Google's Nexus 7 could force Apple's hand on 'iPad Mini'

Apple doesn't have the luxury of ignoring the 7-in. tablet market, says one analyst

Google's new Nexus 7 tablet may be aimed more at Amazon and its Kindle Fire than Apple and its iPad, but Apple will not be able to ignore the low-end of the tablet market dominated by 7-in. devices, analysts said today.

"They're going to have to care about that market," said James McQuivey of Forrester Research. "I don't think Apple will have the luxury of ignoring the [7-in.] form factor entirely."

Earlier today, Google unveiled the Nexus 7, a 7-in. tablet manufactured by ASUS, that is now available for pre-order, with tablets shipping in mid-July. Prices for the Nexus 7 range from $199 for an 8GB device to $249 for a 16GB model.

Those prices, as well as almost every specification and feature Google revealed today, had been leaked before the kick-off of the Google I/O developer conference.

"It's a sweet device, there's no doubt about that, but it's more aimed at Amazon than at Apple," said Ezra Gottheil, an analyst with Technology Business Research. "It's an aggressively-priced tablet."

Amazon's Kindle Fire, which the e-tailing giant launched late last year, is also a 7-in. tablet that starts at $199. Analysts now expect Amazon to update the Fire in the next few weeks.

But the Nexus 7 isn't taking on the iPad, 9.7-in. tablet, which starts at $499, or even last year's iPad 2, which Apple continues to sell in a 16GB configuration for $399.

"They're not going after Apple...at the moment," said Michael Gartenberg of Gartner. "But they're definitely competing with the Fire."

"Google has nothing [in the Nexus 7] on the iPad, of course," echoed McQuivey.

But the entry of Google, the success -- especially during the 2011 holiday season -- of the Fire, and the increased attention by rivals to the 7-in. form factor will force Apple to launch its own tablet in that size later this year, said the analysts.

Rumors that Apple will debut a 7-in. version of the iPad, dubbed by many the "iPad Mini" -- perhaps a sop to the Mac Mini desktop computer it sells -- have circulated almost since the 2010 launch of the first-generation iPad.

Increasingly, analysts have concluded that Apple will reveal such a device. Today's announcement by Google has pushed their opinions to the "certainty" line on the probability meter.

"[The Nexus 7] makes it even more important that Apple has a reasonable response," said Gottheil, who predicted that Apple will launch an iPad Mini this fall, before the start of the end-of-year sales season, at a price point between $249 and $299.

Google's debut of the Nexus 7 won't change Apple's plans, said Gottheil, who is one of the experts who has long-believed Apple will make a move into the smaller format. But it will focus their attention, added McQuivey.

"Between the Fire and the Nexus 7, 10 to 12 million of these will be in people's hands by the end of the year," said McQuivey. "That will pale in comparison with the iPad numbers, but Apple will start to feel it."

In 2011, the iPad had a commanding 59% of the global market in tablets, according to IDC. Amazon, by comparison, accounted for just 7% of all tablet sales. Projections by McQuivey's Forrester pegged iOS's share of the tablet market during 2012 at 68%, with Google's Android -- which powers both the Kindle Fire and the Nexus 7 -- at 16%.

By 2016, iOS's share will have dropped to 53%, Android's will have fallen by half to 8%, and Windows-based tablets will account for 18% of those sold, said Forrester.

None of the analysts queried today by Computerworld expect Apple to compete with Google -- or Amazon either -- on price in the 7-in. market. Instead, the company will continue to position its products, whatever they may be, as premium devices priced accordingly.

"They will take the premium part of that market and be happy with it," said Gottheil. "They won't settle for margins that they feel are unacceptable. So I don't think they'd come at the Fire and Nexus 7 on price. They will want to retain their premium position."

McQuivey agreed. "Apple would never dare to compete on price," he said. "They will either subsidize the device -- I think they may create an iTunes subscription service, but that requires them to get additional rights to content, which they have had trouble doing at times -- or price it in the $300 range."

Both Gottheil and McQuivey pointed out that a $300 price for an iPad Mini would fit nicely with the price structure Apple now has for the iPad, which runs from $399 for the iPad 2 to $829 for the highest-priced 64GB iPad that supports both Wi-Fi and cellular connections to the Internet.

Other analysts have previously argued that a smaller iPad would "crush" tablet rivals like Amazon.

Gartenberg wouldn't speculate on an iPad Mini or Apple's response to the Nexus 7. But he made an interesting observation.

"It's certainly easier for Google to compete against an Apple product that doesn't exist," Gartenberg.

That, he continued, seems to be a theme lately.

"The impression is that Microsoft is going after Google with its Surface," said Gartenberg, referring to last week's introduction of 10.6-in. tablets running Windows RT or Windows 8 Pro. "Now Google seems to be taking on Amazon with the Nexus 7. No one is wiling to take on Apple, which is probably smart."

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

See more by Gregg Keizer on Computerworld.com.

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