What If Apple Tries a Mini-Size Tablet: A Good Idea?

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

If Apple (NASDAQ: AAPL) hopes to continue its extravagant growth trajectory and seemingly impenetrable market share, it must act quickly.  Apple grew its iPad sales – by unit and by revenue – by more than 300% last year.  To keep its tight grip on the tablet market, Apple must keep innovating.

Protect What it Started

Since launching the original iPad in 2010, numerous competitors have flocked the tablet space, hoping to gobble up crumbs fallen from the table.  Now hoping for a feast of profits, those very same competitors are gunning to take an actual seat at the table.  Google (NASDAQ: GOOG), Amazon (NASDAQ: AMZN), Barnes and Noble (NYSE: BKS), and soon Microsoft (NASDAQ: MSFT) have intruded in on Apple’s fiesta.

Amazon and Barnes and Noble launched e-readers-turned-tablet PCs, and Amazon announced a new round of tablets to combat the iPad.  Amazon’s tablets run the gamut of low-end, starting at just $159, and extend up to $599 for the 8.9-inch Kindle Fire HD 4G

Google, and likely Microsoft, are using their brand strength and lower price to fight the iPad.  Google’s Nexus 7 starts at just $199, and Google advertised the invention on its homepage.  Microsoft has yet to launch its surface tablet, which currently lacks distribution channels, but the tablet will likely undercut the newest iPad’s $499 starting price point.

A New Design

To keep its market-leading position, Apple has begun manufacturing new, smaller tablets.  Though it has not yet formally announced an addition to its product line, there is widespread speculation that Apple will do so this month.  Adding a new product allows it to compete with the newcomers.  Two ways that competitors can steal sales away from the iPad are by changing the design or screen size of the tablet, and by charging a lower price.  Here is how Apple is handling each.

Design

Apple realized that its 9.7-inch iPad (measured diagonally) may be too large or bulky for all users, especially compared to smaller sizes, like Amazon’s and Google’s 7-inch screens.  A large screen size is great for watching a movie, but people using the device for other purposes, such as reading a book, may want to hold it in just one hand.  In response, Apple is launching a smaller tablet, with a 7.85-inch screen and a liquid-crystal display.  Apple’s Asian suppliers have already started mass-producing the tablet.

Price

One way to combat lower prices by competitors is for Apple to push its old device, the iPad 2, which goes for $399.  But marketing an old product is hardly a forward-thinking strategy. 

Launching a new, small iPad will give Apple the chance to cater to different demographics.  Instead of catering to business people or to young people hoping to watch movies, a new, less-expensive iPad could cater to other groups.  For example, it can be targeted to students, who may use it as a reader and therefore could desire a device that takes up less space in their bags.

Implications for the Tablet Market

Tablet market sales this year are expected to grow 85% to 126.6 million units.  Google, Microsoft, Amazon, and Barnes and Noble will all be gunning for part of that growth.  However, Apple can use its new tablet to keep its global market share steady at above 60% of the market.

Apple’s new machine will challenge the size of the Nook and the Kindle Family, whose baseline products are both 7-inches.  And Apple’s strong brand and potentially lower price can challenge newcomers Google and Microsoft, keeping their market share low.

If Apple keeps its distribution strong by selling products in its store, on the shelves of cell phone providers, and online, the company may indeed thwart the competition and keep its market share high.

But one thing is certain: if Apple hopes to keep its grasp on the market, it must continue to innovate.  And the company is doing just that.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Amazon.com, Google, and Microsoft. Motley Fool newsletter services recommend Amazon.com, Apple, and Google. 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.If you have questions about this post or the Fool’s blog network, click here for information.

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