How'd HP do it? Seemingly by just slashing the price to $99. But even at bargain basement prices, consumers want usability. For other also-ran tablets who aspire to nip at Apple's heels, there's a lesson here in finding the sweet spot between price, design, and function.
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?
Trip Chowdhry, an analyst Global Equities Research who specializes in the tablet space says.
"There is only one credible player and category leader--and that is Apple's iPad. 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.
- 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, sincereports 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
Here are a few examples where lowering the price didn't register a huge increase in sales.
- Motorola lowered the price of its Xoom tablet, but it made a negligible difference in sales. The Xoom did little to attract consumers, nor differentiate itself enough from other Android tablets. Sometimes, no product is worth the cost, no matter how discounted.
- 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. Chowdry says.
"What is negative about Android? The user interface sucks. 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."
(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?)
IT'S THE APPS, STUPID
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. But keep in mind that that's what Apple will probably be selling in just a few hours."
COMMENTARY: In a blog post dated August 28, 2011, I spoke about the incredible domination of the Apple iPad. I occasionally poke fun at Apple evangelists. I do the same with Steve Jobs, but I also respect the man for what he has accomplished during his second tenture (until he resigned) which in the analls of corporate history may never be matched. Steve is unique. He is truly the "Great Communicator". His presentations during product launches are masterpieces and written abiout.
Having said this, Steve Jobs may have pulled off the greatest snow Jobs in corporate history. Steve can do more with just a few words, than any other CEO, I have ever seen. If he says its "magical", then it must be, because Steve said it was. The iPad becomes a huge success, and not once has he resorted to discounting to increase sales.
The Great Steve "Snow Jobs"
Anytime you can sell a product that doesn't support Adobe Flash you are depriving your customers of the "most wonderful" surfing experience. That's a Snow Jobs. I always felt that the iPad lacked a keyboard, and I was right. The iPad 2 now comes with an optional folio keyboard. That's a Snow Jobs. But, doesn't adding a keyboard to the iPad just make it another netbook? That's a Snow Jobs. It's not even a good laptop, because it's underpowered, incapable of handling true multi-tasking and robust applications. That's a Snow Jobs. If you are a dedicated Apple evangelist cry all you want, but if you can refute any of the above, then you are trying to pull a Snow Jobs on me, and that will not work.
The Real Reason Why HP Is Resurrecting The TouchPad
Like many tech bloggers, I was just shocked to hear the speed with which HP announced it would stop selling the TouchPad. I personally tried out the TouchPad and absolutely loved it. The TouchPad also received excellent reviews for its performance, beautiful touchscreen, and multi-tasking capabilities. It also supports Adobe Flash and HTML5, which no tablet should be without. However, like the other non-iPad tablet makers, the TouchPad lacked sufficient native apps. So when HP had their fire sale, and moved into No 2 behind the Apple iPad within a matter of two days, I started to think why did that happen? I think price had a lot to do with it, but most importantly, the TouchPad is superior to the iPad. So in spite of a lack of apps, 500,000 to 1 million consumers went out and bought one. That says something, don't you think?
When HP suddently did an about face and announced today that it would produce more Touchpads to fill "the unprecedented demand", it can only mean one thing: HP believes it has a huge hit at a lower price point. The big question is whether consumer's are willing to pay $99.00, $199, or $299 for the TouchPad. I think they will because consumers know that the TouchPad delivers what they want: Better performance, Flash and HTML and multi-tasking capability.
I believe that the real reason why HP is resurrecting the TouchPad is to increase the number of units sold in order to satisfy tablet app developers that it is for real. If HP can demonstrate to app developers that it can sell 2 to 3 million TouchPad's, you may be able to sway enough of them to develop WebOS apps to really compete against the iPad, and maybe steal market share (as puny as it is) from Android tablet makers.
Forrester's Epps seems to believe that if Amazon prices its forthcoming tablet at $299, that it can sell 3 million units. That's a pretty bold prediction, but it would depend largely on whether it can deliver performance and features similar to the HP TouchPad and iPad.
I just ran the math, and if HP sells 2 to 3 million TouchPad's, I estimate that it will lose between $7 to $207 per unit and generate revenues of between $200 to $900 million depending on the price and number of units sold:
- $99.00 - It loses $207 per unit, but generates gross sales of $200-$300 million
- $199.00 - It loses about $107 per unit, generating gross sales of $400-$600 million.
- $299.00 - It loses about $7.00 per unit, generating gross sales of $600-900 million.
On the re-launch TouchPad prices will vary depending on the amount of memory (16, 32, or 65 gigs) or if they handle WIFI/3G. I believe that many users will opt to increase the memory and add 3GS capability, and this will get the TouchPad closer to breakeven or even generate a slight profit. If it includes an optional folio keyboard like the iPad, it will likely generate a healthy profit, because margins on accessories are much higher than on regular hardware.
I think that HP is willing to sacrifice profitability in order to get more app developers to climb on board the TouchPad bandwagon. If it can execute the above strategy to perfection, I believe will eventually make decent money on the apps, it can eventually become a decent or even formidable competitor to the iPad, and who knows what can happen next. My favorite candidate to the "iPad-Killer", perhaps?
Courtesy of an article dated August 30, 2011 appearing in Fast Company