What’s the cost difference between purchasing an iPhone and an iPad? Not just the cost but what are you missing between one product and another. We’re going to talk about price first, but you need to remember an iPhone is not $199, it’s $649 for an unlocked world phone. A subsidized iPhone with a contract is $649. We’re talking prices of the latest models with 16GB (the lowest). On one hand, why would you buy an iPhone without a plan? But on the other hand, why would you buy an iPad with cellular and not activate it? But if you need a smartphone with a data plan anyways, you’re really only going to pay $199, but it’s not fair for me to compare those numbers.
Why am I focusing on this aspect of the pricing? Because if people see an iPhone (with contract) for $199 and last years iPad for $399, it just seems obvious that they could make a $299 tablet in-between the size. But when you compare a $199 8GB iPod Touch and a $199 16GB iPhone (with lots more features) it doesn’t’ seem so clear.
So right there, the prices are remarkably similar: an iPad with cellular is $629 and the iPhone is $649, pretty much the same price. That’s interesting when you consider the screen size of the iPad is more than four times the size of the iPhone and the battery is pretty huge too.
What other differences do we have between the two models: the camera flash (not on iPad), the vibrator for alerts / calls (not on iPad), the phone (not on iPad), battery life (I think the iPad has much longer life), camera on iPhone better than iPad (not sure if iPad lenses are as nice as iPhone), digital compass (not certain, but not listed in tech specs for iPad) and maybe a few others I missed. All these differences have been there for the last several years, not just the latest models. While the specific number of mega-pixels changes, the iPhone camera has always been better. I’m specifically not talking about LTE as a difference as it’s expected the Fall 2012 iPhone (6) will have this feature and the phones (and iPads) have stayed at the same prices for several years.
From an electronics cost standpoint that screen and battery have got to cost a lot more for the iPad. The iPhone has all those features, but none of them seem super expensive; don’t forget the IPhone does require the additional electronics for making a phone call, but you can get that (and vibrate) in a $19 pay as you go phone. But still, it seems like the pricing is quite similar. So is the iPhone overpriced or is the iPad underpriced?
If you drop the cellular for the iPad it goes down to $499, but you lose the cellular and the GPS. You can still get the 16GB iPad 2 for $399, but it’s got the non-retina display and the cameras aren’t as nice.
Switching gears a little: Let’s factor in the iPod Touch, it’s more of a poor iPad Jr., but it’s only $199 for 8GB ($299 for 32GB). 
It’s got the same size/resolution screen as an iPhone (but it’s not as nice quality, contrast, or brightness, and no oleophobic coating), it’s got significantly lower quality cameras, no GPS, no vibrate, and no compass, but somehow they make it for $199 (it didn’t get a refresh of any significance last year, but these specs are still below the previous year iPhone). Still a lot of power for $199 (I think it used to be $229 or $219).
So what does that mean if the rumors are true and they make an iPad mini? For $299 can they decrease the size of the iPad 2 screen / memory or (depending on how you look at it) increase the size of the iPod Touch? I think so. I don’t know what that says for what they’ll do about camera quality, but I really think they can make a smaller 7-8 inch tablet for $299. They can’t go much higher without getting too close to the $399 iPad 2 pricing and they want to stay closer to the other tablet pricing (the Kindle Fire is $199). If they could go $249, they’d have the market (IMHO), I don’t see them going to $199 unless they have some way to subsidize an iPad Mini (data, video, etc).
Back to comparing the iPhone and the iPod touch: It’s really really hard for me to see the price jump up to an iPhone for $649 (to compare fairly, the 32GB iPod Touch is $299 and the 32GB iPhone is $749), that’s $450 more for cellular, GPS, vibrate, nicer screen, nicer camera, compass and a bigger battery. I could probably buy a Kindle Fire, GPS and camera for $450 (that’s 3 more screens and 3 more batteries) and integrating them would certainly be cheaper especially since Apple is already doing it with the iPhone, so production costs are already reduced.
I’m assuming R&D, manufacturing and shipping costs to be proportionately similar between these devices. But with such similarities between these products, I assume there is lots of savings too.
And back to the iPod Touch: I do think this means an update for the iPod touch, price drop (or both) or removal from the product line (or rename it the iPad Jr.). I don’t see the removal as being likely, it’s a good way to recruit younger kids into the iOS family. For a while it looked like they might make it into a gaming machine but that marketing disappeared after a while. Last year got a while iPod touch, but the breakdowns revealed very little compared to last years models.
Did I leave any differences out? Anything else I should mention in regards to hardware?
AT&T has a new $25 plan that last three months and gives you 1GB (1000MB) of data. That works out to 333MB a month for about $8.33 a month, about a third more data for close to half the price. The other benefit of it is that since it’s spread over three months you could use 600MB one month, 100MB another month and 300MB the other month. It gives you a better chance to utilize more of the data since it doesn’t expire three times after 30 days, it’s once after 90. It also doesn’t auto renew, so after 90 days you need to add that service again; the benefit to you is that after it expires if you don’t use it for a few weeks, those days don’t count against your next 90 day block. This is in the United States, I’m not sure if they’ve adjust prices in any international markets yet.
