The Newly-Reduced iPad 2: How Low Can It (and Competing Tablets) Go?

After months of speculation, Apple has officially announced its third-generation iPad. The new tablet packs an impressive spec sheet with everything from quad-core graphics to a 2048x1536 resolution display, all for the same $499 price tag as the previous-generation iPad. However, from a deal point of view, the real story in Wednesday's Apple announcement wasn't the new iPad, but rather the iPad 2.

In an attempt to regain lost market share, Apple gave the iPad 2 a $100 discount, bringing the price of the iPad 2 16GB WiFi model to just $399. Although this is the first time Apple will be selling two iPads at the same time, the news itself isn't too surprising since Apple used this same strategy when it continued to sell the iPhone 4 after the iPhone 4S was released.

And that's great news for consumers, as it has already made the iPad 2 the most discounted and aggressively-priced iPad ever. But this is just the beginning of what's to come, as retailers and tablet manufacturers will assuredly need to respond to Apple's price cut.

Retailer Discounts Will Be Lower

Weeks before the new iPad's announcement, retailers such as Meijer and Best Buy had been slashing away at the iPad 2's price tag bringing it to an all-time low of $429 in mid February. Now that the new iPad is out of the bag, we expect deals on the iPad 2 to get even better as retailers begin slashing away at the new $399 base price tag. How much better? Just hours after Apple's announcement, Micro Center began offering new iPad 2 tablets for $359.99 in-store. That's $40 under Apple's new price, and the lowest ever for a new iPad 2.

Keep in mind that it took the iPad 2 six months to receive a 10% discount after its debut, yet Micro Center's very aggressive deal takes 10% off new iPad 2 prices just hours after the iPad 3 was announced. That sets an excellent precedent for retailers to follow, making it very likely that we'll see similar if not better deals from the likes of Best Buy, Amazon, and Meijer.

Will Android Be Able to Compete?

Despite today's price cut, Apple has made it clear that it doesn't do budget tablets. Android, however, through the manufacturers that use its platform, does. And after today's iPad 2 price drop, it will have to rethink its budget tablet strategy. Tablets at or above $399 will have to offer more than what the iPad 2 offers, and that will be a huge challenge for low-end tablets, as many of them have already cut corners to reach their sub $500 pricing.

Does that mean we'll see a sub-$199 Kindle Fire? Probably not. But other Android tablets from the likes of ASUS, Lenovo, Acer, and Toshiba will have to adjust their pricing or risk the likelihood of fading into oblivion.

From Apple's point of view, reducing the price of its iPad 2 is a brilliant move as it will now win over potential Android customers. It also means Android tablet manufacturers will have to compete with both the new iPad and the year-old iPad 2. Ultimately, that's great news for customers as it means tablet prices in general will take a dip.

A New Competitive Landscape for Tablets

Apple essentially owns the tablet market, and that means they have the power to dictate pricing for the entire industry. Their new iPad offers the latest specs and features and yet retains the same $499 base price as the previous generation. Meanwhile, their previous-generation tablet, the iPad 2, offers very respectable specs and is now going for $399 — before deals. All other tablets from the not-yet-released Windows 8 tablets to the BlackBerry PlayBook must now compete with these prices if they want to remain relevant.