Rumor has it the iPad 3 will soon be here. The device will most likely be a tremendous success simply by virtue of being an iPad, but if Apple wants to put some of its $100 billion hoard to use and get "creative" with the pricing of its tablets it could virtually assure its dominance and force many competitors to abandon the market completely.
The iPad has started out at the 16GB Wi-Fi only model for $499 since it originally launched. When the iPad 2 came along, Apple continued selling it at the same original iPad pricing, and slashed the price of the original iPad models to clear out inventory.
Apple adopted a similar, but more aggressive strategy with the iPhone. It is selling the iPhone 4S at the same prices as it previously sold the iPhone 4, but rather than wiping out the iPhone 4 inventory, it is continuing to sell the previous model at a discount as a more economical alternative. In fact, with the iPhone Apple is even still producing the older iPhone 3GS, which is being offered by AT&T for free with a two-year contract.
What if Apple chooses to do something similar with the iPad? What if the iPad 3 is made available at current iPad 2 pricing, but Apple also continues to sell the iPad 2 for $300 instead of $500? How many people would buy a Galaxy Tab, BlackBery PlayBook, or Motorola Xoom for $300 or $400 if they could buy an iPad 2 for $300?
There are also rumors floating about that Apple is developing a smaller 7 or 8-inch "iPad Mini" which could be available by the end of 2012. Some analysts suggest that such a tablet might sell for $300, and it would crush the competition. I will make a more aggressive prediction that Apple would sell it at $250--or even $200--and go straight for the jugular of the Kindle Fire.
Apple is sitting on a mountain of cash. It has money to burn and could easily cut into the iPad profit margin, or even sell the devices at a loss just to squash the competition and dominate the market. If the iPad has dominant market share, Apple can make up the difference in the long run through revenue from apps and other services.
Apple would also benefit from the sort of self-feeding vicious circle created by iOS and OS X. The ecosystem Apple has created with iOS devices and iCloud and extending that with even more integration with the upcoming OS X 10.8 "Mountain Lion" form a cohesive unit that works quite well together, and makes it compelling to get other Apple devices once you have the first one. A spike in iPad sales could very likely spark a dramatic rise in Mac sales as well.
Rival tablets are already struggling. Sales of competing tablets are anemic compared to the iPad, and competing tablets have been forced to cut prices to try and give users some incentive to even consider their tablet over an iPad.
If Apple undercuts the price of competing tablets, it could be game over.