The new iPad model hitting stores Friday comes with several improvements over the original version but the same price tag, hobbling efforts by rivals at breaking Apple Inc.'s hold on the emerging market for tablet computers.
Competitors such as Motorola Mobility Holdings Inc. can't seem to match the iPad's starting price of $499. Tablets that are comparable to the iPad in features cost hundreds of dollars more, while cheaper tablets are inferior to the iPad in quality.
Usually, the early products in consumer electronics, such as the first Blu-ray players or digital cameras, are expensive. Competition then gradually brings prices down. With the iPad, the reverse is happening, spelling trouble for competitors.
It's rare for prices to start low and stay low, yet it looks as if that's exactly what Apple intended. Apple appears to have chosen, right from the start, to make less of a profit from its iPads than it does from iPods and iPhones. That's an odd move for a company that isn't known for cheap products.
Apple's profit margin on the $499 entry-level iPad model is about 25 percent, according to an estimate by Toni Sacconaghi at Bernstein Research.
By contrast, the company's profit margin for all products, before corporate overhead, was 38.5 percent in the most recent quarter. He and other analysts estimate the margin for the iPhone 4 is 50 percent to 60 percent. (Apple charges about $600 for it, though it's cheaper in stores because wireless carriers subsidize it.)
Apple is telling investors to expect overall margins to keep declining, meaning competitors can't expect much of a reprieve.
There are cheaper tablet computers available, but they don't perform as well — with poor screens, poor touch sensitivity and poor software, and overall slowness. Archos sells a tablet that's roughly iPad-sized for $370. Reviewers at CNET and Laptop Magazine say its screen washes out unless you're right in front of it, and it has problems sensing touch.
