Whenever a new tablet hits the market it seems to wear the label of being a potential iPad killer (though none has succeeded to date). Along with that label, people start talking about price –as if that factor alone is influencing the decision between an iPad and not an iPad.
So is the iPad really that expensive?
Well first things first: the margin made on the sale of each iPad is likely not what you would expect. In a tear-down assessment conducted by iSuppli earlier this year it was determined that the new iPad 32GB + 4G comes with a $364.35 Bill of Materials. This bill of materials means that prior to software, licensing, royalties or other expenditures (such as research and development, marketing, sales, facilities, etc) the manufacturing of the iPad amounts to over 50% of the purchase price.
With the help of court documents and a little math it seems that the true gross margins seen by Apple is even less, as it amounts to between 23 and 32 percent of their United States sales, measured between October 2010 and the end of March 2012. To put things in perspective, the iPhone enjoyed margins twice as high during the same period… In other words, the iPad is not the main catalyst behind Apple’s recent $33 billion profits, and most likely only contributes marginally to the company’s results.
So accepting that the iPad is fairly priced, and that profits on iPad are generated more-so from volume than mark-up, the question nearly answers itself. Clearly consumers see enough value in the iPad to justify the cost. There are certainly other options available at lower price-points like Amazon’s Kindle Fire which retails for USD $199, but when you look at the number of those devices sold it doesn’t give any indication that a lower price isn’t persuasive enough to convince people that don’t actually want an iPad.
The other factor into the expense of an iPad comes from the total cost of ownership. With a considerable App Store that features over 600,000 titles, many of which are free and most of which are only a few dollars or less, using your iPad carries very little need for considerable software investments.
The most expensive element of the iPad is related to the Retina display, which has become a requirement when you consider that somewhere along the line it became a serious gaming device. When you think about the cost of an iPad as compared to other console type gaming systems, the expenses are not dissimilar (and in many cases the iPad comes out cheaper when you consider that games for the other systems can run in excess of $50 to $60 each). Does it replace a console for serious gamers? No, of course now. What it does do is turn non-gamers into recreational games, adding entertainment value to the iPad as well.
It is this do anything and everything (and do it well) nature of the iPad that has made it worth every penny of the asking price and why it has continued to sell so many millions of units every single fiscal quarter. The question we all seem to be asking lately though, is whether Apple would sell more units if the produced a miniature version of the current iPad. The general consensus I’ve seen is that it does seem Apple will sell more units –though not in lieu of the original iPad, but rather -in addition to-.