by , 5:15 PM EST, January 6th, 2004

Industry watchers are somewhat skeptical that Apple's newly announced iPod Mini will be as successful at its first generation portable music players because its US$249 price tag is not low enough to compete with other players and is too close in price to its 15GB model to warrant the US$50 difference.

Announced Tuesday at his Macworld Expo keynote address in San Francisco, Calif., Apple CEO Steve Jobs explained the smaller, sleeker, handheld device was made and priced to compete with models from other manufactures, such as from Creative and Rio, in the high-end flash-memory player market, which makes up 31 percent of the overall market.

Perplexing pricing

But there is some concern by analysts who watch the entire portable music player market for a living that Apple has priced the new player too high and too close to its existing 15GB model to be a complete success.

"I think Steve Jobs made a strong argument for the Mini taking on flash-based players," said Joe Wilcox, an analyst with Jupiter Research. "But if it were at US$199, I'd say it has strong possibilities. At US$249, I have reservations."

"Features and the design were very nice as I expected them to be, but honestly the price was more than I expected," said Bob O'Donnell, personal technology director at IDC. "I expected the iPod Mini to be about US$199. Steve compared the unit to another player from Rio and said it was only US$50 more, but the fact is that Rio unit you can get on streets for more like US$90 cheaper, or more....If Apple wants to compete effectively in the high flash-memory group (US$100 or more), then they needed to come in around US$179 or US$199 at the highest."

While analysts believe Apple will have issues justifying it's higher price, it's other problem is being too close in price to its own 15GB iPod model - which is only US$50 more expensive.

"If I'm going to spend US$249, I think I've already made the mental decision to spend another US$50 bucks and buy the higher capacity," said O'Donnell. He also believes increasing the size of the low-end 10GB iPod to 15GB for the same price also makes the issue for consumers even more perplexing.

"The differentiation is not great enough for the price gap," said Wilcox. "If it were a US$100 difference, it would be a better argument. It's not low enough to make a difference."

Possible explanation

Some industry experts believe Apple might be using production constraints, and therefore delays in releasing the iPod Mini, to test the market for acceptance of the new portable player. The thought goes that because Apple is using the new one-inch, 4GB hard drive from Toshiba in its player and because availability of the drive might be in short supply, Apple has no incentive to sell the product at less than US$249. Only after testing demand for the iPod Mini when drive will be more available would Apple have to even consider droppping the price.

More competition in the wings

Playing an even bigger role in Apple's announcement of the iPod Mini could be possible news coming out tomorrow at the Consumer Electronics Show in Las Vegas, Nevada of smaller, higher capacity players from other makers that could threaten the features and price of the iPod Mini. "Apple and others will be watching for possible announcements from others tomorrow," said Wilcox.

"I wouldn't be surprised to see US$199, hard drive-based products coming out at CES," said O'Donnell. "Lower capacity with not a great design, but we'll probably see it."

Already Rio has dropped the gauntlet announcing Monday its new 4GB super portable MP3 player selling for $249 - the same price as Apple's iPod Mini with availability next month.

Despite the price concerns, however, Wilcox believes that a higher capacity unit, great style, small size and ease of use will be in Apple's favor, and that those advantages will help Apple sell the new iPod. How many iPod Minis, Wilcox said, is "too early to say."

Apple has some clear advantages, but still at the end of the day, it's all about dollars and cents," said O'Donnell. "If the price is too high, people are either not going to go for it, or they'll skip over it to go to the next level. I don't think it'll be nearly the smash they want it to be."