Why Hasn’t Apple Stopped Making the iPad 2?

Apple has defined the art of smartphone and tablet computer technology to a point that others can only hope to acquire. The company began its ascent to success with the introduction of its iPod and iPhone models, and went on to introduce the first successful tablet, the iPad, into the computer arena. Though some in the computer industry believed that Apple’s claim to have garnered some 15 million sales from its tablet in the first year was a fluke or an aberration of sorts, this innovative new product resulted in the beginning of the tablet revolution. In turn, this forced other competitors in the computer industry, like Microsoft, to look at the new onslaught of tablet computers as a threat.

How Shocked Was Microsoft at the Original iPad when It Was Released?

To fully understand the rivalry between Microsoft and Apple, we must first study their history when it comes to the tablet market. According to a recent article over at DailyTech, Microsoft, in conjunction with HP, was the first to release a tablet computer of sorts. However, its Slate tablet computer, which included a touch-sensitive version of Windows 7 (which HP stated was not ready for prime time on a tablet), was a total failure. Needless to say, this first venture into the tablet world was a total failure. In fact, an unidentified executive from Microsoft stated that, when Apple released its original iPad, Microsoft’s executives were shocked at how remarkable the craftsmanship, materials, and design worked together to create a truly unique and one-of-a-kind device.

Is Apple Losing Money on Every Apple iPad 2 It Sells?

So, with that being said, we now know that Apple still had bigger plans for its iPad, thus resulting in an upgrade first to the iPad 2 and, most recently, the release of its latest iPad (the new iPad). The question would then be that, with these new upgrades, wouldn’t it seem as if the company would want to discontinue earlier versions of the product? I guess not, since Apple continues to offer its popular Apple iPad. But, in doing this, is it losing money on each sale of this older version?

Yes and No.

First the Yes:

The cost difference between the Apple iPad 2 and the new iPad is $100, making it easy to conclude that Apple is losing $100 on the sale of each unit. This equates to a loss in pure profit of thousands of dollars for investors.

Now the No:

However, many in the marketplace would not consider spending $500 for a tablet, so the lower price of the Apple iPad 2 is allowing them to add their discretionary funds to Apple’s coffers. That could lead one to conclude that, if the price weren’t set at $399, these people would be migrating toward lesser-priced units like the Amazon Kindle Fire or the Barnes & Noble Nook rather than the Apple iPad.

The Real Money is in Applications and Services

Another important factor that Apple has to weigh in, as does every company that is currently selling tablet computers, is the ongoing influx of money that will be generated through the sale of applications and services that these companies offer. When Amazon first released its Kindle Fire, it was reported that Amazon would be losing about $10 per unit sold, but that research told the company that this loss would be more than compensated through the online games, books, and services that the Amazon planned to develop for its units. I believe that this same thought process is behind Google’s strategy in the release of its new Nexus 7 tablet computer. So, although I haven’t seen the specific figures for Google and its Nexus 7 tablet computer, I would venture a guess that the profit margins for these units will most likely be slim to none.

With that as a basis, one must remember that every company that is selling a particular tablet device is also selling us into an ecosystem from which the consumer is expected to buy applications and services, with Apple controlling one of the most closed and controlled ecosystems currently established. From its iTunes ecosystem alone, Apple has generated billions of dollars for itself and the developers who have written applications for it. However, one must also acknowledge that Google and its Android ecosystem, as well as Amazon, have done the same thing. However, in an attempt to prove itself as still a leader in the computer industry, Microsoft is now venturing into the tablet market bandwagon with the release of its Windows 8 operating system that will allow for the download of applications from its own hoard of cloud-based software applications.

For Apple, that means that selling the iPad 2 for a lesser amount could help maintain its strong consumer base by increasing its market share and preventing existing loyal users from migrating to other markets. Besides, the consumers who buy the Apple iPad 2 are buying into Apple’s closed environment where they will be forced into purchasing all of their “stuff” from Apple, including games, music, movies, and other toys.

How Long Will Apple Continue to Sell the iPad 2?

I believe that the answer to this question may come in two parts. The first part will depend on how much profit Apple can prove to its investors on its fiscal balance sheet through the sale of this product, and/or how long investors will willingly subsidize the continued sales of the iPad 2. The second may lie in if and when Apple introduces a 7″ tablet, which some rumors indicate could be in October 2012. If Apple does come out with a 7″ tablet and consumers buy them up, then Apple could potentially give both Google and Amazon a run for their money and find itself a dominant force in the mini-tablet market.

So, for now, the Apple iPad 2 remains a good deal and an excellent buy. I believe that Apple will continue to build the iPad 2 until it becomes a drain on its bottom line or when the company releases a successful mini-tablet into the marketplace. Just my two cents.

What do you think?

Comments welcome.

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