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Does it matter if the iPad mini cannibalizes iPad sales?


On October 23rd, Apple introduced its fourth-generation iPad, the iPad mini and a slew of Mac refreshes. Somewhat lost in the reaction to those launches and refreshes was what I think is the most interesting story of all: the iPad 2, and how competitive it has been in this market.

Today, a bit of the iPad 2 story is hitting the news as analysts discuss whether the iPad 2 and the iPad mini are cannibalizing iPad sales. I think there's a bigger discussion to be had that goes beyond basic cannibalization. I hope you'll have patience with me as I try to draw together a number of different strands.

The iPad 2 is an amazing device. It is, in many ways, the little tablet that could. It offers a complete tablet experience at a very affordable price. In discussing the iPad mini price point, Phil Schiller stated, "The most affordable product we've made so far was $399 and people were choosing that over those devices." [emphasis mine]

Consumers were saying that they wanted Apple, that they wanted iPad and that they were willing to forego premium features like the Retina display, upgraded cameras, LTE connectivity and better processors to purchase that experience.

It's often taken for granted that Apple doesn't cater to value buyers, but I think that it does. From the Mac mini to the iPod shuffle, Apple has had a place for frugal buyers -- offering great value at lower price points.

If you're thinking about comparing specs, as Amazon did quite pointedly, you're missing the mark. Yes, I could buy "more computer" for the same price I just spent on my new Mac mini, but buying Apple is about not compromising the quality of your computing experience. Hardware specs are just that: bloodless specifications that say precious little about your actual day-to-day experience.

There's a reason Apple keeps earning those "satisfied consumer" awards. Buying Apple is about retaining customers for life -- not someone who buys Asus one year and Kleeborp the next. With Apple, you hook consumers on the experience, the ecosystem and the consistency.

That's why I think positioning another member of the tablet family around/below the current iPad 2 price point is much smarter than people are giving Apple credit for. In a tough economy, Apple is filling all the seats in its stadium, not just the ones near the field.

Metaphorically speaking, it's about how much each seat costs. Concert tickets are typically offered at many price points. And yet stadiums still sell out.

The notion that someone will merely buy an iPad 2 or iPad mini once, then never buy an Apple product again, denies about 30 years of buying pattern data and the Apple halo effect.

While analysists discuss exactly how much the mini is going to cannibalize premium iPad sales, Apple can take a longer view. Bringing customers into the Apple ecosystem, regardless of which level they arrive on, helps lock them into long-term profits that derive from secondary services like App Store, iTunes and iCloud -- not to mention future hardware sales.

Apple is making money on each iPad sale, while Amazon loses money on each Kindle Fire HD. Plus, the iPad doesn't feel like a commerce portal the way the Fire does. Consumers are buying a full tablet experience, not a front end to a mall.

These are lifestyle purchases. An iPad 2 or iPad mini customer is making an investment in doing things, having fun and accomplishing tasks on their device, not just floating on an upward cycle of durable goods sales.

In today's Washington Post, analyst Sameer Sing points out that documents sourced from the Apple/Samsung patent case indicate that "iPad 2 cannibalized approximately 60 percent of third-generation iPad sales, i.e. for every 5 million iPad 2 buyers, Apple lost 3 million third-generation." This cannibalization would presumably extend from the iPad 2 to the iPad mini over time.

Do the mini and the iPad 2 primarly cannibalize sales or create them? Perhaps there's a third option: instead, they could be building a new class of Apple customer. In a depressed economy, many consumers aren't looking to buy premium. The iPad mini and the iPad 2 offer an attractive lifestyle-purchase option compared to the Kindle Fire and the Nexus 7.

As Steve Jobs once said, you make good stuff and people will buy it. The mini and the iPad 2 bring that good stuff within the purchasing radius of many more potential customers.

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