Is the iPad high-end?

There’s a piece from James Surowiecki in the New Yorker about the collapse of the “middle” of markets: companies do well shooting for high-end, high-margin offerings, or for low-end budget products, but not the stuff in the middle.

It’s an interesting model for thinking about business, but Surowiecki provides no evidence that it’s true. The examples of companies caught in the middle are Sony, Dell, and General Motors. The first of these has always occupied the high end of the market; recent disappointments from Sony are about their failure to meet their own standards, not the market they’re targeting. I’ve always viewed Dell, however, as a low-end manufacturer: they’re as downmarket as institutional buyers are willing to go. General Motors remains the only real example, squeezed by the Germans from the top and the Koreans from the bottom. But blaming the “mushy middle” for GM’s woes would suggest similar problems for Toyota, VW, Ford, and Honda. It’s a rough time for the whole auto industry, but it seems clear that GM is a special case and has likely been hurt more by mismanagement than a general economic trend away from mid-priced cars.

My real gripe with Surowiecki’s piece, however, is the characterization of Apple’s iPad as high-end, meaning “significantly more expensive than its competitors”; I just have no idea what competitors are being considered. If the iPad is competing with laptops, then the $500 iPad stacks up pretty well against the current top sellers at Amazon, which go for $530, $680, and $715…followed by Apple’s $2000 and $1000 laptops. Just restricting competitors to the “ultraportable” category of laptops? All the top sellers are between $550 and $750. There are certainly a few laptops available for less than $500, but it’s absurd to suggest that the iPad is anywhere near the the “high end” of the laptop or netbook markets. If the iPad is a laptop competitor then it’s Apple’s entry into the middle (or bottom) of that market.

Is the iPad competition for portable touch computers? Without contract subsidies, Google’s Nexus One goes for $530. The Palm Pre is $550. You can argue that the $630 3G model of the iPad is a closer match than the WiFi model…but even the cheapest iPad has twice the storage of the Pre and four times that of the Nexus One…but the iPad doesn’t do voice calling… The more you dig into the details the sillier the comparison becomes: phones aren’t real competitors to the iPad.

The only competitors I can think of—products that a consumer might choose to buy instead of an iPad—that actually make the iPad look like a high-end choice are eBook readers: the Sony Reader (with 420 megs of storage) is $200, and the Nook and base model Kindle (both with two gigs of storage) are each $260; in comparison to these devices there is no doubt that the iPad is feature-packed, high-end, and expensive. If these are in the same market as the iPad, however, it’s worth noting that the iPad isn’t alone in the top price bracket. Amazon’s Kindle DX, which has a screen closer in size to an iPad and an accelerometer, is priced at $490. I’m going to go out on a limb and suggest that for most users the extra $10 for an iPad would be worth it.

My view is that the iPad is a new category of device for a market that doesn’t really exist yet—at least not sufficiently to have segmented into low-, middle-, and high-end. If you consider the full range of computing devices, however, I think it is possible to identify three important bands. These bands aren’t just about price, but also accessibility, the need for user training/proficiency, and support costs.

At the top, the intellectual elite in rich countries use personal computers (with the help of technicians who jump in to sort out the inevitable problems). At the bottom, the poor with little formal education (and no local “genius bars” for support) use mobile phones. The iPad is aimed squarely at the “mushy middle” between these two. I hope it’s good enough to succeed.