The Real Story Will Be The iPad 2

Apple sent out invitations today for a March 7 event that I fear may be even more exciting than the March 6 release of my book. The headline, of course, will be about the iPad 3. But I’m actually more interested in what, if anything, they say about the iPad 2. Will the iPad 2 vanish from the face of the planet, or will some of its configurations be retained as a low-cost Apple tablet in the way that the iPhone 4 and the iPhone 3GS persist in the smartphone space?

The interesting thing about the tablet market, after all, is that there is no tablet market. It’s just an iPad market. But that doesn’t mean that the iPad doesn’t compete with other products. There’s clearly a netbook/iPad margin (or perhaps a broader laptop/iPad margin) where consumers choose between buying an iPad or buying a small computer. And I think there’s also an e-reader/iPad margin where consumers choose between buying an iPad or buying a Kindle. And there’s a more/fewer gadgets margin along which consumers choose between buying an iPad and just spending their money on something that’s not gadgets. The phone market is competitive in a pretty straightforward way, so the calculus behind making an older iPhone available at a relatively low price point is clear. The 3GS is an entry-level smartphone for the large number of people who’ve been using non-smart phones and are now ready for an upgrade. It’s less clear what the landscape is for the non-existent tablet market. My suspicion is that the calculation will ultimately hinge on factors that are hidden from the public. Most notably, will keeping the iPad 2 in production reduce the quantity of iPad 3s that Apple is able to churn out? If there are some important component or facility bottlenecks, then it seems like they’ll want to make as many high-margin high-cost iPad 3s as possible. But if it’s possible to set up iPad 3 production at large scale in parallel while only slowly ramping down iPad 2 production, then that looks more appealing.

In many ways, this is the more interesting question. No matter how awesome the iPad 3 may be, Apple can’t dominate the tablet market any more than it does. Conversely, no matter how lame the iPad 3 may be, Apple can’t dominate the tablet market any less than it does until someone else makes a compelling product. But the overall size and scope of the “tablet” (i.e., iPad) market is very much up for grabs. And it’s the future of the iPad 2 that will do more than anything else to determine that in the short term.