Apple iPad 2
Apple iPad 2 Reuters

The phrase 'iPad killer' has been bandied about for so long that one could be forgiven for the mistake of thinking such a device actually exists. As it turns out, the true iPad killer, according to Goldman Sachs analyst Bill Shope, won't be another tablet but the iPad's own prohibitive price tag. Shope's report, released Sunday, shows declining demand for the Apple tablet in the fourth quarter, which analysts attribute to such factors as the rise in collective popularity of Android-based tablets such as the Samsung Galaxy Tab 10.1 and the Kindle Fire. The decline itself, Shope says, isn't as surprising as the fact that it had not taken place sooner:

While the rapid ramp of the iPad installed base is remarkable by any metric, it is even more remarkable when we consider the fact that it has occurred without any change in pricing or storage capacity. Indeed, the iPhone enjoyed several major retail price cuts in its first year. The 8Gb version of the first iPhone saw its retail price slashed from $599 to $399 in its first three months on the market. Apple further improved affordability with the shift to a subsidized pricing model in 2008, bringing the price for an 8Gb iPhone down to $199 (with a two-year contract). Similar price cuts occurred with the iPod throughout its existence, and both the iPhone and the iPod saw storage capacity increases with each product refresh. In contrast, the launch of the iPad 2 saw no increase in storage capacity across the SKUs and no price change.

Though individual devices are still trailing far behind the iPad, the combination of its lordly price tag and ever-improving alternatives means that Apple will have to change its marketing approach one way or another. Shope recommended three corrective regimens for the ailing the tablet king: the continued adoption of iCloud, the launch of Siri on the iPad, and the addition of lower price points. Shope views a cheaper iPad with increased storage as a good way for Apple to regain the ground it has started to lose to Android tablets steadily encroaching on its market share.

In fact, a sub- $400 iPad 2 with 8Gb of capacity could further limit the competitive prospects of Android tablet vendors in 2012 and attract more cost-sensitive consumers amid the currently depressed macroeconomic environment, says Shope. This could also further accelerate Apple's already impressive momentum in emerging regions such as China.

Via Business Insider.