The iPad Mini’s Cannibalization Effects: Overpowering Or Overblown?

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The iPad mini seems downright hungry, and it has a taste not just for other small tablets on the market, but for its larger brethren, the iPad with Retina Display. Or at least, that’s what some analysts are saying, with expectations of the iPad mini’s cannibalization effect on existing iPad sales ranging from around 10 to 20 percent on average. But one suggests that it could be more like 50 percent, based on numbers Apple revealed at a recent court proceeding between itself and Samsung.

Tech-Thought’s Sameer Singh said that the 7.9-inch iPad mini will have a minimum of a 50 percent cannibalization rate of existing iPad sales, since the data from the trial showed that the iPad 2 was the most popular iPad sold over the course of the past summer, and ate into overall iPad sales about 58 to 61 percent. The reason and primary positive difference between the two? A $100 price drop compared to the 3rd generation iPad that went on sale the same time it got its retail value reduced.

Applying the logic that a $100 price cut caused that much cannibalization, it stands to reason that another $70 dip on top of that would have a compound effect and attract even more buyers away from Apple’s product, and that’s the linear thinking that Sing’s applying in this case. If he’s correct, Apple should still see increased sales overall, but a good chunk of those portions would be of lower value, owing to the smaller gross margins Apple has said itself it enjoys on iPad mini sales, and its lower overall cost.

Of course, not everyone is signing the same tune as Singh. In fact, Sterne Agee analyst Shaw Wu told me in an email conversation today that the firm is modelling 25 million iPad sales for Apple’s December quarter, which would be around 10 million more than it sold during the year ago period. And while Sterne Agee doesn’t break out iPad mini sales, since it believes Apple won’t either given previous reporting practices (the company doesn’t break out individual Mac or iPhone model sales, either), he says that will there “will be some degree of cannibalization,” he’s expecting iPad mini sales to be “mostly incremental,” meaning the mini will largely be adding to sales of other iPad models rather than replacing them.

To some extent, we may never know exactly how much the iPad mini is eating up overall iPad sales; Apple breaking out iPad 2 sales was an exception to its standard reporting practices brought on by court order. But there are a few reasons why it won’t matter even if it does provoke as extreme a shift in buying patterns as Singh predicts.

For one, Apple will see its tablet sales grow as a whole, and at a faster rate than it would’ve without the iPad. That’s better long-term for the ecosystem and for generating loyal, repeat customers. And while it might not make as much off of each individual iPad sale given a different product mix, manufacturing processes will improve, and I doubt very much that CEO Tim Cook’s definition of “significantly” lower margins is the same as yours or mine.

Apple also enjoys a demonstrated halo effect with its products, so if one line is selling well, the others tend to sell well also, with customers being introduced via one device and then branching out to others. More iPad minis likely lifts Apple’s Mac and iPhone boats, if not the regular iPad, too.

Finally, as Cook noted during his company’s conference call last week, Apple isn’t worried about product cannibalization, so long as that prevents other companies from coming in and eating its lunch. 50 percent or higher is almost certainly an unrealistically high rate of cannibalization, but even if it weren’t, those are all sales that Apple is getting instead of its competitors, and the company has never been shy about making sure it, and not anyone else, is putting out so-called iDevice “killers.”