Nick Bilton seems confused about the iPad

Nick Bilton of the New York Times answers the question that many iPad customers are considering this week: which model should I buy? Unfortunately, he goes off the rails in delivering an answer.

Bilton accurately notes that the entry-level iPad mini sells for $329 (16 GB, Wi-Fi), while the top-of-the-line model goes for $659 (64 GB Wi-Fi plus cellular). Then he gets into trouble:

“So what do all the extra Benjamin Franklins get you? Not much, really. Each rung higher on the iPad Mini ladder will cost you $100 for a slight memory increase.”

Here, Bilton makes the common mistake of confusing “memory” with “internal storage.” The terms are not interchangeable. Consider an office desk. It has a big, flat surface and many drawers underneath. The drawers, which are full of files, project materials, pens and so on, are like the internal storage. They hold your stuff until you want to work with it. To work with something, you pull it out of a drawer and place it on the desk’s suface. The surface is like the a computer’s memory. The more bigger it is, the more you can work with at once. I might be nit-picking, but this is a pet peeve of mine.

What Bilton says next really goes off the rails:

“The company charges $100 to go from 16 gigabytes to 32 gigabytes with the iPad Mini. Compare that to the same upgrade from a 16-gigabyte thumb drive to a 32-gigabyte thumb drive: the larger one is a whopping $10 more.”

What? Did he really just compare buying an iPad to buying a flash thumb drive? Because that would be ridiculous. iSuppli put the costs for iPad flash at $30/$60/$120 back in 2010, and most recently, $16.80/$33.60/$67.20. Even still, we have no idea what Apple pays for iPad flash, nor what its markup is. I’m confident, however, that it isn’t what manufacturers of cheap thumb drives experience. He also completely ignores that the iPads with cellular connectivity contain additional hardware that further drives the cost.

I agree with Nick’s conclusion, that customers willing to pay $15 to Rdio, $7.99 to Netflix and $7.99 to Hulu Plus every month [1. Consider, though, that a year of Rdio, Neflix and Hulu Plus costs $371.76. You could buy another iPad mini!] (and optionally $30 per year to Pandora) should consider the 16 GB iPad mini. Since cloud services reduce the number of space-hogging files stored locally, there’s less of a need for the high-capacity models. He just has a little trouble getting there.

The iPad mini’s sales potential

Phil Schiller discusses the iPad mini’s price with Reuters:

 “‘The iPad is far and away the most successful product in its category. The most affordable product we’ve made so far was $399 and people were choosing that over those devices,’ Schiller said.”

Exactly. Consumers have chosen the $499 iPad over the $199 Kindle Fire in droves. What do you think is going to happen now that the iPad is $329? Apple will sell tons of them.

The iPad mini isn’t an overpriced tablet, it’s the most inexpensive iPad you can buy.

Pricing the iPad mini

Earlier today, Apple introduced the iPad mini with a starting price of $329. Right away, observers have pointed out that the iPad mini is $130 more than Amazon’s Kindle Fire HD and Barnes and Noble’s NOOK HD.

It’s fair to compare those devices, and even to assume they’re Apple’s target, but I don’t think that’s the whole story behind the mini’s price. Here are a few thoughts on why Apple chose that seemingly oddball price.

The Frugal Shopper

Apple isn’t competing with the Fire so much as making a more accessible iPad. At five hundred dollars, the iPad is expensive and likely out of reach for many. Now that the iPad mini is priced at $329, the frugal consumer’s choice changes from “spend a lot of money on an iPad or buy one of these less expensive tablets” to “buy a tablet.” I suspect many hold-outs will become iPad owners over the next few months.

Why $329?

That price seems odd. It’s the “29” that bothers me. When 9to5 Mac suggested $329, I was sure they were wrong. Why not $299, $349 or even $399?

Well, $299 is right out because that’s the cost of the entry-level iPod touch, and $399 is too close to $499, the cost of the mini’s full-sized sibling. I guessed that it would cost $349 (Apple likes beefy profit margins), but Phil Schiller surprised me today by announcing that the entry-level iPad mini costs $329. When you think about it, it’s the right price. Apple could have charged $349, but it chose $329. Because it can.

Why then would that shopper choose an iPad instead of a Fire or a NOOK? The simple answer is, “because it’s an iPad.” Is the device’s appeal, reputation and prestige worth $130? We’ll have to wait until Apple’s 2013 Q1 earnings report to find out.