Oct 22
![Image representing iPad as depicted in CrunchBase]( "Image representing iPad as depicted in CrunchBase")
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When Apple (AAPL) lifts the wraps on its expected iPad mini — or whatever the company decides to call its first entry into the 7-inch tablet space — the Cupertino, Calif.-based company will be throwing down a direct challenge to several competitors who have used that segment of the market to carve out a niche against the 10-inch iPad that still accounts for an estimated two-thirds of tablet sales.
Most significant among these is Amazon (AMZN) which launched its first tablet called the Kindle Fire last year as a low-priced, smaller entry into the market.
The company re-vamped its lineup last month, adding the Kindle Fire HD in both 7-inch and 8.9-inch versions. It also announced an 8.9-inch iteration that can connect to LTE networks that represented Amazon’s own effort to challenge Apple at the higher end of the market. That device costs $500 and ships on Nov. 20. Read: Amazon steps up Kindle tablet offerings
Google (GOOG) has moved into this space as well with its Nexus 7 tablet that launched over the summer for $200. Samsung (XKRX:005930) also sells a 7-inch version of its Galaxy Tab device.
On Tuesday, Apple is hosting an event in San Jose, Calif. that is widely expected to feature a new iPad with a 7-inch screen. The company has never confirmed it is building such a device; the late Steve Jobs publicly dismissed the idea of a smaller tablet. But gadget blogs have run various leaks about the device, and several analysts covering Apple have cited their own research confirming build plans for a smaller tablet among Apple’s suppliers.
Apple’s already dominant presence in the tablet market — not to mention its strength in smartphones with the iPhone — is expected to give the smaller iPad a strong base of appeal against competitors.
“A smaller, cheaper iPad will devastate competition,” predicted Forrester mobile device analyst Sarah Rotman Epps.
The strength of the tablet business for both Amazon and Google is hard to estimate, as neither company discloses sales figures for those devices. IHS iSuppli estimates that Amazon shipped about 2.2 million units of the Kindle Fire in the first six months of the year, with Samsung shipping 4.4 million units and Apple shipping 28.8 million units.
Third-quarter tablet market estimates are not yet available, and Google did not launch the Nexus until July. The first wave of Amazon’s newer Kindle Fires began shipping in late September.
Gene Munster, who covers Apple, Amazon and Google for Piper Jaffray, said he expects Apple to leap to about 50% share of the 7-inch tablet market in its first year, with the Kindle Fire and Nexus holding on to about 20% of that market segment each.
“It’s going to take a big bite out of their share,” Munster said in an interview about Amazon, Google and bookseller Barnes & Noble (BKS) , which sells the Nook line of e-readers and tablets.
One big question mark for Apple will be pricing. Amazon has publicly admitted that it sells its Kindle Fire devices at cost in order to make money on selling digital content. The 7-inch version of the Kindle Fire HD sells for $199, as does the Nexus 7. Apple’s business strategy is centered around selling the devices themselves at high margin, which may limit how low it can price a smaller tablet.
“The key question is whether Apple decides to price in-line with its margin model or does it get aggressive to ‘go for the kill’ against competitors,” Shaw Wu of Sterne Agee wrote in a note Friday, who added that he believes an iPad mini is the competition’s worse nightmare.”
Reuters Hugo Barra of Google shows off the Nexus 7 tablet in late June.
Rotman Epps of Forrester said Apple does not need to meet the Kindle and Nexus 7 at their same price to be effective.
“In PCs, we have seen that consumers will pay more for Apple products,” she said, adding that $299 “would be a great price” for a smaller iPad, given Apple’s large universe of apps for mobile devices.
However, a smaller iPad may spur Amazon and Google to cut into their own prices, to widen their distance from the new competitor. Munster said Amazon in particular cannot match Apple and Google in their base of dedicated apps, leaving th retailer with fewer options.
“The bottom line for Amazon and Kindle Fire is that their wheelhouse advantage is price, and they need to continue to keep a wide gap to get people to use it,” he said.
