In contrast, most who wrote about the iPad mini, from stock analysts to bloggers, focused instead on market share. They made their case based on the apparent success of Kindle Fire and behemoths like Google entering the low-end market. To paraphrase what many opined, a smaller iPad would allow Apple to continue to grab market share as its competitors nip at its heels on the lower end. Funny—since when did Apple start worrying about market share over profit share?

Apple’s official announcement last week did two things. It quickly demolished the market share argument—at a $329 price point, Apple is obviously not targeting the lower end of the market. And it also reinforced the thesis that Apple plays a profit-share game; that is, it’s focused instead on soaking up any possible profits with a carefully designed pricing strategy. In short, the iPad mini is not competing on price, in fact it is not even competing for the same customers as other players in the 7-inch tablet market.

Unfortunately, and crucially, we cannot tell from Apple’s messaging which customers they are targeting or how they are positioning the mini. AllThingsD is positioning it as the iPad for those who find the current one too big and heavy. In my last article I wrote that Apple would try to position the mini as yet another device we all must haven in addition to the iPad and iPhone. That is clearly not the case though, as evidenced by their messaging. My best estimate then is that they uncovered a sizable market segment that values lightness and smallness in a tablet, but is not willing to give up the user experience they get from iOS by switching to any of the Android tablets.

How big is this segment? Will any of the current iPad customers see more value from lower-priced and smaller-sized iPad mini and switch?

Let’s run some numbers to find out.

As I did in the case of Pinterest revenue modeling, I am going to use statistical model to find the profit impact. What we will find is how likely each profit scenario is when considered against the input conditions. If you are a betting person you will see this as the odds of Apple making A specific profit (or loss) from iPad mini.

In simple terms:

Profit from the iPad mini = Margin on the iPad mini  X  Volume of the iPad mini

We determine the Volume of the iPad mini from four sources. There are those buying it as their first tablet, or as an addition to their current iPad. Then there are others who are trading down from an iPad, which is to say choosing the mini instead of an iPad. Finally there are those switching from Android tablets and then those who trade-up from an iPod Touch.

The trade-down from an iPad and trade-up from an iPod Touch have a negative impact on profit affecting these product lines:

Profit Cannibalization = Margin on the iPad X Trade-down from an iPad + Margin on the iPad Touch X Trade-up from an iPod Touch

We know for certain the margin on the iPad and iPod numbers (~42 percent). But for other variables we have to make an estimate to do the modeling. We begin with listing the different variables that feed into final result and their 90 percent confidence interval values. That is, we list all the different variables, and then state the low and high values that we are 90 percent confident about (we are 90 percent confident the real value is between low and high and there’s only a 10 percent chance the real value is outside this range).

Estimates for Trade-down volume come from marketing research conducted by TechBargains.com, however that was likely based on the assumption that Apple would price their iPad around $199. Given the unexpectedly higher price point, I used a range of 10 to 30 percent, versus their average of 35 percent.

With these inputs I ran a Monte Carlo simulation to find the likelihood of different volume and profit scenarios. After running 1600-plus iterations, the results are stunning.

First the iPad mini volume numbers:

The results show that at the low end, come what may, Apple is all but guaranteed to sell 12 million iPad Minis per year. At the high end, Apple could sell as many as 58 million, but those chances are very very slim (1 percent). Considering all the possible scenarios, the expected value of volume is 40 million.

These are large numbers that frankly Google and Amazon could only wish for. But an interesting question is whether those big numbers automatically translate to big profits.

The results point to a high-risk game Apple is playing with the iPad mini. At the low end they could possibly lose $1.7 billion and at the high end they could make $2.5 billion in profit. But the chances of both these scenarios are just 1 percent. And so realistically, considering all possible scenarios, the expected value of profit is half a billion dollars—and that is gross profit, not including marketing and other costs associated with iPad mini. On a per unit basis that translates to a $12.50 incremental profit. And note that the volume and profits are just expected value—the actual results could be worse because in a surprising 30 percent of the cases, Apple is losing money from iPad mini sales.

So despite an expected strong sales volume of 40 million units, Apple will realize at best just a teeny, tiny profit compared to iPad and iPhone lines. Such high volume is certainly nothing to be sneezed at (especially if you’re an Android tablet seller, with shelves full of stock), but the outcome of the game is not certain. Even with the assurance of expected of strong sales, the incremental profit from iPad mini appears too small to make any dent in Apple’s overall profit share. It leaves us to conclude that, strengthened by its string of successes, Apple chose this time to focus only on the bright side and unusually play a high-risk game.

Rags Srinivasan specializes in product strategy and strategic marketing and blogs at Iterative Path. Follow his tweets @rags.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• How consumer media will change in 2013
• Takeaways from connected consumer’s second quarter
• Netflix may suffer from limited mobility

I use these new devices to learn about them, to compare them with some of the other devices that crowd my workspace and to form an educated opinion about them especially when writing about respective companies or platforms strategies. I will dispense with the requisite review stuff — packaging, features and details — and leave better experts to extol those virtues (or lack thereof.) Instead, here are some of my early impressions after using the seven-inch Kindle Fire HD for about three days.

First, what’s good about the Kindle Fire HD:

• The new 7-inch Kindle Fire is simple, sleek and easy to hold, though it is a little bigger than Google’s 7-inch Nexus tablet made by Asus. They weigh almost the same and both of them are easy to hold and use. Kindle Fire feels more solid in my hands as well and, as Amazon promised, it boasts amazing WiFi connectivity — perhaps the best so far in any device I have either owned or tried.
• How does it stack up against the first generation Kindle Fire? Think of the transformation of an ugly duckling with a limp to an elegant swan.
• The most impressive thing about Kindle Fire is something I liked in its first iteration, too: It is not an iPad clone. Amazon has developed a good user interface and deserves credit for it.
• When it comes to the screen, Kindle Fire feels a little less sharp than Google’s Nexus — but to be honest, I find both of them lacking. I am used to the Retina display on my iPad 3 and as a result expect a certain crispness from the screen that is just not there on Android-based tablets.
• If this is Android, then you can’t really tell. It is buried under Amazon’s UI that is optimized almost entirely to showcase Amazon’s digital offerings — books, movies and music. Sure you can buy other things from Amazon too, but this device is made for “digital content.”
• The iTunes Coverflow style navigation through latest pieces of content has become smoother and more fluid. It very quickly becomes a default behavior on the tablet.
• Buying books is so simple. The one-click purchase meant that I have blown through about $30 on various Kindle Singles. To be honest, the book buying and reading experience is so seamless that it makes the shortcomings of the Kindle app on iPad quite glaring.
• Being an Amazon Prime member means I get access to a lot of video content for free. It is easy to stream movies and television shows, but I found the quality of video not quite up to the mark. I have the Amazon Prime app on my iPad and when compared to Kindle Fire, it just is better. This is an area where Amazon can and should improve.
• These days I don’t really buy music — I use Spotify for all my listening, so from that perspective I am not sure I would use Amazon’s music service. However, I have a Amazon Cloud Player account and accessed my older music on the Kindle Fire. It was a flawless experience, and thanks to a very robust home network, I enjoyed listening to music via my Bowers & Wilkins headphones without a problem. The experience, like the book store, is pretty seamless.
• Frankly, I saw no problems with ads on the device. They are very tastefully done and the offers are actually useful and interesting. In a post-Groupon world, they feel a lot less commercial.

Amazon CEO Jeff Bezos said he wanted people to use his devices and that he wanted people to buy stuff on their devices. From that standpoint, Kindle Fire does deliver — especially when it comes to digital content. However, it is not all peaches and champagne. The 7-inch Kindle Fire HD edition has some key shortcomings in my opinion.

• Unlike Kevin Tofel, I am having a tough time getting used to browsing on the 7-inch screen.
• The Silk browser might have added a few hundred horsepower since its birth, but it still doesn’t feel fluid enough to me.
• The pesky Retina display has raised my expectations when it comes to web-surfing and I found the web browsing experience a let down.
• The OS that powered the first version of Kindle Fire was as smooth as the skin on the feet of a long distance runner. The new Kindle Fire is a remarkable improvement, but I found it was a shade less fluid than the Google’s Nexus. I do think iOS powered iPad is the gold standard. A few more iterations and Amazon is going to get there.
• While reading apps like Twitter and ESPN Center apps are good enough to use on this tablet, I wasn’t blown away by apps-on-Fire. Sure you can play games, but even in three days, I felt that there was something missing. You can feel, for the lack of a better word, “that five percent.”
• Amazon made a big song-and-dance about its mail app – and let’s just say, it didn’t meet expectations. (Not that Apple’s email app is anything to write home about, either.)
• The keyboard keys are not as sharp as one would expect and I had a tough time typing long email replies.
• Amazon could spend some time making searching through its store for non-digital content easier — visual perhaps — and smoother.

So what is the bottom line?

Admittedly, I am biased towards iPad, having used it from the time it went on sale. I am used to its gestures. I know how to get the most out of it. It is perhaps one of the biggest challenges I have when using non-iPad devices. However, my three-day hands-on experience is enough to say that despite the shortcomings, Amazon has become an option.

If you are tied to the Amazon ecosystem — you know you buy books, movies and music from them — then this is a device that should find an easy room in your bag, especially if your other option was buying a standalone Kindle. And if you are one of those who has never owned a tablet and are on a tight budget, then Kindle Fire is worth a consideration — well, unless Apple announces a similar 7-inch device. I know what I would buy.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Takeaways from mobile’s second quarter
• Q4 Wrap-up: SOPA and the future of digital content
• The evolution of consumer-media cloud storage

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Who and what to watch in the new era of the living room
• CES 2012: a recap and analysis
• Connected consumer third-quarter 2012

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• CES 2012: a recap and analysis
• Who and what to watch in the new era of the living room
• Tablet market to hit over 377 million units by 2016

That’s going to depend on exactly what experience consumers are looking for. With Android 4.0, dual-core processor, two cameras and integrated GPS, the Galaxy Tab 2 is a low-cost Android tablet with few limitations. It can run any third party app from Google Play, take and sync pictures or be used as a GPS navigation device. The Kindle Fire and Nook Tablet are far more limited in what they can do out of the box but what they can do, they do very well.

Amazon did remove one limitation this week when it added support for in-app purchases. This could lead to a greater number of free third-party apps that make money through upgrades or additional content within the application. This “freemium” model has been supported by iOS and Android for some time and has begun to bring more money to developers over paid mobile apps. I also expect more Android developers to bring their apps into Amazon’s AppStore; good for Kindle Fire owners.

My latest Android gadget is similar to the Kindle Fire, in that you’d never know it actually runs on Android. I bought a MotoActv wearable device about a week ago, hoping to find a way to track my outdoor exercise without having to carry my smartphone and use its GPS. The MotoActv works quite well for this, but I also gained some unexpected benefits from my $199 purchase.

Because the MotoActv is crammed with sensors and radios — accelerometer, GPS, Bluetooth, Wi-Fi and FM radio — I’m actually wearing it from the time I wake until the time I sleep. The 1.6-inch device with capacitive touchscreen measures calories burned as well as steps taken, so I gain that health data.

It also has 8 GB of storage, so I’ve added several albums and use it to enjoy music as needed. And of course, when I run, I turn on the GPS radio and track my route, pace, and distance, plus my heart rate with an external heart rate monitor.

The MotoActv also works as a watch, complete with several difference faces to choose from. And when paired with a smartphone, it can receive notifications such as SMS messages, caller ID and calendar events. When the device launched last October, the notification feature was only supported on Motorola handsets. However, a software update earlier this month added support for all Android handsets.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Tablet market to hit over 377 million units by 2016
• Is Android broken and if so, will Google fix it?
• CES 2012: a recap and analysis

But the new Mountain Lion OS X is a step in the right direction for what the operating system (OS) for the Internet Age should be. Up until a few years ago, the Internet was a feature on our desktops, accessed through the browser and used for finding information. Along came broadband, and we all suddenly realized the Internet could be used for a lot more than just looking up facts and figures.

Today the Internet is how we do (almost) everything. Our phone calls are made using Skype. We video chat over Google Hangouts, and we communicate via Facebook, Twitter and iMessage. Twitter is the new Associated Press. Vimeo is our PBS, and YouTube and Hulu are the new broadcast networks. Amazon is the mall and iTunes is our Virgin Megastore. Pandora is our radio and Spotify is our jukebox.

It doesn’t matter whether we use Windows, Mac, Linux, Android or iOS: We can do all the things we like to do as long as the Internet is there. And if the growing popularity of apps is any indication, even a browser isn’t necessary. The Internet is what matters. From my perspective, the desktop OS of today needs to be built with that reality in mind. Let’s call this the SoMoClo operating system, where SoMoClo stands for social + mobile + cloud.

1. Social + sharing

If uptick in sharing photos, links and videos on Facebook and Twitter is any indication, social sharing has become integral to our daily experience. Mark Zuckerberg put it best in Facebook’s S-1 filing when he wrote:

Today, our society has reached another tipping point. We live at a moment when the majority of people in the world have access to the Internet or mobile phones — the raw tools necessary to start sharing what they’re thinking, feeling and doing with whomever they want.

2. Mobile

The breathtaking jump in the sales of smartphones and tablets such as the iPhone and iPad, along with hypnotizing demand for mobile apps, are some signs that we are fast becoming a mobile-first society.

Let’s just face it: Today we use our smartphones and tablets more often during our day; thus behaviors that are specific to mobile are now going mainstream. How many times have you wanted to touch your laptop screen and bring up an app?

Notifications are another mobile-first behavior that makes sense on our desktops. Mobile has also forced us to appreciate simple but highly effective applications such as notes, list makers or group messaging. So it is no surprise that these behaviors and apps are migrating into the desktop OS.

3. The cloud

And now comes the most important aspect of the new operating system: the cloud. For the longest time, our desktops were a way to get onto the network, but now the desktop lives on the network. Back in Nov. 2011, I wrote a post titled “When will broadband finally kill local storage?”:

Today, there is very little need for me to have any in-home storage. My documents live in Dropbox and Google Office. My photos get backed up to iCloud. Radio comes from Pandora. On-demand music comes from Spotify. Movies come from Netflix. TV comes from Hulu. The home phone is Skype. And for everything else, there’s Amazon. The lesson of the story? If you have a fast enough broadband connection, you don’t need hard drives.

In a few years, as broadband gets faster, there is no doubt in my mind that my online usage patterns are going to be mainstream. From that perspective, the desktop OS of today (and tomorrow) needs to have deep hooks into the cloud — ones that go beyond the browser.

SoMoClo OS or cloud OS

When I think of today’s connected life, I see two distinct approaches to operating environments: OSes that are desktop-specific and the one OS that is a true cloud OS, for a dedicated cloud client. Back in 2008, I wrote about what makes a cloud client and asked our community to weigh in. One of them, Tashi Levent-Levi wrote:

Such a computer needs to come with a different software suite and a different kind of a user interface. As the working habits and behavior of people with it will be different, so does the applications running and the way they are used will be different.

Phones and PCs today are good comparisons — their computing power is used differently and the way we interact with their application is different. As the cloud computer is a new type of a machine that fits new habits — it should have its own usage model.

At that time, the iPad and Amazon Kindle Fire had not been introduced. But both Apple, with iOS, and Amazon, with its Kindle Fire, have developed a true cloud OS. These are for a tablet that is essentially a mobile device and is meant to be used anywhere and anytime.

The desktop OS of today (and tomorrow) is a little different. It needs to pay attention to a computer’s legacy and its user interface — keyboards and mice and touchpads. It has to worry about file systems, documents, windows and the traditional hierarchies. The transition from PC to tablets is going to take a long time, and as a result we need an OS to ferry us to the new tablet-centric world. Apple CEO Tim Cook talked about this recently, as Tom Krazit on our sister site, paidContent writes:

Still, Cook doesn’t think the iPad will lead to the death of the personal computer as we’ve known it for the past 25 years or so. “I don’t predict the demise of the PC industry, I don’t subscribe to that,” he said, although admitting that tablet sales were eating into Mac sales and were likely having the same effect on the PC industry, which is essentially stagnant. It seems pretty clear that Cook thinks of the iPad as a different product from the PC/Mac, unlike some industry observers who would prefer to lump the two together.

Something like Mountain Lion is a great middle ground, a great first new SoMoClo OS.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Analyzing the wearable computing market
• Takeaways from connected consumer’s second quarter
• Is Android broken and if so, will Google fix it?

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Who and what to watch in the new era of the living room
• The evolution of consumer-media cloud storage
• Connected world: the consumer technology revolution

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• Who and what to watch in the new era of the living room
• Connected world: the consumer technology revolution
• The future of mobile: a segment analysis by GigaOM Pro

Miro just rolled out an update to its video conversion and syncing software that makes it ultra-easy to encode and transfer video and audio to the Kindle Fire. To do so, a user just needs to:

• Install the latest version of the Miro software.
• Connect the Kindle Fire to his or her computer via USB (it will appear in the “Connect” tab), and;
• Drag-and-drop any videos he or she wants to transfer to the Kindle Fire in the Miro sidebar.

That’s it. Miro will do the rest, automatically converting videos into the correct size and file format for the device. Once the videos have been transferred, they will be available in the “Gallery” app on the Kindle Fire, rather than the “Video” tab (where Amazon places videos that have been purchased on the device).

Miro is available for OS X, Windows and Linux, and can be used to convert files for many other devices, including iPhones, iPods, iPads and Android phones.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• What’s driving the next phase of the e-commerce evolution
• What Amazon’s new Kindle line means for Apple, Netflix and online media
• Q4 Wrap-up: SOPA and the future of digital content

OnLive let users watch streams of others gaming through tablet apps in the past, but the newest apps take the experience a step further: OnLive users will now be able to natively play games on devices like the iPhone, iPad, Samsung Galaxy Tab and Amazon Kindle Fire through a new generation of apps.

The gaming service will have more than 20 games specifically adapted for tablet-based touch control, including Rockstar’s hit L.A. Noire, with virtual game pads built in. It will have an additional 150 games that users can play if they have an OnLive Universal Wireless Controller, which sells for $49.99.

OnLive’s latest release makes gaming more accessible to users — even those who don’t have gaming consoles or high-powered computing equipment. Because gameplay is processed in the cloud and streamed over the Internet, devices need just a limited amount of power to enable engaging gaming experiences.

Those streams are also relatively low-bandwidth, with the average bandwidth required for TV or PC gaming about 1 Mbps to 5 Mbps, which isn’t much different from watching an HD movie on Netflix. Streams sent to mobile devices are even lower bandwidth, at about 0.5 to 2 Mbps. As a result, it works on Wi-Fi, 4G LTE and even 3G networks.

With the launch of its new mobile apps, OnLive is now available on TVs, PCs and Macs, and a wide range of mobile devices. The company launched its services about a year ago in the U.S. Since then, the company has expanded to the U.K. and added more than 200 video game titles for users to choose from.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

• What Amazon’s new Kindle line means for Apple, Netflix and online media
• The Internet of Things: What It Is, Why It Matters
• Report: How Mobile Cloud Computing Will Change Tech