What the iPad 3 tells us about Apple's competitive strategies (and how it will use that $100 billion in cash)

03/08/2012 3:52 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

By now every techno geek in the known universe has weighed in on what everyone but Apple (AAPL) calls the iPad 3. The general impression I get from reading the comments is the rather typical wish that Apple had done more. The quad-core processor isn’t as fast as the one on the iPhone. Apple didn’t significantly reduce the weight of the new iPad. The form looks the same as the current iPad. There’s even the wishful longing for Siri to talk to.

What interests me, however, about the iPad—since I’m a geek of a different colour—is what it tells us about Apple’s competitive strategy.

I’ve reached four conclusions.

  1. The most expensive iPad 3—the one that includes 4G capabilities and will sell for $629 to $829—is directed more toward Apple’s reselling partners Verizon (VZ) and AT&T (T) than it is to the market place. These two companies are in the middle of a very expensive build out of their 4G/LTE next generation networks and that capital spending will pay off for the wireless companies only if it attracts the kind of gigabyte chomping user that the top end of the iPad line will appeal to. I’d be amazed if the 4G versions take more than 10% of iPad sales, but the product is designed to let the wireless companies show off what their new networks can do. (And to prevent any Android or Microsoft tablet from capturing the high end of cool.)

  2. With the introduction of the iPad 3 at $499 for the WiFi version, Apple is lowering the price of the iPad 2 to $399. That closes the price gap with Amazon’s Kindle Fire at $199 but at $399 Apple is still making money. The price point says that Apple does feel the need to respond to the Kindle Fire—at $399 some potential Kindle buyers will decide to move up to the iPad 2 instead—but it also says that it doesn’t feel any incredible urgency to step up the fight now.

  3. A new, bigger, better AppleTV is on the way. The step up in the iPad 3 screen to the 1080 standard that matches HD TV means that users of the iPad 3 will be able to view content on this device and on any future Apple TV set in the same HD format—and it will all be downloadable from iCloud. In today’s mini-announcement of changes in AppleTV the company kept the device basically unchanged except for adding a new processor that will let it handle, you guess it, 1080 HD content.

  4. I’m more convinced than ever after the AppleTV mini-announcement that Apple made today that I know what the company is planning to do with a big chunk of its $100 billion in cash—buy more content for AppleTV and iTunes. Okay, now Apple has got AppleTV that can stream HD content and the iPad 3 that can stream HD content, but the sources of that streaming are limited to Netflix library, to some sports, and to iTunes. The content at iTunes just isn’t complete enough to make AppleTV work in the marketplace. The product needs access to more of the stuff that’s still controlled by the networks, by cable, and by the studios. Getting content deals from those folks isn’t all that hard but it can be expensive. If you’re looking for a way for Apple to spend its cash to create a competitive advantage, this is it.

Think about the most effective way to counter the Kindle Fire—it’s not by cutting the price of an iPad to $199; it’s by offering more attractive content. The lesson of Apple’s App Store all over again.

And that’s my take on the iPad 3 event yesterday, March 7.

Apple finished the day, March 7, up 43 cents a share or 0.08%.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Apple as of the end of December. For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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