Does the Apple iPad mini Cost Too Much?

There may not have been many surprises when Apple unveiled the iPad mini, but there was one feature that was completely unexpected: its cost. Instead of the projected $249 price tag, Apple set a $329 price.

The three analysts contacted by Tablet PC Review were fairly in agreement over Apple's motives, starting with the price point. The iPad Mini, is clearly meant to be a response to the $149 Kindle Fire and the $199 Google Nexus 7. But at $329, Apple is not competing on price. It never has.

"They were never intending to go dollar for dollar against Amazon or Google. Everyone expected them to be above those products," said Steven Baker, vice president of research with the NPD Group.

"I didn't think they would do a $249 device because they have a better ecosystem and can charge more than anyone else," said Van Baker, research vice president at Gartner. "I was expecting $299 as an absolute minimum. I told them 'this leaves a window open guys, why'd you do that?' They said the usual, 'we think it's in a class by itself'."

Ezra Gottheil, senior analyst with Technology Business Research, also expected $299. But he said Apple doesn't compete on price and rarely if ever does. "Most Apple buyers don't compare the price performance of an Apple product to a non-Apple product. Apple will demand a premium, because it has higher costs since they provide support the other guys don't," he said.

Apple has always charged more and gotten it. It has competed on the Apple brand, not price, and the $329 price tag means Amazon and Google dodged a bullet. "If they had priced it at $249 they could have done serious damage to the Kindle Fire HD and Nexus 7," said Baker.

"Yes it does leave the Kindles and Nexus with a little more breathing room. They certainly would have taken a bigger ding from Apple if Apple came out at $249," said Gottheil.

Baker points out that the $329 price point is just 10% higher than what he called the "natural price point" of $299, but there is a psychological effect of the price. "$299 would have been a lot more competitive with still sufficient revenue and margin to gain a lot of market," he said.

Gottheil felt the same way about the extra $30. "It's about perception. If you price it at $299 people will see the two. If you make it $329 people will see the three," he said.

But there is no doubt it will perform. "It's going to sell extremely well. No question about that," said Baker. "They [Apple] are bringing lots of new buyers into the market. This one brings it a little closer to people's price range. So it helps. Relative to what it would have been had it been cheaper, yeah it would have been faster if it had been cheaper," said Gottheil.

"The price doesn't change a lot. Given Apple's track record and their ecosystem is more developed for most consumers, they will do fine at that price point and other guys have a little niche they built up. Does it kill them? I don't think so. I think the small tablet market will expand and Apple will get most of it but they won't take large amounts of volume from Amazon or Google," said Baker.