Apple's introduction of the iPad Mini this week generated two lines of thinking about competition in the tablet space.
The first, articulated by some analysts, holds that lower-cost tablets have nothing to worry about. Reuters collected their comments in an article giving shape to their general lack of concern. The reason? The entry-level Mini's $329 price, enough to give it distance from cheaper tablets on the market. A note from Nomura Equity Research indicated that "demand for Google's Nexus 7 and Amazon's Kindle Fire is unlikely to be much affected by the launch of the Mini given the significant price gap," Reuters reported.
The second view says that the price difference won't matter as much as some analysts think. AllThingsD found several analysts who share that view. As J.P. Morgan analyst Mark Moskowitz told the outlet: "Should Amazon and Google be worried? Yes, they should be worried." The argument here is that Apple greatly expanded its pool of potential buyers by making its entry-level tablet $329, while shrinking the pool of potential buyers for Android tablets by a corresponding amount. Given that cheap tablets compete primarily on price, the thinking goes, the cheaper iPads get, the more difficulty Apple's competitors will have.
But there's a third way of thinking about the situation, which has gotten less attention. It's related to the first two lines of thought, and it goes something like this: Android-derived brands like the Kindle Fire and the Nook will thrive in an iPad Mini world -- but devices based on a more pure version of Android will struggle.
Frank Gillett, an analyst at Forrester Research, breaks it down like this. On the low-low end, where devices like the Nook Simple Touch sell for $99, device makers still have room to maneuver. Devices sold at that price are selling at cost or at a loss to the manufacturer, with that manufacturer hoping to eventually make money selling books, movies, music, games, and other services. With an attractive price, and healthy app and entertainment offerings, low-end tablets are expected to eventually pose a real challenge to Apple's premium hardware. "We think that market will in fact become the primary challenger alternative to the iPad," Gillett told me.
Notably, such tablets will challenge the iPad in some ways while ceding superiority in others -- graphics performance, app availability, and camera quality, for example. They pull in customers who want to read books, watch movies, play casual games, and surf the Web, while leaving the premium experience to more-expensive devices.
Then there are the tablets that aim to challenge the iPad more directly: the Nexus 7, for example, and the Samsung Galaxy Tab 7.0. Both offer premium hardware targeted at the same sort of person who might now choose to purchase an iPad Mini. And it's these tablets, Gillett argues, that could be in trouble.
"The iPad Mini, though it is priced high relative to the $200 Nexus -- I don't think (Google) ends up with much breathing room," Gillett said. "They're not distinctive. They don't have the cool hardware. They don't have the apps. What they have is low cost. And there will be people who will want that. But we just don't think it enables the Android guys to get out of the niche they're in now."
In other words, someone who buys a Kindle Fire knows she's getting a lower-cost tablet that functions largely as a store -- what the tech writer John Siracusa once called "a magical, colorful window through which you can give money to Amazon." But in an iPad Mini world, a customer considering a midrange tablet will have higher expectations. And for now they may be expectations that the Googles and Samsungs of the world can't satisfy.
Android tablets will get their turn in the spotlight on Monday, when a range of new Nexus devices are expected to be unveiled in New York. My colleague Roger Cheng reports that we can expect to see updated Nexus 7 tablets, among other products. But there is little doubt that from the time it goes on sale, the iPad Mini will dominate the midrange tablet space. The Nexus 7 has sold about 3 million units since launch, according to Forrester; the third-generation iPad sold that in its first weekend. The iPad Mini appears poised for success.
"Apple is going to sell a lot of them," Gillett said. "It will give the big iPad a run for its money as to which one gets sold more."