brand, distributors, and retailers.
Apple’s margins, on the other hand, are in large part split between Apple and the Apple Store (aka Apple).
Huge difference…plainly visible in Apple’s cash hoard from their quarterly reports.
Most ipods go down in price after the first generation, so maybe it won’t go down in price right away but next year it will when they release the next gen ipad and they are clearing out old stock.
I’m still in and plan to order the Wi-Fi model. Partly that’s because I’m a tech consultant and need to understand the implications of new stuff to help advise my clients. But my trip to New York last week reconfirmed that this form factor would be a great addition to my travel bag. On two separate occasions a group of us were standing around a bar after working all day and I really wanted to pull out a computer to make a point, but opening a notebook was inappropriate – the iPad would have been perfect. Also, four hours each way on a plane (with Wi-Fi) squeezed into a small seat would have been more fun with an iPad.
Of course I would prefer to pay less, but I think the price is reasonable for a new type device. When the price drops and new features are added in version 2 I’ll buy that and hand the original down to someone else. I don’t make technology decisions lightly – never owned an iPhone, but bought the Pre as soon as it came out – and the iPad seems like a very useful device for my needs.
Actually, the biggest price pressure on the iPad may be the iPad itself. The key is that it’s contract-less. There will be early adopters that for what ever reason will decide that the device is not for them or that there are better alternatives available.
For cost-conscious consumers, the best strategy may be to wait and let the after market channel fill or flood when an upgraded iPad model is announced.
“For all intents and purposes, you can’t officially buy a new iPhone without AT&T involvement sans jailbreaking”
Not quite true Kevin:
http://www.addictedtophones.com/product_info.php?cPath=67&products_id=402
I guess everything has it’s price.
There have long been third-party methods to buy an iPhone, but that’s why I said “officially,” i.e.: through standard channels.
Brand new phone purchased retail with warranty. Are you saying that if it’s not obtained through the manufacturer or service provider it doesn’t count? Expansys also sells the same phone shown in the link, along with many others not even available from either the manufacturer directly or carriers.
I know Apple and AT&T both have their stores, but if the manufacturer is providing unlocked units to wholesalers for a price premium, it does give the consumer an alternative choice, and in many cases, a better phone.
You’re absolutely correct — if you don’t want to buy an iPhone from Apple or AT&T, there are other ways. But most people do buy them through those two entities. And for the purpose of this article, that point was made to show that Apple isn’t partnering with anyone on this and what that means for pricing.
I can’t see the $499 base price coming down soon, although I can see an increase in Flash memory provided (32GB) and webcam for that same price on the next iteration…
I think the mighty iPad will drop in price only if Apple doesn’t see the demand they expect. But hearing all this talk of part supply shortages make me think initial demand (first six months) will exceed supply, therefore NO PRICE DECREASE until maybe Thanksgiving just in time for the Holidaze. I hope a Super iPad will make its way to shoppers in time for Xmas (that’s what dreams are for right).
Don’t forget, you’re all invited to my April 3rd iPad Unboxing Party on YT. See y’all there !
Or…
Get a decent tablet PC (gasp) w/ a cellular data plan for the same price and 4x the functionality! gasp
Wait… it wouldn’t be Apple. Right…
+1 Microsoft Courier looks promising, as I’m sure do a myriad of soon-to-be-released non-Apple tablet/pads.
THERE IS NO COURIER!! Its a FUD animation, folks. Stop comparing vaporware to a real product.
Where is this mythical $500 tablet PC? And you realize a 3G data card for a PC usually costs $60/mo, right?
I don’t see any price savings at all in your scenario.
Correction: I mean to say I don’t see any way to get a tablet PC + data card that isn’t a lot more expensive up front, in monthly fees, AND requires a contract period.
But…all the apps I use on a day-to-day basis don’t work on a MS Windows PC.
If all the apps you use on a day to day basis work on an iPad, then you’re good to go.
Since you need not sign a contract for iPad they can sell these puppies to the masses in places you would never believe. It is only a matter of time before you start hearing the following:
Would you like some fries with your iPad order sir ?
And don’t forget the famous Apple Kiosk (already at some airports). Move over redbox (currently at 20,000 locations) !
I agree that Apple will add features more than drop prices. The big problem with the iPad is not having significantly more features or more freedom than the iTouch. The best feature to add would be freedom of a real computer, so I hope the rumors along those lines are true – in this form factor it would be a great tablet. If Apple came out with a Freedom iPad, I get one. I don’t see buying an iPad with the current feature set, even though I salute its thinness as the model for the industry.
BTW, the drop in iPhone prices was not very big once you factor in service contracts, which run over $1000 per year.
You may regret not buying an early iPad, specially if they run out of supply. They may become instant collector items that fetch astronomical prices at auction on iBay in 2025 or so.
Well, to each his own, but the iPad rings my bell and i will be up early on that magical first Saturday of next month with my wallet busting at the seams to get my chance to become a worthy and proud Apple iPad owner. Hope to see you in line. You still have time to change your mind.
What is an ITouch? Apple never made a product buy that name…
oh wait, you must mean the IPod Touch…lol silly me, ha.
But in all seriousness the larger screen on the IPad dictates more functionality in the form of software development potential, then the small 3.5 inch screen does on the IPod Touch. The IPad’s larger screen also makes developers create more “mobile touch” desktop like environments since this device is not maade to be kept in the pocket and carried around where ever you go, as the IPod Touch is.
Just as Apple did a cool job reworking their productivity suits for the Ipad, I look forward to the development other companies will do on their PC/Mac UI’s.
UI development on the Ipad can also be transfered to the PC slate’s that are due out, or really any other device that will eventually compete with the IPad. While the code may need to be re-done for a different device, the design aspect is there, re-tailored for the mobile enthusiast that suits these devices.
“What is an ITouch? Apple never made a product buy that name…”
As far as I know, Apple never made a product purchase (buy) any name.
I could continue to point out multiple errors (yes, even beyond the glaring one in the first line) in your post that was meant to point out another poster’s error… The use of additional words that completely change the literal meaning of what you are saying (using “then”, when you were trying to say “than”, “suits” when you were trying to say “suites”)… Or the seemingly automatic use of a hyphen in the middle of any word with the prefix “re”, creating non-words (re-done; re-tailoring (creating a non-word from what is a non-word even without the hyphen)). Oddly enough though, “reworking” somehow escaped the hyphenation treatment… And getting back to the original intent of your post, your mention 8 times or so of “IPod”, IPad”, or “Ipad”… Apple never made a product by (or… buy, bye, maybe bi, and if you’re from Indiana, (Senator Evan) Bayh) any of those names. They are “iPod” and “iPad” last time I checked.
You raised the bar, I’m only trying to help you clear it.
OH! I almost forgot!… LOL … Just to make it all lighthearted and ok.
On topic though… My expectation is that they will enhance the specs (camera, more RAM, etc.) in six months or a year rather than lower the prices.
Well if the iPad had been available when announced or at least last month I would have purchased it without no doubt. Now that time has gone by and have seen more options and time to think about the iPad. More likely I will wait till I see it at the store and give it a try. I think Apple would have sold more iPad’s if the wait wouldn’t have been so long. I am not saying I won’t get one, but at this point I am at 50/50 and leaning towards other slates everyday.
I really would like inking and some way to sync to Windows 7, and BT DUN with iPad.
Have you seen the first Apple iPad commercial….JUST AWESOME !
Blazingly FAST !!! OFF THE CHARTS ACTUALLY.
Really liking that email functionality….impressive.
Saw it at the OSCARS tonight…Yes Big Steve was there !
iPAD for everyone !!!
What Apple and AT&T could do is offer the 3G model at $599 without a contract and at $499 with a one-year contract. At the end of one year, the customer could either continue, or back down to the no contract mode. I think most customers would like this since they could try out the contract, paid in part by the ipad discount. Apple could still offer the base model at $499 also.
There is a very real problem brewing for the phone companies. I too, dropped my ATT account and now use my iphone as a ipod touch/skpye device using the mifi ($60 vs $95, and good for my laptops and n800 as well). I have a pre-paid cheap candybar T-Mobile phone which I pay about $200 a year for, which I love!
There are good solutions out there, paying ATT $1200 a year is NOT one of them.
Scot
I think iPad is a bit overpriced right now
I believe most techies were anticipating that the iPad would drop for at least $1000 and when Stevie announced a $499 entry price let me tell you many a jaw was left on the floor that day. My dear friend Woz was even stunned when Apple did this, so believe me you the iPad is not overpriced in the slightest, it may actually be underpriced (if it sells out the first weekend this will confirm that it was priced much too low).
The chart is misleading; nowhere in the world is it possible to buy an iPhone for a minimal cost of ownership of 200 USD. The actual price/cost of the iPhone is much higher than that…
If i am not mistaken, my iPhone only costs $199, which is BELOW your $200 mark. Very affordable indeed.
I believe you indeed are mistaken. The price you list likely includes a mandatory subscription; it is unlikely that anyone, anywhere sells new iPhones for 200 USD with no strings attached; That’s likely to be much less than Apple charges its resellers. You cannot actually buy iPhone for 200 USD, without incurring extra charges; someone subsidised it for you, and they’d probably want that price covered.
Here in Denmark, the minimum cost of ownership of an iPhone is about 570 USD, with VAT subtracted. This includes the purchase price as well as all unavoidable charges in the six month binding period of the subscription. For us, the minimal cost of ownership of subsidised phones tend to align pretty closely with what the phone costs without a subscription, due to the relatively short length allowed for binding periods.
The chart isn’t misleading — it represents the price you pay to purchase the hardware. Total cost of ownership isn’t reflected on any of these devices and can’t be because everyone uses their devices differently, for different time periods and with different service.
I realize what you’re saying, i.e.: you must purchase the required 2-year voice and data plan for an iPhone. And that price adds around $2,000 to the total cost of ownership, but not in every case. Someone could cancel the contract and pay an ETF at any point in time. Or an iPhone owner could keep the phone longer than the 2-year contract. It varies, just as using an ISP would for an iMac in the same chart.
Again, I hear you on TCO, but that’s semi-irrelevant to the point of the chart and the discussion of the post.
I’m afraid you misunderstood my later post; I was rather deliberate in phrasing it as ‘minimal cost of ownership’ and not ‘total cost of ownership’. That is, the lowest possible price you can get away with paying for a functioning device.
I do understand that the American market isn’t quite competitive and that the actual price of products has been obscured rather thoroughly. However, I’d venture that if you investigated what buying an iPhone and immediately terminating the subscription would cost you, it’d be in the neighbourhood of 600 USD.
By comparison, Danish law requires the minimal cost ownership to be stated alongside with the immediate purchase price on all advertising material that mentions it. There are no Early Termination Fees; the subscription is binding, and can only be cancelled if the phone stops working. After that, the binding period cannot be extended unless a new phone is purchased. As a result of this, it’s quite clear to us that the iPhone doesn’t cost as little as the 100 DKK — or about 20 USD — we can pay upfront. In my opinion, a claim that the iPhone ‘costs 200 USD’ is ludicrous; a price is hardly a meaningful measure unless it’s actually possible to buy the product for it, somewhere…
The 99 USD price is comparable to a downpayment; it isn’t the price of the device.
Again, I understand your point and I’m well versed in the ETFs and subsidies here in the U.S. market.
But my point is: it doesn’t matter much to the context of my article.
Whether the devices are subsidized or not, my specific point was that Apple now has an entire range of up-front, out-of-pocket hardware costs with the iPad addition to the product line. Perhaps this doesn’t hold true with all Apple products in every country; I’m simply making a point as it pertains to the likelihood of an iPad price drop.
I understand, and I believe you made that point! I’m not trying to point out an ‘error’ that’s worth correcting, or anything; my point was merely that the comparison to the iPhone price struck me as odd, and that to me, it didn’t underscore your otherwise excellent point.
As an example, if you visit the online Apple Store, the cheapest iPhone has a lower listed price — 99 USD — than the cheapest iPod Touch, which is 199 USD. This suggests that it isn’t the listed price that Apple consider distinguishing the iPhone from its other products. In my opinion, a better option for price comparison would be the Touch; it’s a much more direct comparison, and the listed price is also unsubsidised. Perhaps one of the reasons for Apple changed the subscription model was to remove the reasons like the ones you cite for dumping your iPhone
My suspicion is that the iPad will see a much more conventional sales model here where various stores will offer it, and some offer a subsidised option. It seems to me that the altered pricing structure matters less in markets that already are competitive.
(A funny aspect of the iPad is that you could theoretically use it as a portable phone, using e.g. Skype…)
Ah, now I understand better where you were coming from. Thanks for the explanation! I’m curious to see if you’re right about future iPad subsidies. I don’t see it happening, but that doesn’t mean it won’t!
I think most consumers are getting tired of the contract part that subsidies require, so a contract-free deal — even at a higher price — for a non-phone device is likely sufficient, but we’ll have to see! 
Dear Leader offers us still more magic, and at a meager 40% profit margin, and you people hold out for more?
Unbelievers!
I can’t see iPad prices falling at any point. I just can’t see how rivals can beat this price point as it is.
hi there your wrong about apple they dont have a 200% profite from the base price they put most towrds r&d for new products computers mobile devices see apple already spent all the cash for the brand new ipad 2.0 verrsion you are right apple is about too release ipad 2.0 right affter ipad 1.0 version roumers of multi-touch macbook pro and 22 inch multi-touch imac plus apple is a high priced luxery computer just like sony or alien ware or hardcore computers so only the best and highest cost componints go in to a apple device computer iphone ipod ipod touch or the ipad yea for apples macbook at $1,000 and 13.3 inch macbook pro at $1,299 starting price a 17 inch macbook pro starts at $2,799 and macbook air with 128 gb ssd $1,799
I’d much rather see a newer, more fully-featured incarnation of Ipad in the next few months than a price drop. The pricing is actually fairly reasonable, it’s the absence of a camera and relatively unimpressive processing power that’s preventing me from becoming an early adopter. The new chip is not much faster than my 3GS, and considerably slower than my 4-year-old first-gen Macbook. Still, it’s a beautiful machine and rather fun to use.
i don’t see a drop in price in the near future. The base model ipad is priced at less than 700 making it one of the cheapest apple machines to own.
As people have said the iPad was expected to cost around the $1000 mark on launch so in fact it almost seems quite reasonable at $499, maybe that is all just good marketing by Apple though.
I can’t see it. we haven’t seen an iphone drop, why would be see ipad prices drop ?