Will Apple make preemptive strike, cut iPad price?

Time to get aggressive is now, before competition heats up this year, says retail expert

Apple should get a jump on the tablet competition Wednesday by dropping the price of the iPad and expanding its distribution, an analyst said today.

Not that he expects Apple to follow his advice.

"They're not going to drop the price, that's not going to happen, maybe not until later this year," said Stephen Baker, an analyst with retail research firm NPD Group.

Still, he had a hope -- slim though it might be -- that Apple will, as he said, "shoot off a cannon in a tablet price war" Wednesday.

Apple is expected to introduce its next-generation iPad -- what most have already dubbed the "iPad 2" -- at an event slated to start at 10 a.m. PT in San Francisco. The company, as usual, has been closed-mouthed, and has done nothing but hint that the event will feature a new tablet.

The key to Apple's ability to compete with a growing number of tablet rivals later this year will depend on the moves it announces Wednesday, Baker said.

"Clearly by the fourth quarter, probably sooner, there will be a fight at retail for customer awareness and shelf space and price," said Baker, referring to the time when as many as 20 tablets from first-tier consumer electronics and computer makers, companies with a high consumer profile and lots of retail savvy, begin to show up.

That will make the important news from tomorrow's iPad event more about price and distribution and less about the specs of the device -- how thin it is, whether it has one or two cameras, what processor is inside -- argued Baker.

That's because Apple is notoriously against dropping prices except when it introduces a refresh of a product line.

"The only time I remember them doing that was with the first iPhone, and that was more an admission of a mistake in their business model," Baker said. In September 2007, just months after the launch of the original iPhone, Apple cut the price of the then top-end 8GB model by $200, from $599 to $399, and yanked the 4GB iPhone from the line.

Instead, once Apple locks in a price, it doesn't move the marker until a new model debuts, or in more cases, simply retains the existing price but beefs up the device's speed, memory or storage space. In its iPhone line, Apple typically takes a different tack: It drops the price of the previous model when it revamps the smartphone.

"They're not going to be the only [tablet] player in the back half of the year, so are they going to be the first mover on price? It would give them an advantage."

Still, Baker said the chance that Apple would drop the entry-level iPad price to, say, $399 -- a 25% cut -- was between slim and none. "Clearly they're not ready to compete at the low end" on price. Maybe they'll take a little bit off by the holidays. But I don't think they're willing to take that shot right now," Baker said.

Apple could also beat the competition to the punch by expanding the iPads sales channels now, rather than wait until later in the year, when rival tablets actually ship.

"Just like the iPod, the more places you are [with the iPad], the more aggressive you are, the more opportunities you have," Baker said.

He suggested that Apple push the iPad in retail locations where it doesn't currently appear, and boost its efforts in the business market.

"It's time for Apple to think about being more aggressive in business channels, like the office supply stores, and [direct market resellers like] PC Connection and Insight," said Baker. "And more aggressive in second-tier retail, such as regional consumer electronics chains, and test alternatives like Kohl's or Bed Bath & Beyond."

Apple currently sells the iPad at its own retail and online stores, authorized resellers, through AT&T and Verizon, and at retail outlets including Best Buy and Wal-mart.

"It's time for Apple to start thinking of the competition," concluded Baker, "because those other [tablet] guys will be aggressive."

Gregg Keizer covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at @gkeizer or subscribe to Gregg's RSS feed . His e-mail address is gkeizer@computerworld.com .

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Gregg Keizer

Computerworld (US)

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