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Source: http://gizmodo.com/5949150/the-single-biggest-question-about-the-ipad-mini

Like the iPhone 5 before it, the unannounced iPad Mini has—through leaks and logic—made itself essentially a known quantity. Let’s assume for a second that we know what it looks like, how big it is, and what guts will power it. It’s a safe assumption.

With just a few weeks until a rumored launch, we have a jigsaw puzzle device that’s missing just one piece: price. And how Apple fills that in will have huge repercussions for the iPad Mini—and the company itself.

This is what we can say with some certainty about Apple’s tiny tablet: It will look somewhere between a large iPhone and a small iPad, will have a 7.85-inch display that’s not quite retina, will share guts with the iPad 2 and iPod touch, and will be announced sometime in the next several weeks. It will likely come in black, anodized aluminum, and possibly white. There could very well be a 3G version.

That makes price the only real question left. It’s also the one Apple’s going to have the hardest time answering.

A Premium Blend

This should be easy. After all, unlike the iPad—which established the 10-inch tablet market to Apple’s devastating advantage—there are already a host of 7-inchers in the world. There have been for some time; long enough, at least, to cement consumer expectations of what a 7-inch tablet should cost. And that amount is between $200 and $250.

So, no problem! Let’s say the iPad Mini starts at 16GB (reasonable, since all the other iPads do). That would put it up against the equivalent $200 Kindle Fire HD, the $230 Nook HD, and the $250 Nexus 7. Assuming Apple doesn’t mind sitting on top of the pricing totem pole, $300 makes perfect sense. Done.

But let’s take one more look at those devices. The Nook HD has the best display of any 7-inch tablet, and an OMAP processor that outclocks the Kindle Fire, and the Nexus 7 (and iPad Mini’s rumored A5). In fact, at that $300 price point you could score a 32GB, 9-inch Nook HD+. Similarly, the Nexus 7 can match any tablet on design, has a blazing Tegra 3 processor and 1GB of RAM muscling a silky Android Jelly Bean platform, a near-retina display, and the full might of the Google Play store behind it. In both cases, at $300 Apple would be asking people to pay significantly more for a product that offers, on many fronts, less.

Then there’s the Kindle Fire HD, from a company with nearly as much brand recognition as Apple, a content ecosystem that beats the crap out of iTunes, a retina display. All for—again, hypothetically—a hundred bucks cheaper. In fact, for $300 you can get 9-inch, retina display Kindle Fire HD, a free month of Amazon Prime, and (in most places, still) not pay taxes on any of it. Buying that over a smaller, less equipped iPad Mini may not be a no-brainer. But it’s closer to one than Apple should be comfortable with.

So why not go cheaper? It’s not that Apple can’t afford to. It’s that it doesn’t appear to want to.

The iPod Precedent

One of the not-so-secrets to Apple’s retail success is that it keeps things like pricing so simple you don’t have to give it much thought. Nearly every product in the Apple Store—the Shuffle, the nano, and the 3G iPads being the exceptions—costs a multiple of $100. Want the slightly better version of something? That’ll be a Benjamin.

It’s such an established system, in fact, that Apple may have priced itself into a corner. An iPad Mini would fall squarely between two devices: the iPod touch and the iPad. It’s expected to share the same processor with both, and will roughly split the difference in size. The 32GB iPod touch—the smallest available model—costs $300. The entry-level 16GB iPad 2 costs $400. It’s nearly impossible to imagine the iPad Mini costing less than the former and more than the latter. It would be confusing, and Apple hates confusion.

But $300 for a 16GB iPad Mini would be the sweet spot, wouldn’t it? Especially given that $100 increment fetish. Start with the $300 32GB iPod touch, add size (+$100), subtract storage (-$100), end up at $300. Start with the $400 iPad 2, subtract size (-$100), keep everything else the same, end up at $300. It also happens to fill in the pricing pattern every iProduct has marched to since forever (left, via Ryan Jones).

When Apple refreshed its iPod touch line-up just last month, it could’ve easily set a lower price in anticipation of the incoming iPad Mini. But it didn’t. And that’s worrisome.

Regression to the Mean

Not too long ago, people happily paid an Apple premium. You’d spend more for the same basic product because you trusted the brand and appreciated the aesthetic. Apple made a lot less money back then.

Now, though? Look around. Intel had to pay out $300 million to ultrabook OEMs to keep up with MacBook Air pricing. It’s commonplace for top-shelf Android handsets to start at $300 on contract; the iPhone still comes in at (a heavily subsidized) $200.

And then there’s the iPad. It’s easy to forget now, but one of the most remarkable things about the original Apple tablet was its price. It was cheap, for what it was, a budget Adonis forged by Tim Cook’s supply chain heroics and Apple Store retail efficiency. It took a year for Apple’s competitors to produce a reasonably decent 10-inch tablet at $500, and another to drive the price down to $400. And still no one buys them.

People buy the Kindle Fire, though. By the millions. The small tablet market is mature and competitive in a way that the 10-inch market—outside of the iPad itself—has never been. The Toshiba Thrive is Glass Joe; the Nexus 7 is Mr. Sandman. And it’s way cheaper than $300.

How Apple prices the iPad Mini matters beyond just the number of units it sells. If it’s less than $300, CEO Tim Cook has keyed into the threat that Amazon and Google pose to its handheld computing empire. And he’ll crush them. If not? Then it’s another sign—along with Maps, along with that $30 dock connector adapter—that the old Apple hubris might be sneaking back in. The kind that dominated back when Apple was cool and niche, not the most successful business in the world.

So maybe the biggest question about the iPad Mini isn’t really price after all. Maybe it’s: What kind of company does Apple want to be?

Tags: black anodized aluminum, consumer expectations, Fire, hardest time, iPad, ipads, iPhone, iphone 5, iPod, jigsaw puzzle, Kindle, launch, processor, retina, safe assumption, Start, tablet market, time, version