What happens to the original iPad after iPad 2?

The iPad 2 just entered production, says the Wall Street Journal, and multiple sources (including common sense) point to its release sometime within the next couple months. That brings to mind a question: what will happen to the current iPad after the iPad 2 comes out? Will Apple discount and discontinue it, or will it keep the original iPad around as a "budget" model?

TUAW reader Dennis wrote in to us and speculated on the latter, saying that Apple might follow the route it's followed for the iPhone and iPod touch by offering a previous-generation model as an "entry-level" option. The iPad 2 would round out the iPad line, with new features like increased RAM, more powerful processors and cameras reserved for the mid-range and "premium" iPad levels.

That idea got our whole team buzzing about the possibilities and the drawbacks of that approach. Our speculation (based on no insider knowledge whatsoever) follows on the next page.

As I see it, there are two possible paths the original iPad can go down once iPad 2 comes out: the Mac path, or the iPhone/iPod touch path.

The Mac Path

When a Mac line gets a refresh or a major upgrade, the old models often disappear from Apple's online store as though they never existed. They're usually still available as a discounted option, but you have to know where to look in order to find those deals. For minor product refreshes like processor bumps, you'll also often see the last-gen high-end MacBook move down to the mid-range price, while the old mid-range MacBook becomes the low-end model; the former low-end model usually disappears into the mists of Mac history.

For more major product changes, like the extensive upgrades to the MacBook Air, the old models often vanish entirely from Apple's retail channels after a month or so of being available at discount. Since the iPad 2 is rumored to be a fairly significant upgrade over the first-gen iPad, this is what will probably happen if the iPad follows the Mac path. The original iPad will simply disappear from Apple's site, available at clearance prices to those willing to drill down through Apple's site looking for a deal, but otherwise machina non grata as far as Apple's concerned.

A couple of us think this is the likely fate for the current iPad. Production channels are already going to be stretched to their limits trying to produce the new iPad 2, so in a certain light, it doesn't make sense to devote productivity to the last-gen iPad if you're trying to crank out as much of the next-gen model as you can. That's also why the iPod mini went upstairs and was never seen again when the iPod nano came on the scene, and that's what usually happens with other iPod lines, too. Apple also may not want to keep a deep-discounted last-gen iPad on the market because it could potentially reduce the company's profit margins for the iPad line.

Viewed in another light, however, keeping the current iPad around makes a lot of sense.

The iPhone/iPod touch path

When the iPhone 3G came on the scene in mid-2008, the original iPhone went the Mac Path and disappeared. But since then, Apple's been following a predictable pattern. Upon the release of the iPhone 3GS in mid-2009, the low-end iPhone 3G became available at a deeply discounted price. The iPhone 3G stuck around until the release of the iPhone 4 last year, when the iPhone 3G shuffled off the iOS coil and was replaced in its "entry-level" slot by the 8 GB iPhone 3GS. When the iPhone 5 comes out in the middle of this year, expect the same thing to happen: the iPhone 3GS will go bye-bye, the iPhone 4 will drop to US$99, and the iPhone 5 will be the new king of the iPhone hill.

Things are a bit more complicated on the iPod touch side of things. The first-gen model was discontinued when the second-gen appeared, but the second-gen 8 GB iPod touch sold alongside the third-gen models as a more affordable option to the newer, higher-capacity models. Apple broke the pattern last September with the release of the fourth-generation iPod touch; all currently sold iPod touches are fourth-generation units, with the only differences between them being capacity and price.

Will the iPad follow the pattern set by its smaller brethren? Possibly. I can see a lot of advantages to Apple keeping the current iPad around for another year at a discounted price in a "budget" slot, especially since the current iPad is still selling like mad. Here's the way I think prices would shape up under this scheme:

Low end

• Original Wi-Fi iPad at 16 GB -- $399
• Original 3G iPad at 16 GB -- $499

Mid-range

• iPad 2 Wi-Fi at 32 GB (hopefully 64 GB, but we'll see) -- $599
• iPad 2 3G at 32 (maybe 64) GB -- $729

High end

• iPad 2 Wi-Fi at 64 GB (though I'm really hoping for 128 GB) -- $699
• iPad 2 3G at 64 (maybe 128) GB -- $829

Basically, the mid-range and high end iPad 2 preserves Apple's current price points with upgrades to the hardware and feature sets -- something Apple does with almost all of its product lines -- while the low end consists of the last-gen's least expensive model with a price cut.

There are a couple of major advantages to this scheme. First, all the necessary production infrastructure for the first-gen iPad is already in place; overseas factories don't need to change a thing in order to keep making the current iPad for another year. That potentially eases the strain on production channels for the iPad 2, because budget-minded consumers will likely be happy with everything the 2010 model offers. Having the current 3G iPad at $499 fills the pricing gap between the low-end iPad and the mid-range iPad 2, further alleviating strain on iPad 2 production channels and giving consumers an extremely attractive pricing option for a 3G-enabled device.

Second, while a 16 GB Wi-Fi iPad offered at $399 (the same price as a high-end 64 GB iPod touch) would probably have some fairly thin margins even in the face of reduced production costs since its introduction, it would also give Apple a huge price advantage over any other company's tablet offerings. Apple's pricing scheme is already highly competitive -- witness the high price of Motorola's Xoom tablet -- but a $399 iPad would blow everyone else out of the water. With a low-end Wi-Fi iPad available for $399, I don't think any other tablet maker would be able to wrench away Apple's grip on the tablet market.

I think Samsung's Galaxy Tab is the only credible competitor to the iPad in the market right now, but it's already outcompeted on price. A budget-priced, current-gen iPad would widen the gap even farther and pretty much seal the tablet market's fate; who is going to pay $499 for a Galaxy Tab or $799 for a Xoom if they can get an iPad for $399? Only people willing to pay the Apple Hater Tax.

The current iPad's days are numbered no matter which path it follows. Even if it follows the iPhone/iPod touch track, it'll be gone in 2012 at the latest. There are plenty of reasons why Apple might decide to discontinue it this year; in fact, if you look at the pattern both the first-gen iPhone and iPod touch followed, a disappearing first-gen iPad seems even more likely. On the other hand, keeping the current iPad around at a lower price point comes with a lot of potential advantages, not the least of which is bringing in a ton of new iPad owners who might have balked at the current minimum $499 asking price.

What do you think? Will the current iPad stick around for another year as a budget model, or will it be consigned to the unibody aluminum dustbin in the sky? Vote in the poll below, and give us your thoughts in the comments.