New iPad Pricing, EDU, and the Clips Strategy

Reflecting on Apple’s announcements yesterday and it is clear the new pricing scheme of iPad is the most significant. What this demonstrates is a fascinating and nuanced observation. When needed, Apple is willing to compete more on price. In fact, I remember many years ago Steve Jobs on stage making a big deal about the iPod hitting a $199 price point and the significant jump in sales they saw when they hit that aggressive price. I view this move of bringing the price of the updated iPad Air, now called iPad, down to $329 in the same light. This move is going to all but crush many Android tablet OEMs ambitions but it carries with it a very interesting challenge for Apple as well.

While I have a hunch on how Apple will navigate this (by being this aggressive with the price of iPad), Apple runs the risk of significantly hurting the sales as well as their high-level strategy for iPad Pro as a competitor to Windows PCs. In fact, you can argue this iPad, at $329, could dramatically cannibalize sales of iPad Pro. To a degree, I think Apple is OK with this. We know the iPad Air line has been the best-selling model for some time. We also know 50% of sales of the iPad Air are to customers new to the iPad family. Up to this point, even at a $399 starting price, the iPad Air 2 was the entry level iPad. Apple has furthered and strengthened that proposition by now starting at $329. Another thing to note here on price is this will get very interesting during the holidays when we could see the price of this iPad well below $299 as retailers get aggressive with promotions.

An interesting story line to watch will be if this new pricing scheme pays off more with iPad upgraders or more with brand new iPad buyers. My gut sense is this will pay off more in getting new buyers into the iPad family, which I think is the more important strategic element of the two.

iPad versus Chromebooks
A market insight we acquired after the holiday shopping season in the West was the force behind an unusually strong Chromebook quarter at big box retail. Chromebooks had not traditionally sold well at retail as the bulk of the 1.5-2 million quarterly Chromebook volume was going direct to the education channel with very small percentages through retail. This last holiday had a slight change in that trend and the reason was because parents were noticing their kids were using Chromebooks in their classrooms and wanted them to have similar tools to use at home. At $250, with an angle for your child’s education, this seems like a no-brainer.

Apple’s pricing move with iPad is a subtle (or perhaps, not so subtle) shot at Chromebooks to attempt to gain some share back in the EDU space where Apple was gaining momentum early in the iPad lifecycle. Understandably, most educational institutions make the hardware purchasing decisions for their staff and students based largely on price. This is also slightly frustrating since I do not believe Chromebooks are the best tools for our teachers to get the most out of the benefits of technology to educate our kids and their future. But Chromebooks get the job done, in most cases. A key point is they are much more prevalent in k-5 grades than they are in Junior High, High School, or College where we see more traditional laptops and even iPads in use.

Apple has aggressively priced iPad at $299 for the direct to EDU channel which compares to the EDU ASP of Chromebooks of around ~$260 USD. The benefit to iPad is it runs all the main Google services educators use — Google Docs, Google Classroom, etc. — and it runs all the Microsoft apps educators use. Also, it has access to the apps on the iOS App Store. Competitively, it is well positioned. Apple also collaborated with Logitech on a ruggedized case that offers a direct to EDU price of $99. In total, for $399 including iPad and rugged keyboard case, with the benefit of all the apps and services educators and students need, all on one platform. The price may still seem high but we are going to talk to IT buyers in education over the coming months to see how the cost/opportunity has changed at all now that Apple has gotten more aggressive with pricing for iPad.

Strategically, we view this as an important battle for iPad and the next generation. Finally, there is an interesting trend brewing in education around BYOD for students. Since most of the software/services students and teachers use together all reside on the cloud, it technically does not matter what hardware students want to use for their needs. I’m very curious to see how this new iPad pricing strategy plays out as parents look to get their kids an educational tool they don’t just need for school but want to use for much more. Given the choice between a Chromebook, a low-cost Windows PC, or an iPad, what do you think kids will choose? I know where I would place my bet.

Clips Strategy
While I wanted this post mostly to be about iPad strategy, I did want to mention a few things about Clips.

First, this is an example of something I want to see more of from Apple. First party apps you can only find on iOS. I’ll be interested to see how Clips is accepted into the market. It will be a fascinating test for Apple to see what part of its base chooses to download and use a first party app vs. one that comes as the default. I will view this as an extremely encouraging sign if Apple can generate significant downloads and sustained usage of this app and I hope it yields many more creative apps from Apple that strengthen their differentiation.

With Clips, Apple is not trying to create an app that competes with Snapchat and Instagram, despite what people seem to believe. They are misreading the play with this app. Apple understands the importance of the camera as one of the pivotal experiences with our smartphones. This tool allows people to create and share to any network they choose. Folks may argue that young people today only live on Snapchat and Instagram and use their tools to create media. But the reality is it is commonplace for them to create media in one of those apps and then save their creation and share it broadly across many other networks. What matters is what that tool allows them to make that is creative and expressive in ways other apps do not.

My take on clips is it is extremely clever and a smart step in the right direction for Apple to own a few more core experiences with first party software. The voice to text and machine learning to know friends and family who are in the clip is also a very clever and non-threatening way to expose more people to machine learning and AI.

You can bet we are watching this one closely as well.

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Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio

3 thoughts on “New iPad Pricing, EDU, and the Clips Strategy”

  1. “First, this is an example of something I want to see more of from Apple. First party apps you can only find on iOS.”

    If not for a vested interest, why? No, seriously, how are cross platform applications bad for the user?

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