Thoughts on the iPad Line, Part 2

Features, SKUs, and Price. See also Part 1, Part 3, and Part 4.

Well, Apple chose not to launch a rebranded ‘iPad’ today alongside the new 9.7” iPad Pro. I thought they should, but now its time to explore the reasons why they chose not to, and to shore up what we can expect come the next upgrade cycle.

First, some reasons why a new regular iPad didn’t launch today:

  • Need — The iPad Air 2’s A8X is still very performant, so there’s not a pressing need for replacement. The A8 is still available in the Mini 4, so that generation of chip is going to be supported for a while.
  • Coverage — Apple wanted to have the event be a showcase of the new iPad Pro, and a new regular iPad would distract from that
  • Precedent — Apple has previously phased in new brands slowly, such as the introduction of the Air alongside the plastic Macbook, and the retina Macbook alongside the Air.
  • Market — Apple likely sees the general consumer market as more responsive to the holiday buying season, much like iPhone, so prefers to launch in October.
  • Alignment — There’s still the outside chance Apple will collapse the iPad Mini brand into the ‘iPad’ moniker, offering two sizes just like the Pro. The Mini is due for a refresh in October, and the guts would likely be the same as the 9.7” iPad. This change could do a bit reduce consumer confusion that Apple has been dinged for in the past.

This assumes annual upgrade cycles, which I cover along with segmentation and the justifications for rebranding ‘iPad’ in part 1 yesterday. In short, we’re entering the next phase of iPad, and once that transition is complete in October, I strongly believe they’ll keep to annual cycles for both iPad and iPad Pro.

Chips & Launch Date

It now seems highly likely that September/October is when ‘iPad’ will be introduced, and that Apple sees it as receiving the last-gen A9. It certainly wouldn’t have the new A10, and very likely not the larger and more expensive A9X, due to justifications I outlined in part 1. This seems a pretty significant downgrade, but again the Pro line picks up the slack, and the regular iPad needs significant enough differentiation in cost & capability to make sense as a separate product line.

Cameras

The 9.7” iPad Pro inherited the latest 12mp/5mp cameras from the iPhone 6S, which surprisingly made for the first iPad with a camera bump. Introducing the latest (thick) sensor really does makes sense though, as cameras are a major competitive advantage of iOS, and that helps lock up the market of in-the-field businesses who rely on imaging (medical, construction & maintenance, real estate, etc). There’s now no way a Surface or Surface Pro could compete in imaging-intensive use cases at the same price point without significant changes to their positioning and margins. These more expensive cameras are also a great differentiator between iPad and iPad Pro, and my strong hunch is regular iPads will stick with parts that are cheaper and remain flush to the case, keeping the 8mp/1.2mp from the Air 2 in at least the next cycle.

Camera bumps are an unfortunate reality of pushing the limit of optics and chassis thinness. On the 9.7” Pro line, this is slightly more acceptable given they’re more likely to be used with keyboard accessories and in the case of field work, cases. On the 12.9” Pro line, the most powerful camera is less necessary due to fewer use cases that involve carrying them (they’re rather bulky), so I’d imagine Apple would keep to targeting flush cameras. Thus, I’d speculate Sony’s upcoming curved sensor (which is thin enough to stay flush) will make appearances on both the iPhone 7 and the next 12.9” iPad Pro.

Meanwhile, the rumored dual-lens of the iPhone 7 Plus / ‘iPhone Pro’ could possibly appear on the 9.7” iPad Pro. I think that depends on how Apple sees users actually using imaging in the 9.7” iPad Pro. The dual-lens is really about enabling high quality zoom, meanwhile the use case of the 9.7” iPad Pro is probably less distance-oriented and the margins lower than a top-of-the-line iPhone. Nevertheless, my hunch is they will introduce it eventually, probably when it comes down in price.

Other Features

Dual- versus quad-speakers are another area of differentiation between regular and Pro lines, so I’d imagine that remains. Fine for the kids, maybe not quite as much for grandparents.

I don’t think headphone ports are going away anytime soon, despite their impending demise on iPhone. Headphone jacks still have an important use case in the education market as well as many businesses, and adapters raise the total cost. Adding costs run counter to the regular iPad’s new market position, whereas their removal on iPhone makes much more sense. Internal space is at a premium and iPhone is already 0.8mm thicker than iPad. Plus, wireless headphones enable both Apple Watch streaming as well as nudging more people away from the worst part of the iPhone experience: fiddling with those damn earbuds.

I’d imagine at this stage the 2nd-gen TouchID will be cheap enough to add to the next iPad, and it is a big improvement from the 1st-gen sensor from the 2013 iPhone 5S and 2014 iPad Air 2. It’s nice to see this tech mature.

Screens will improve, though they’re unlikely to get the wide gamut, better calibrated P3 displays from the iPad Pro line, or the upcoming OLEDs from iPhones anytime soon.

All in all, we should expect the regular iPad to generally get last-gen tech. The one exception would be the case of certain new features Apple wishes to promote or standardize, like we saw in the hasty introduction of the lightning connector in iPad 4 just 6 months after iPad 3.

There’s just one thing that a newly branded iPad may uniquely offer: different colors. As we’ve seen on iPods, Apple can anodize Aluminum in any color — red, orange, yellow, green, blue, purple, black, and (actual) pink, and has shown some willingness to add plastic back with the 5c. iPads may make a more playful entrance targeting the general consumer market, if Apple thinks it can bear the additional uncertainty of more SKUs.

SKUs

Speaking of SKUs, with the removal of the 128gb Air 2 SKU, Apple seems to have moved to two storage tiers for regular iPads, and three for Pro iPads. This makes a lot of sense as it cuts down on the number of SKUs, and creates a contrast between the lineup. If you want 128gb or more, you’re likely a Pro user anyway.

No article on iOS storage is complete without bringing up the 16gb models. Diehards may continue to complain, but I definitely don’t think the 16gb line is going anywhere anytime soon. They still have a lot of utility:

  • Businesses often use iPads in kiosks, point of sale machines, and in field work, where one or very few apps are used and heavy storage features like photos are less important. In certain businesses it can even be a feature to limit the functionality of these devices. Unit cost really matters as these are more often bulk purchases.
  • Their resale value is quite a bit lower, so there’s less competition with the used market
  • They price anchor the iPad which gets people in the door
  • They’re fine for low usage consumers like grandparents and young kids

Price

This is where it gets interesting. Apple is historically very consistent with price, and they focus on margins first (estimated at 45–60% for iPads), market share second. Apple hates to go after the low cost segment, as it lowers margins and cheapens the brand. But iPad is in a rough spot — declining sales, the total miss on the education market (Chromebooks are at 90%+ share), and slower than anticipated adoption in enterprise. Latest model iPads also typically see steep discounts at retailers throughout the year, meaning there’s some undesirable sunlight between how much value Apple sees in iPad relative to their customers. Apple’s vision of iPad as the future of computing is just not being met enthusiastically even in quarters where it should be, and price is a major culprit.

November 2015’s lineup

Historically, new iPads have come in at $499/$599/$699 across the 3 storage tiers, with previous year models discounted by $100. With the 9.7” iPad Pro at $599/$749/$899, and the iPad Air 2 now at $399/$499, the question is whether the updated Air 2 price is the typical last year discount, or part of a renormalization of iPad prices.

I think the answer comes from imagining what the iPad Air 2 price will be in October, when it is very much due for replacement. Either it will be discontinued outright, ending the pattern of keeping two iPads around, or its price will be reduced to something like $349 or even $299. The argument for discontinuing it is mainly reducing market confusion about which iPad to get, which makes some sense in this new phase of regular and Pro iPads. However, precedent at Apple across iPhone, iPad, and Mac is to keep older models around to shore up the heavily price conscious market and to clear stock of parts. Thus I doubt they’ll outright discontinue last-gen iPads, nor iPad Pros, but they may de-emphasize them more to keep the growing lineup a bit more tidy in consumers eyes.

I’m quite confident that we’ll see the regular iPad price renormalize come October, given the lower cost of regular iPad production, the weakness of iPad in several sectors of the market, and the new iPad Pro capturing the upmarket segment. I think the price will move to $449/$549, with the outside possibility of reaching $399/$499 due to even number benefits of pricing psychology and if Apple wants to aggressively take on the market. This eliminates any price overlap with 9.7” iPad Pros, and helps reach more palatable price points for enterprise and education, bringing base iPads within reasonable distance of Chromebooks after volume discounts. Because regular iPads will no longer use latest-gen tech, these models also won’t flood the used markets a year or two later and undercut sales as much. And last year’s model can still be up to $100 cheaper, bringing the entry point for a 9.7” iPad to $349 conservatively, with the outside possibility of $329 ($299 seems a stretch).

Meanwhile, I can see iPad Minis following suit and dropping $50 to $349/$449 (the top tier being similarly eliminated), whereas last years models move to $269, the same price as the iPad Mini 2 today.

UPDATE: After thinking about this more, I now believe the next iPad will target $399/$499 price points, and the iPad Air 2 will be retired along with the iPad Mini 4, leaving off previous-gen iPads for the next year. Reasons for the retirement:

  • Brand Confusion - The biggest reason. Having ‘iPad’ and ‘iPad Air 2’ on the market at the same time is confusing, as the latter sounds more impressive. Time to retire the ‘Air’ brand and the numbers, and use the whole stage to introduce the reinvisioned ‘iPad’, which may even get a chassis change or some colors.
  • Age & Support - The Air 2 is already ‘last years model’ with the iPad Pro 9.7" now out. If it is kept around after October, it will have been on the market 3 years when retired. No reason to push out support of an old architecture even later (especially true if the A8-powered iPad Mini 4 is retired and replaced, along with the 6th gen iPod Touch. Good fall cleaning).
  • Cost - Since the next iPad likely inherits a lot of the other components of the Air 2, Apple can get good value out of the supply chain there. Its likely the A9 + single LPDDR4 will be the same price or cheaper than the A8X + dual LPDDR3. The combo also uses less power, meaning a smaller and cheaper battery, and some more potential for chassis refinements.
  • Cost/Benefit - The A9 performs too similarly to the A8X for the latter to justify staying around at a much lower price point.

Conclusion

The caveat to all of this, of course, is that its all still speculation. However its not unreasonable speculation, and I think maps well to precedent and market realities.

We’re clearly in a new phase of iPad, where its positioning has matured to reach broader and more divergent use cases. Apple envisions iPad to be leading the future of computing, and iPads capabilities have quietly followed suit, but the market hasn’t warmed to its existing positioning quite as much as Apple would have hoped. The new iPad lineup, pricing, and positioning I think are going to improve this considerably.


I hope you enjoyed this follow-up article. If you liked it, I encourage you to also read Part 1, Part 3, and Part 4, and to like/share them below.