iPad pricing for 3G models 'ridiculous,' says hardware guru

$130 surcharge for 3G capability may be subsidy for lowest-priced $499 models

Apple's pricing for the iPad is "ridiculous," a hardware expert said Wednesday, as he argued that the $130 price difference for models with 3G means buyers of those tablets subsidize the lowest-priced $499 model.

"The iPad is surprisingly cheaper than I expected," started Aaron Vronko, the chief executive of Michigan-based Rapid Repair who last week filled a slate of tablet predictions. "But the $130 difference [between models] is a little ridiculous. 3G chips run in the mid-single digits. For $7 you can get a really good one."

Apple has priced the iPad in an unusually complex matrix of two basic models -- one with WiFi 802.11n connectivity only, the other with both WiFi and 3G -- available in three memory storage configurations of 16GB, 32GB and 64GB. The WiFi+3G model of each is $130 more than the cost of the WiFi-only iPad with the same amount of storage.

In other words, while Apple will sell the WiFi-only tablet in 16GB, 32GB and 64GB models for $499, $599 and $699, respectively, the iPad with WiFi and 3G will cost $629, $729 and $829.

"Six models? And with only one display size?" Vronko asked, clearly taken aback.

No wonder, since Apple typically trims the number of models in each line to a minimum. The iPhone 3GS, for example, comes in just two configurations -- 16GB and 32GB -- while the iMac is available in just two models for each of two screen sizes.

"The fact that they came out with this segmented pricing tells me one thing: that they had to work harder than they thought they would have to make a pricing constraint," Vronko said.

The $130 price difference and the multiple models led Vronko to conclude that Apple had underpriced the less-expensive WiFi-only iPad to make the magic sub-$500 price point. He speculated that buyers of the more expensive 3G-equipped iPads will, in effect, subsidize the relative bargain for WiFi-only customers.

"My guess is that the 3G price is where Apple wanted the price of the iPad to be, but they felt a lot of pressure to hit a pricing mark," Vronko added.

Apple CEO Steve Jobs alluded to just that during the iPad roll-out earlier today. "When we set out to develop the iPad, we not only had specific technical goals and user interface goals, but an aggressive price goal, because we want to put this in the hands of a lot of people," Jobs said.

"Five hundred dollars is going to turn a lot of heads," Vronko said. "That's where a lot of people will pay attention. At $600, though, they may [pause and] say, 'Do I really need this?'"

Vronko also pointed to the small amount of flash RAM in the lowest-priced iPad -- just 16GB, the same as in the lowest-priced iPhone 3GS -- as another example of Apple's effort to slip under the $500 bar. "That's lower than what I expected," he said. "I'd call 32GB the minimum for most people, especially when you think about how much video 16GB will hold."

However, Van Baker, an analyst with Gartner Research, questioned whether the 3G models would sell in sufficient quantity to be a factor. "I think the iPad will sell extremely well, but most will be the WiFi model," Baker said. "Some of the 3G models will sell, some people will pay the $130 just to have 3G if they want it later, but most usage models of the tablet are with WiFi...at home, in the coffee shop, in the classroom."

More importantly, Baker saw the iPad's $500 price as more than just a head-turner, but as Apple's stake in the netbook market, something other analysts have long expected.

"Is the iPad a competitor to a netbook? Yeah, I think it is," said Baker. "Netbook makers should be looking over their shoulder after today. They don't have a lot of room to move, not with the Microsoft 'tariff,'" he said, referring to the added cost to OEMs for a Windows license.

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Gregg Keizer

Computerworld (US)
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