Amazon's Kindle Fire, RIM's PlayBook, and HP's TouchPad all sold in enormous numbers at a low price point. That might not be good news for tablet manufacturers.
How do you ensure your non-iPad tablet sells out in a matter
Answer: enormous price cuts.
In time for the holiday shopping season, retailer Best Buy
decided to cut the price of Research In Motion's PlayBook tablet to $199 and
$299, respectively, for the 16GB and 32GB models. That apparently led to a
spike in sales, with Best Buy sending a statement to media outlets claiming
that the PlayBook was "currently sold out of our inventory" and that "we will
have additional units available in the near future."
Meanwhile, Amazon's Kindle Fire-another tablet with a 7-inch
screen-became the online retailer's bestselling product at a sticker-price of
$199. The device offers a heavily modified Android interface, one that
facilitates the purchasing of streaming content and e-books from Amazon's
online storefront. That tight integration, along with a "virtual bookshelf"
user interface that deviates from other tablets' grid-like screens of
individual apps, makes the Kindle Fire an altogether different animal from the
PlayBook or Apple's iPad. Nonetheless, consumers are evidently gravitating
toward the product.
Hewlett-Packard was the first to demonstrate that a cheap
tablet is capable of selling in blockbuster numbers, when it decided to kill
its TouchPad in August. The first weekend after HP announced its decision, Best
Buy and other retailers slashed the price of the 16GB model from $399 to $99,
and the 32GB one from $499 to $149. That sent consumers scrambling for the
nearest electronics share, and propelled what had formerly been an
anemic-selling device to second on The NPD Group's list of bestselling tablets
in the U.S., behind the iPad.
In Amazon's case, the Kindle Fire's low price point is by
design. According to research firm IHS, each unit costs $201.70 to manufacture,
including materials and labor. If that analysis holds, it means Amazon is
racking up a slight but noticeable loss every time someone purchases a Kindle
"Amazon makes its money not on Kindle hardware, but on the
paid content and other products it plans to sell the consumer through the
Kindle," Andrew Rassweiler, senior director of IHS' teardown services, wrote in
a Nov. 18 research note. "This is a similar business model to wireless
companies such as AT&T or Verizon. They sell you a phone that costs them
$400 to $600 or more to make for a price of only $200. However, they expect to
more than make up for that loss with a two-year service contract."
However, other tablet manufacturers presumably angled to make
a profit off their devices. Another IHS teardown found that the TouchPad's
material costs totaled $318, with $10 for manufacturing, and the PlayBook's around
$271. The latter loses money at its new Best Buy price point, especially when
you factor in marketing and other secondary costs.
Neither HP nor RIM boast an Amazon- or Apple-style product
storefront. (Even Barnes & Noble, which is positioning its Nook Tablet as a
direct competitor to the Kindle Fire, offers Netflix and other third-party apps
rather than provide its own streaming content.) That makes it difficult to
recoup hardware costs through selling apps and entertainment.
With the TouchPad officially shut down, HP has shifted its
focus to tablets running Windows. For those non-Amazon companies pushing their
existing tablet franchises, though, the success of devices at a drastically
lower price point raises some uncomfortable questions: do you continue to sell
and take the loss, in hope of retaining some vague "presence" or "exposure"? Or
do you take that as a sign to revamp (or scrap) your tablet plans altogether?
Meanwhile, Apple's iPad continues to hold the lion's share
of the tablet market.
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