The iPad is Apple's netbook

The iPad fits in the market between smartphones and computers. It does more than a phone, less than a full computer, at a cost in between those products.

This an interesting and difficult sales prospect, since few people in this economy are looking for yet another class of computing product to spend money on, especially one in the too-big-to-pocket and too-small-to-do-work-on category. Putting economics aside, the iPad is certainly attractive. Bring the real world back into the picture, and the iPad looks like an indulgence — a luxury product for geeks and Apple fanboys.

This is what I believed while I was watching the iPad announcement. But eventually the iPad will be seen as something quite the opposite. The US$499 iPad is Apple's lowest-price computer (the Mac Mini is US$599, without a monitor or keyboard). With the US$69 keyboard dock (or a Bluetooth keyboard and a plate stand), it'll make a decent general-purpose computer for a family's common room or kitchen. And it's small enough and has good enough battery life to chuck in a briefcase or bag so the owner can consume some media or get some low-effort work done when away from home.

The iPad, in other words, is clearly Apple's answer to the netbook, not a play to breathe life into the 10-years-dead tablet market. The iPad is cheaper than a standard Mac, does less and is easier to maintain than a full-on Mac. These are the same selling points you get from netbook makers. Sure, they'll say, a netbook does less than a full Windows laptop, but it's only US$399.

There are worse selling propositions. The typical Apple premium (the fee you pay for the Ives design, the media-handling capability and the integrated software) make the iPad too expensive to steal market from the truly cheap netbook category, but give Apple time to lower the Apple tax. The iPad is not a one-off experiment but rather the opening of a new front for Apple: the battle for the low end of the computing market.

The two primary ways Apple is innovating in the battle for the low end are the form factor and the operating system. The tablet shape and function make the device sexy. It's easier to want an iPad than a cramped and clunky netbook. Even if the iPad does a lot less than a netbook that undersells it by US$100, plenty of buyers will want it a lot more.

The operating system is also a key part of the netbook strategy for Apple. Putting OS X on the product would have meant adding support for multitasking, USB and other ports, and making all Mac apps work well on a machine with a touchscreen but no mouse. With the iPhone OS, Apple can also funnel all app sales through its App Store. This gives Apple not just the capability to disapprove of bad apps (in Apple's estimation) before the public sees them but to get a piece of the sales dollars for each app sold. More importantly for consumers, App Store apps sell for less than OS X apps. Long term, loading up an iPad with software might cost less than doing the same thing on a MacBook. Earliest case in point: iWork for the iPad will be US$9.99. It's US$79 on OS X.

Jobs said of netbooks during the iPad announcement, "They're not better at laptops than anything, they're just cheaper". But being disdainful of a product category doesn't mean you don't want to win its market. The iPad is in fact not yet better than a netbook at doing what netbooks do. Apple has work ahead of it to make the iPad as useful as most of the products in that category. But it is clear that Apple is no longer content to let the low end of the computing market get away from it.