The Real Reason Apple Wants a 7-inch iPad

So far, the analysis of the rumored 7-inch iPad is based on confronting and stalling the competition from the Amazon Kindle Fire series and the Google Nexus 7. But there is another, overlooked, reason for the 7-inch model.

The reason was referenced by Tim Cook himself during the last earnings report with analysts on July 24. Mr Cook said, “... we're seeing tremendous momentum for the iPad in education.”

Later, he continued:

"The iPad continues to be a great success in the US education market. With sales setting a new quarterly record and nearly doubling year-over-year to just under 17 million iPads. While interest in the new iPad was high, sales of the reduced priced iPad 2 in the K-12 market were particularly strong. Even though as I mentioned earlier, we achieved all-time record Mac sales to US education institutions during the quarter, we sold more than twice as many iPads as Macs to U.S. education institutions.”

Image Credit: Apple

Independent analysis by Charlie Wolf at Needham & Company bears that out. In a recent report to investors, Mr. Wolf pointed out that the iPad is now cannibalizing PC sales in the K-12 market. Mr. Wolf wrote:

"But in view of the fact that Mac sales held steady at around 520,000 units but overall PC sales declined by 265,000 units from 1.90 million to 1.64 million units, we believe the inescapable conclusion is that the iPad is beginning to cannibalize a material portion of PC sales in this market."


What are the implications of all this? First, we’ve seen that the US$199 price point for the Google Nexus 7 and Amazon Kindle Fire not only make it a desirable gift item, but also appeal to customers who don’t quite have the $499 to spend on an iPad 3 or even $399 for an iPad 2.

More importantly, this price point also applies to schools, many of which are strapped for funds and who might consider the trade-off in functionality and quality of the iPad 2 against a very attractive $199 price point. That’s a concern for Apple.

Yet another factor is those rural K-12 schools that can’t even think about a mass purchase of iPad 2s. But, in the spirit of BYOD, they may appeal to parents to supply the needed equipment for math, research, ebooks etc. And that’s exactly where a 7.85 inch “iPad 7,” weighing perhaps 14 ounces, and fit for small hands comes in.

The appeal of this smaller iPad is that is has access to the mature base of over 225,000 apps designed for just the iPad (and 600,000+ total for iOS). At some price point, this new iPad becomes the de facto K-12 educational standard. A lower priced competitor is now seen as a poor substitute for the real thing rather than a practical alternative to an expensive iPad 2. That price point is widely debated, but considering that Apple has a history of charging a little more for quality and reliability, I’ve been using the $249 list price number. (Educational discounts can reduce that price.)

Finally, the purpose of the current 7-inch iPads is to be a content consumption device for the maker’s wares. However, the head start of the iPad series, as we’ve seen in the TMO iOS software reviews, the iPad is well along as a content creation device, something that schools and students value.

An Educational Experience

For a short period of time, the competition has been able to offer a price-attractive, content consumption device that is intended to sell product. That was a good strategy, and using that strategy, Google and Amazon have had some success that other companies have not had. With a 7-inch Apple iPad, however, these companies will also receive an education.

Apple’s 7-inch entry is much more likely to not only meet those devices on their own terms, but also become much more favored in K-12 education where the price, retail store support, software and seriousness factor will be unbeatable. We didn’t see that angle in the early days of the iPad, but it’s all too clear now that the iPad series has evolved and entrenched itself as a personal educational tool that’s starting to replace, in K-12, the legacy PC.

As Apple SVP Phil Schiller said early this year, “Education is deep in our DNA.”