Apple or Microsoft: Who Will Take the Air Out of the Room?

Categories: Apple iPad

My wife watches a show on Netflix called White Collar, a decent crime-drama-comedy that blurs the lines between good guys and bad guys because one of the main characters is a likeable, sometimes reforming ex-con named Neal. There’s an episode where one of the (truly) bad guys has a safe room that houses his rare comic book collection. In a thinly-veiled threat of an explanation of the room’s fire safety system, the bad guy explains to Neal that in the event of a fire, all of the air will be rapidly sucked out of the room. Take away the air, and the fire has no fuel. Of course, anyone trapped inside the room when the safety system kicks on would quickly die from lack of oxygen.

The tablet rumor mills have been churning lately, and much has been written already about the Microsoft Surface having an extremely low, “we’ll make it up in volume” price-point of $199. With admittedly great sounding specs, and a rumored-to-be-low price, how can Microsoft’s competition hope to compete? And if Amazon is already selling the Kindle Fire at a loss at the same price point with much less impressive hardware, and Google is selling the Nexus 7 at a loss with only slightly less impressive hardware, how can this be sustainable for Microsoft? History suggests that this kind of slippery slope doesn’t end well.

In the time leading up to the release of the original iPad, pundits across the Internet speculated about its price, and the neighborhood of $999 actually seemed reasonably low (granted, this price was mostly touted for a device that would run a brew of OS X closer to a full-fledged desktop version). When Steve Jobs unveiled the iPad, he even made mention of what the pundits had been saying, and asked (rhetorically, of course, as was his way) what everyone thought it should cost. The first-generation iPad was released at the incredibly low price of $499. And Apple’s competitors (like Samsung and Palm/HP) certainly seemed to have trouble introducing anything close to as good for anything approaching that price. Apple had left very little wiggle room under the pricing umbrella to compete.

Now that a couple years have passed, the misrepresentation of Moore’s Law being what it is, competing with the iPad on price seems to be a reasonable proposition. However, the competition has also seemingly (mostly) decided to concede the approximately 10-inch tablet form factor to Apple, and is instead creating approximately 7-inch tablets. These smaller devices are also listing at half the cost of the iPad, leaving very little wiggle room under the pricing umbrella to compete.

But Apple doesn’t compete by making comparable products and pricing them lower.

With regard to the Microsoft Surface, again, it looks like it’s going to be a high-quality, (supposedly) low-cost tablet, and the consensus seems to be that Microsoft is going to try to suck all the air out of the room. If given the choice between a Surface at $199 and an iPad at $499 (or an iPad 2, the previous generation model presently still selling at $399), Microsoft bets you’ll buy a Surface. (And then they bet you’ll buy software, games, music, and movies from them or their partners to make up for their stunning loss on the hardware.)

Apple does have a bit of a reputation for changing the game, though.

So, this is my theory about what Apple might announce at a press event next month: an approximately 8-inch, smaller iPad at $299. Yes, I know, it’s $100 more than the to-be-confirmed price of the approximately 10-inch Surface - given the choice, wouldn’t most people still buy a Microsoft tablet? Maybe.

Apple could very easily take all the air out of the room themselves by introducing a smaller, $299 iPad, and reducing the price of the iPod touch to $149.

The iPad and iPod names have what one might refer to as “street cred”. The word iPad already has exponentially more of the mindshare of today’s youth than the word Surface. Certainly a significant number of young people will be begging for a Microsoft Surface. A more significant number will be clamoring for an iPad.

People make decisions about the brands they’ll stick with for life at a young age, which Apple recognized when introducing the iPod touch, building on the already powerful iPod brand. The iPod touch has been the small tablet of choice for parents of young children for years. This might be a leap, but I’d venture that kids with iPod touches become teenagers with iPads become young adults with iPhones become adults with all-of-the-above (and a MacBook Air). An even lower cost iPod touch could help sell more iOS devices to this key demographic – smaller iPad to those that can afford it, or an iPod touch to those that are looking to enter the Apple ecosystem with minimal pain.

With Surface, Microsoft might have a chance against the iPad at current prices. But if Apple introduces a spectrum of devices with price points for every budget, I believe Apple will re-assert the dominant position it created in 2010.

What might able call a smaller iPad?

iPad Air.

EDIT: It seems John Gruber beat me to the iPad Air name possibility. (