HP’s fumbles with its tablet have revealed a number of truths when it comes to tablet pricing. It remains to be seen if the Android-clones and RIM have figured out what they are, but if the rumors are correct, Amazon is already ahead of the game.
After two months of trying, HP couldn’t sell a tablet priced the same as an Android or Apple iPad device. For that matter, Android tablets set near to iPad prices haven’t been doing so hot either. The Apple iPad has three things going for it: brand recognition as the market leader, a store full of applications, and plenty of content – music, books, and video.
HP’s tablet brought a fan-boy operating system (WebOS) to the table and… that’s about it. Android has a bunch of apps and reasonable content, plus the ability to run Adobe Flash.
Dropping the HP TouchPad price to $99 from $149 results in a mad rush to buy the devices, clearing shelves in an instant. At $99, a tablet is suddenly competitive with wireless keyboards, TV remotes, and other home gadgets. It’s something nearly anyone can afford to take a chance on. WebOS fan-boys can stock up on tablets to sate their Palm fix.
Now HP says it is going to do another run of TouchPads during the fourth quarter. Rumor has it HP will have to price the “ZombiePad” at around $300 since it costs about $200 to manufacture them. At $300, the TouchPad becomes an “I have to think about it” purchase for consumers, but it remains to be seen how successful a $200 difference between it and the iPad will work.
Seeing HP’s “success,” Best Buy is offering discounts on RIM’s Playbook between $50 to $150. Yeah, good luck with that.
RIM doesn’t have a lot of apps, everyone knows it is a wounded duck not moving off the shelves, and bargain shoppers will sit back to wait for prices to drop further or grab the second round of HP TouchPads.
And then we come to the reports of Amazon planning to roll out a $300-ish Android-based tablet this fall. Depending on who is pontificating, Amazon will either break even or be “less profitable” (but not losing money!) money per device, or even willing to sell hardware at a loss.
Amazon has no problem offering a tablet that has single digit profit margins, according to analysts. The beauty is Amazon will simply make money on more book, music, and video sales via download, where profit margins are much better. RIM and HP don’t have those revenue streams available, so they can’t play the low-cost game as well.
This leaves an open question as to how fast Android tablet pricing will start to shift. Sony released a pair of tablets this week and will link its book, music and video content libraries into the device, but it isn’t clear if the current list pricing of $499 to $599 will hold steady through the end of the year. Sony may want to take a chance for the holiday shopping season and offer rebates to compete against lower-price Android offerings, borrowing a page from Amazon and making up the difference with content sales.
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