Can Low Prices Save the Tablet Market from Apple?

Update: All Things D has interesting post looking at how much money Hewlett-Packard might have lost on the TouchPad.

So let’s get this straight: Hewlett-Packard spends $1.2-billion to acquire Palm so it can move into the tablet computing business. It then launches the TouchPad (creative name, by the way!) with a marketing blitz, only to see sales go nowhere, leaving retailers such as Best Buy with loads of unsold inventory.

Then, HP shocks the world by announcing it’s going to abandon the tablet and PC markets to focus on software. Fascinating….except the story gets better.

After HP makes its decision, Best Buy goes back on its original decision not to sell its stash of 245,000 TouchPads by blowing them out at discount prices – $99 for the 16GB model and $149 for the 32GB model. (betanews has some colour on the TouchPad buying frenzy.)

People who would have never considered buying a TouchPad are now drooling about picking up a cheap unit, even though it’s built on an OS that could be orphaned.

If anything, it just goes to show that everyone likes a deal, even if it involves a product that is being discontinued.

At the same time, it does put a intriguing issue into the spotlight: could low-price tablets keep the marketplace from being dominated by Apple’s iPad?

There are some great tablets from companies such as Samsung and Motorola (I’m really enjoying my Xoom) but the iPad’s appeal and Apple’s brand mean the default choice for most consumers is an iPad.

Many people suggest the iPad is so compelling because of the 100K+ apps but truth be told, Android has an apps portfolio that is more than good enough. Heck, even the much-maligned Blackberry World probably has enough apps to do the trick.

So the iPad has the marketing aura and the apps but what it doesn’t have is a low price, although there’s rumbling Apple could introduce less-expensive models. This leaves a window of opportunity for someone to step up with a low-cost, user-friendly tablet likely built on Android that would have mass market appeal.

As much as overall sales are soaring, a cheap tablet would push the tablet into the mainstream, making it available to just about everyone, including people who look at them as a nice to have as opposed to a must-have. And the nice thing about playing in the low-price market is there’s little chance Apple will join the fray.

Of course, the key consideration for a supplier who decides to make low-cost tablets is having low enough costs and high enough sales volume to have decent profit margins. It would also help if there were add-on services available (storage, security, etc.) that would generate additional sales to support the low-cost model.

Given the strong sales of the TouchPad, there’s clearly a market for a cheap tablet backed by a reputable brand. Either that or people love a deal or they’re looking for a souvenir to sell later on eBay.

More: Daring Fireball offers a “simple explanation” about why HP abandoned Palm and decided to exit the PC business.Update

This entry was posted in Apple/iPod, Google. Bookmark the permalink.
  • Oliver Dueck

    There wasn’t much of a market for low-cost iPod alternatives over the last decade so I wouldn’t be too sure things are different for the tablet market.

    Besides, while a sub $200 tablet is obviously very appealing, I don’t think that it’s possible to sell a full featured one profitably at that price point. Some people are saying that the “killer app” on the tablet is simply the web browser and thus it is possible to sell a tablet with more limited functionality for cheap. But the reality is that the concept of apps adds little or no cost to a tablet. A $150 tablet would have to have the same core hardware as current $500 tablets.

    Maybe I’m being overly pessimistic here, but with the number of $500 tablets being sold, I’m not sure anyone is too concerned about cutting their margins drastically and pursuing cheap tablets anytime soon.

    • Mark Evans

      Oliver: It will be interesting to see whether prices do come down, otherwise I don’t see how a non-iPad tablet is going to get any traction. Thank for the comment. Mark

  • Duncan Stewart

    Hi Mark,

    People certainly love the idea of a top quality tablet for less than a hundred bucks. But we have to remember that the Touchpad pricing that is going on now is a fire sale for a device that is being discontinued — HP never intended to be selling these devices at a loss. And it is a BIG loss..each Touchpad cost HP about $300 to manufacture!

    That is pretty close to the minimum price for any manufacturer. Yes, you can make cheaper tablets with cheaper touchscreens, displays, batteries, chips, etc. But all customer reviews of sub $300 tablets have been that they are truly awful devices. They freeze or look bad or break.

    Now we could see a Kindle-type strategy where a manufacturer – in order to grab a big chunk of market share – might sell a device at cost. That would be a roughly $300 tablet.

    But it won’t be much lower than that. Apple is only making about 35% gross margins on the iPad: unlike other Apple products it is actually already priced at the low end of the range. Becuase of that fact, it is very hard for any other player to come out with a device that is a lot cheaper. We are used to seeing Apple products sell for a premium, and then seeing the knock-offs at 50% off. That can’t happen for tablets, unless someone is so eager to get into the tablet space that they are willing to take a loss.

    Which almost certainly won’t happen. Tablets are not locked-in razor/razor blade devices. Once you sell one, the user doesn’t have to keep buying some other good or service from your store that can offset the loss you took on the hardware.


  • Mark Evans

    Duncan: Thanks for the insight, although it does skewer my low-cost thesis. :) The question is if it’s not price, then how do rivals compete against the iPad? cheers, Mark

  • Shalom

    I think with any tech product you get what you pay for.

    The cost with a tablet I assume is in the screen.

    And you can tell straight away when playing with a cheaper alternative the screen is so poor its impossible to control.