HP had high hopes that its TouchPad could catch up to Apple's iPad in the tablet marketplace. But after putting the device out for $499, the company saw few sales. HP then slashed the price by $50. Still, no sales. Next, a $100 discount arrived at retail stores, yet still, the TouchPad couldn't touch the iPad.
Then at last, HP had a dramatic change of heart, deciding to discontinue the TouchPad line and radically reduce prices, to $99 for each device. Suddenly, HP had its Apple moment. Lines were soon out the door, with customers camping outside in the earling morning before retail stores opened. The TouchPad topped the charts at Amazon—sold out everywhere online including at HP.com. Best Buy and other retailers couldn't keep up with consumer demand. HP promised to deliver more TouchPads. Many purchasers even received apology notes from retailers saying they were unfortunately out of stock.
Ironically, HP's discontinued TouchPad could soon be the second best-selling tablet of all time, behind only the iPad. If heavy discounts were all it took for TouchPads to fly off shelves, should other tablet makers take note? Do competitors have a chance against Apple selling at the same $499 price tag? And is there a sweet spot between $99 and $499—a spot where the price is low enough to sway consumers away from the iPad, while still being economic for the device makers too?
"There is only one credible player and category leader—and that is Apple's iPad," says Trip Chowdhry, an analyst Global Equities Research who specializes in the tablet space. "We don't see any second player at all—only leftovers."
Included in the leftovers, Chowdhry says, are all devices running Android, Windows, RIM, and HP's WebOS. While Apple has no issue boasting of the 28.7 million iPads it's sold, other device makers are less comfortable revealing numbers. Most will only say how many devices they've shipped—which is a far cry from how many they've actually sold. For example, Samsung is said to have shipped 2 million Galaxy Tabs; BlackBerry, roughly 500,000 PlayBooks; and Acer, about 2.5 million Iconia Tabs. Yet Forrester Research analyst Sarah Rotman Epps says, "There's a pretty big gap between their shipment and sell-through numbers." Chowdhry agrees, estimating that none have actually "sold more than 10% to 15% of what they claim to have shipped."
That means if HP's heavily subsidized TouchPad continues to sell out in-store and online, says Chowdhry, it's on track to become the second best-selling tablet on the market, since reports indicate HP's intial order was for between 500,000 to one million units.
Price is clearly on the minds of consumers. In her Forrester Research report released Monday, Epps argues that when Amazon releases its tablet on the market, it has the potential to become the top competitor to Apple's iPad. The reason? It likely will be marketed at a significantly lower price. "If Amazon launches at a price point significantly lower than competing tablets—some sources suggest that it may be able to launch a 9-inch LCD touchscreen tablet for as low as $299—and has enough supply to meet demand, Forrester estimates that Amazon could sell as many as 3 million to 5 million tablets in Q4 2011 alone," Epps says—meaning Amazon's offering would leapfrog over competeting devices that have been on the market much longer.
Yet price isn't enough. When Motorola lowered the price of its Xoom tablet, for example, it made a negligible difference in sales. The Android-based device did little to attract consumers, nor differentiate itself enough from other Android tablets. Sometimes, no product is worth the cost, no matter how discounted. Case in point: Nokia's widely panned N-Gage mobile phone—which looked like a taco—could never sell, even when the compny lowered the price from $299 to $199 to $99. "What is negative about Android? The user interface sucks," Chowdhry says. "It's so complicated that you need a user manual to use it." HP's WebOS, on the other hand, "felt like it had a higher level of quality and finish than the software that Google has offered," adds Epps.
(Of course, HP's TouchPad couldn't sell at $399, a much deeper discount than any Android-based tablet has seen, and only began finding interest after dropping to the fire-sale price of $99. It's hard to say whether decent reviews played a role in the TouchPad's success at the discount price, or whether the $99 sale alone is responsible for its newfound success. In other words, if a Toshiba Thrive and an HP TouchPad were both on sale for $99, which would you prefer to buy?)
Beyond price and software, services are likely a device maker's biggest differentiator. Apple boasts 100,000 iPad apps, for instance. One reason Epps is so optimistic for Amazon's tablet is because it'll likely come with signifcant cloud services. Microsoft might have an advantage over others by offering Xbox Live accounts. Other tablet makers could introduce appealing features such as free six-month subscription plans to Netflix. (HP tried a similar strategy when it offered customers 50GB free storage on Box.net.) And Epps even imagines some could offer more innovative broadband models, like purchasing surfing time on an hourly or daily basis, rather than by contract or a monthly plan.
The idea, simply, is to introduce more diversity into an ecosystem filled with poor iPad knockoffs. Now, it's clear that no tablet can match Apple's iPad at competitve or even slightly discounted prices—all have tried, and all have failed. (Samsung Galaxy Tab, Toshiba Thrive, HP TouchPad, BlackBerry Playbook—the list goes on.) Competitors must find a sweet spot in price to sell the tablet, possibly in the $300 to $399 range, and make up for any deficiencies through services.
That's the only way tablet makers can hope to become second place to Apple. And as both Epps and Chowdhry remind me, second place—behind Apple—isn't even all that impressive.
"If you think selling 200,000 or 300,000 over the span of two months or so is good, well then you are probably right," Chowdhry says. "But keep in mind that that's what Apple will probably be selling in just a few hours."
[Image: Flickr user Ben Dodson]