Tomorrow, Apple will host an event to announce the forthcoming release of the new and improved iPad. If prognosticators are correct, the new iPad will see modest improvements throughout in addition to either one or two cameras. It will be billed as, all the things people love about the original iPad, but better. It comes at a time when tablets are the new battleground. CES 2011 saw a bevy of manufacturers launching or announcing tablets for release this year. The most significant is probably the Motorola Xoom, which went on sale last week. The Xoom is the first tablet to feature Android’s Honeycomb OS, which was developed specifically for tablets. Honeycomb feels fresh and modern, if not a little rough around the edges. BlackBerry and HP will enter the fray later this year with the Playbook and Touchpad, both of which run their own proprietary OS. By sitting out the first half of 2011, they’ll have a long road ahead. LG, Samsung among others will join Motorola with tablets that run Honeycomb. Apple currently owns tablet market share, but as we have seen with smartphone market share, things can change quickly. Apple has a unique opportunity tomorrow to end the wars before they even begin.
With upgrades throughout the device, Apple will virtually guarantee continued strong sales of the iPad in 2011. This will be the first year they encounter any sort of real competition, but these manufacturers will have a tough time initially doing battle with Apple’s iOS ecosystem that boasts thousands upon thousands of iPad apps. Google’s Honeycomb has 15 or so apps that are tablet friendly. Other apps scale to size, similar to how one would view iPhone apps on an iPad in 2X mode. With a multitude of Android tablets, these numbers will improve over time. Apple’s advantage of the App Store is not only about the quantity of apps, but their cut of the profits. For each app sold, Apple receives 30 percent of the take. Motorola, Samsung, LG and others receive zero from sales in the Android Market. When Apple sells an iPad, they are selling the razor, with utmost certainty they’ll earn money from the razor blades (apps, movies, music). When Motorola builds an Android tablet, they aren’t worrying about the iPad alone. They have to build in components, memory and graphics that surpass Samsung, LG and others. If you are in the market for a tablet running Honeycomb, which one are you going to buy? There are no differences in the OS, so it comes down to specifications. Apple has been immune in some ways to competing along the lines of specs. They trade in experience, one that is largely driven by the vast amount of excellent apps. Most people buy an iPad for the ease of use and large selection of apps. Does the average consumer even know that iPad has 256MB of RAM? It just works and that’s the lure of Apple products in general.
I’d assume that Apple has accountants who look at the revenue generated by the average iPad user. How much does Apple earn after the initial iPad sale? How much revenue comes from music, movies and apps? Using this number, Apple could theoretically lower the entry cost of the iPad, knowing that they will make it up on the backend. This a competitive edge not shared by the Android tablet manufacturers. They need to make money on hardware. That hardware gets expensive when you are forced to compete on processors; RAM and other spec line items. A contract free Motorola Xoom is priced at $799. Given the specifications, it’s actually more than competitive with the 32GB iPad 3G that carries a $729 price tag. Tomorrow, one would assume the model will see upgrades that meet or exceed those of the Xoom. It might not have 1GB of RAM, but that’s not going to matter to the average tablet consumer. For some reason, Motorola chose to compete at the higher end of the tablet spectrum. Apple already had a distinct advantage by offering an iPad under $500. Apple makes money once an iPad is sold. Motorola and others do not. What if Apple were to either cut the price of the existing iPad to $399? Better yet, what if tomorrow we saw an improved iPad released at a lower price. There will always be a market for those who won’t buy an Apple product or would be willing to pay a premium for tablet that allows them to run their existing phone apps. If tomorrow brings a lower cost iPad, Apple could effectively end the tablet wars of 2011 before they start.