As Google And Amazon Fight Up, Apple Refuses To Fight Down

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After this past week’s Apple event, one thing stood out to me above all others. And just to make sure, I watched the event again. Same result.

The shots fired at Android tablets.

For everything that Apple announced (new MacBook Pros, Mac minis, iMacs, iPads, and iPad minis), this was what I walked away thinking about. It was a fascinating look into the collective mind of Apple.

In realtime, this seemed straightforward: Apple was trying to explain why their tablets were better than those made by the competition. Standard practice, right? But something about it stuck in my head as weird for Apple — especially once the price was revealed.

In the tablet space, Apple is without question the dominant player. By even acknowledging the competition, it’s a form of validation. Put another way: you should always fight up, not down. But here, Apple appeared to be fighting down.

But after the second watching of the keynote, my interpretation is slightly different. It’s a subtle difference, but an important one. I believe Apple was simply explaining to everyone that they were not going to fight down.

Consider this: there was ultimately only one reason why Apple acknowledged their Android competitors on stage. It may have not been obvious at first, but it was all about the price (which in Apple’s mind is directly related to quality). We couldn’t know it in realtime, but in hindsight, all of that Android tablet talk was to set the stage for the $329 starting price for the iPad mini.

Apple was simply trying to mitigate the fall-out over a price-point $130 higher than the Nexus 7 and the Kindle Fire. And they were doing it by making the case that they weren’t actually competitors. In Apple’s mind, they’re not trying to compete in the 7-inch tablet space, they’re simply trying to expand the user base of the iPad with a smaller version.

Again, subtle, but different. Apple is not going to make a $199 tablet — and certainly not out of fear. They’re going to make the best smaller tablet they can and price in a way they believe to be fair for the quality they’re going after.

Now, maybe that price is right or maybe they ultimately have to change it. (Remember, Apple had to drop the price of the original iPhone after only a few months.) But they’re clearly confident that they’ll have another hit on their hands.

And while some may view the $329 price point as greedy, consider that during their earnings call, Apple made it very clear that the iPad mini has margins far below those of their other major products. In other words, the iPad mini at $329 may be their best value product.

Remember that both the Kindle Fire and Nexus 7 are being sold at either break-even or at a loss. That’s nice for consumers looking for cheap products, but that’s not the business Apple is in. Apple makes money selling hardware. It makes no sense for them to sell the iPad mini at $199 if they’re going to make little or no money off of it. Apple simply would never make that product — it’s exactly why they stopped making printers when Steve Jobs returned to the company in the 1990s.

Further, the jury is still out as to whether or not this will end up being a good model for either Amazon or Google (or any of the other OEMs making and selling cheaper tablets). Amazon just reported a loss for the quarter, and Google’s numbers suggest they’re not monetizing Android as well as they’d like. Different models. We’ll see.

Meanwhile, the iPad mini will add billions — yes, billions — to Apple’s bottom line each quarter. No question. Apple makes a product. You buy it for more money than it cost to make. Apple makes money. Amazing how well that model works, isn’t it?

Of course, Apple has the luxury to do this. Why? The iPad itself.

“It seems like everyday, there’s another tablet shipping,” Tim Cook said during the keynote. “But when you look at the ones that are really being used, the numbers tell a different story. iPad accounts for over 90 percent of the web traffic from tablets. And we know that this is the thing that people do most often on a tablet.”

In other words, while you may have heard about other tablets out there, it’s not clear that anyone is actually using them after they buy them. Cook then notes that “we’re not taking our foot off the gas” and brings out Phil Schiller to show-off both the 4th-generation iPad (essentially an iPad 3S, if you will) and the iPad mini.

“We were already so far ahead of the competition, I just can’t… I can’t see them in the rearviewmirror,” Schiller notes to laughter from the audience. And then, as he shows off the iPad mini for the first time, Schiller compares it at first not to any Android tablet, but to a pencil (its thickness) and a pad of paper (its weight).

He notes that all of the 275,000+ applications developed for the iPad can work on the iPad mini completely unchanged. This will end up being the most important element of the device, and Apple knows it.

Only then does he dive into the Android tablet comparison. He shows a picture of a Nexus 7, but doesn’t address it by name. It’s simply an “Android tablet” — though he does acknowledge that it’s the “latest, greatest most favorite reviewed new device,” a tip of the cap to all the positive reviews.

Schiller notes how the iPad mini uses quality aluminum where the Android tablet uses plastic. He notes that the Nexus 7 is thicker and heavier despite its smaller display. He then goes into the all-important difference between a 7-inch display and a 7.9-inch display.

This is key because most consumers won’t consider this a big difference — since it’s not, on paper — so Schiller puts it in different terms: 21.9 square inches versus 29.6 square inches. Actual space, not just diagonal space. Then he puts it in human terms by looking at the web browsers on the devices. In this mode, the iPad mini has a 35 percent larger viewing area in portrait mode and a 67 percent larger viewing area in landscape mode. The countdown to Google removing chrome from Chrome starts now…

“Not a great experience,” Schiller keeps saying over and over again in reference to “that other product”. There’s a special emphasis on stretched-up mobile apps versus apps built for tablets (which Google is finally starting to acknowledge is an issue).

Aside from the screen size, there’s no side-by-side spec comparison. Because Apple isn’t interested in competing against those other tablets, they’re simply trying to show that the iPad mini is not a 7-inch tablet. Instead, it’s “a great iPad — equal to or better than iPad 2 in every way,” Schiller says.

Then comes the product video featuring Jony Ive. “Our goal was to take all the amazing things you can do with the full-sized iPad, but pack them into a product that is so much smaller,” he says. “If all we had done was taken the original iPad and reduced it, you’d be aware of all that was missing. There’s an inherent loss in just reducing size. What we did — we took the time to design a product that was a concentration of, not a reduction of the original.”

Depending on what side you’re on, this will sound either brilliant, or like brilliant bullshit. But it doesn’t matter. That is how Apple is thinking about this device. It’s not a 7-inch tablet, it’s a smaller, more affordable version of their high-end tablet that is dominating the market.

It’s the same approach Apple took when creating and unveiling the iPod mini almost nine years ago. Step 1: take a market-leading product. Step 2: make it smaller and slightly more affordable. Step 3: profit. Guess what? It worked.

During the height of the netbook craze, many in the tech press kept demanding that Apple make a cheap laptop. Instead, Apple made a (relatively) expensive MacBook Air and then the iPad. And they won on both fronts. They refused to fight down.

And so while it may seem like the keynote and maybe even the iPad mini itself is Apple fighting down, just look at the price. If Apple had released a $199 tablet, I don’t think it’s unreasonable to think that the other tablets would be dead in the water. But that’s not Apple’s model and they’re not interested in “winning” this way, because it’s not actually winning in their mind. It’s a race to the bottom. It’s ceding the high ground. It’s fighting down.

By the way, when you see Amazon advertise the Kindle Fire advantages versus the iPad mini on their homepage and in the highlights of their earnings release (while convieniently leaving out their less favorable specs), that’s fine too. They’re fighting up. Amazon is still new to the space and is much smaller than Apple. It’s their job to swing up, and it’s Apple’s job not to respond. You’ll notice that Amazon was never mentioned in the keynote, nor was the Kindle Fire ever shown.

As for the Nexus 7 and Android references at the keynote, it was perhaps a risky move because it seems at first like fighting down. But sometimes you do have to declare that you’re not interested in fighting down, if only to remind everyone who the boss really is.