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The primary reason this rumor and ones like it annoy me is that they make no sense. Apple is not in business to compete with Amazon toe to toe. They have a very different business model and if they were going to create and release a smaller form factor tablet I can guarantee you two things. It would not cost $200 or even $250 and it wouldn't come with only eight gig of storage.
It took awhile for companies that wanted to compete with Apple in the tablet space to figure out that Apple had set the price point for tablets. Companies such as Blackberry and HP came into the market late with products that offered less than Apple at higher prices. If you're going to go head to head with Apple you have to offer more for less or you might as well create a mountain of hundred dollar bills and burn it because the end result will be the same either way.
The flip side of this is that Apple gets to sell their products at a premium. That might not seem fair but it is reality. So, given that why would Apple sell a product comparable to the Kindle Fire for the same prices as Amazon? Obviously they would not. The base iPod touch goes for $200. Off the top of my head I'm going to say that Apple could sell a device similar to the Fire for $300 and nobody would blink. Apple has huge margins relative to the rest of the industry because they understand the value of their products and charge accordingly. Also keep in mind that investors know this and focus on those margins. Apple is going to do everything they reasonably can to keep their balance sheet numbers looking good. Getting into a price war with Amazon would be very counter productive to that goal.
Which brings me to my second point. Apple is primarily a hardware company but they are making a lot of money on applications and media as well. If you look at the iPod touch you'll see that while they do offer an eight gigabyte entry level model their next cheapest option has thirty two gig. I'm betting that the next version of the Touch will have a base model with at least sixteen gig of storage. The reasoning behind this is as follows. In a world of rich media storage space gets eaten up quickly. This is particularly true given the big bump in resolution we've seen on recent Apple products which exceeds 1080P in the case of the third generation iPad's. All those pixels eat up local storage quickly and the always connected world is still years away if it ever comes at all.
You could argue that the cloud paradigm makes local storage a moot point of course but in the US anyway you'd be wrong. Data caps are very modest and prices are high so even devices with cellular connections are going to be constrained when it comes to downloading video and large song archives. The more local storage a device has the easier it will be to manage all that content which improves the odds that the device will be used and additional content will be purchased. I've pretty much stopped buying apps, music and video for my Kindle Fire because I'm tired of constantly seeing the "Low Storage" warning.
There is a chance that Apple would have a eight gig entry level modal if they did a small form factor tablet but I tend to think they'll start with sixteen. Amazon needs to at least double the amount of storage on the next version of the Fire if they want to have any chance of getting my business and the same would go for Apple. I will not buy another tablet with eight gig of storage no matter what the price.
Some of you might be thinking "But they sell the Apple TV for only $99". True, but keep in mind that Roku's equivalent product goes for about $15 less and who do you think makes more money off of media sales?
If you're going to make up a rumor its best to understand the business model of the company that the rumor is associated with if you want to be credible. It also helps to understand the product category, know who the big players are and be able to describe the business model of those other players as well. You may not be right about your guess/rumor but at least you'll come up with something that passes the ha ha test.
Of course I could be dead wrong on all of the above if Apple has decided to change their business model. I don't think that is the case however.
Business Model Triangle (Photo credit: Alex Osterwalder)
