Motorola Xoom Pricing Confounds Consumers, Analysts

Motorola's Xoom is expected to cost $799, plus consumers must procure a 3G data plan from Verizon Wireless to access WiFi. Best Buy lists the device at $1,199. The move has readers and analysts scratching their heads.

Consumers and analysts continue to be flummoxed by the alleged price points for the Motorola Xoom tablet, which is expected to launch from Verizon Wireless and Best Buy this month.

Android Central said the Xoom, the first computer to be based on Google's Android 3.0 operating system tailored for tablets, will cost $799 from Verizon Wireless, sans contract.

Engadget rekindled the fire Feb. 6 when it received this Best Buy ad, which also hawked the tablet for $799. Now Best Buy's Website lists the Xoom at a whopping $1,199, which can only be an unsubsidized price point.

Adding gasoline to the conflagration is the fact that Xoom buyers will have to grab a 3G data plan to enable WiFi.

For the purpose of this report, let's take what we assume is the subsidized Xoom price point at $799 instead of the $1,199 price point, which is extremely unlikely to be the popular purchase plan.

At prices like these, Motorola and its partners may push consumers to Apple's iPad, which offers WiFi-only and WiFi+3G models. Moreover, the iPad 2 is coming out soon, which should have features, such as dual cameras, to make it more competitive with the Xoom.

One reader wrote:

"Was planning on buying a Xoom but will now wait for the ipad 2. Don't like having to donate $50 to Verizon and having to pay a higher price than the expected ipad 2. If the ipad 2 comes out with lower pricing as expected motorola will have to lower theirs as well and I'm not going to get stuck paying more just to buy it upon first release."

Another noted: "I also was exited about the Xoom, but a wifi only version. I don't need cellular for it. I guess I will wait for the ipad 2 as well. I'll never buy a computer that REQUIRES are data plan. That is just ridiculous."

Tech analysts agree the strategy is strange. Gartner analyst Carolina Milanesi told eWEEK, "The Xoom will need a hefty subsidy for consumers to pick it up as $800 is quite a bit to pay."

IDC analyst Susan Kevorkian said there isn't a good reason for consumers to pay $800 for a Motorola tablet, when they could pay only $29 more for a 64GB iPad with 3G, or less for other iPad models.

"In a market where iPad sets a high standard for quality and technology integration, any would-be media tablet competitor that wants to gain share needs to price a device competitively against iPad, and $800 for Xoom isn't competitive," Kevorkian added.

Enderle Group analyst Rob Enderle attributed the high price for the 10-inch Xoom to the fact that Apple tied up the supply for 10-inch touch displays (iPad uses a 9.7-inch display, technically), which means that other tablet makers pay a huge premium for them and pass the cost on to consumers.

"Maintaining a premium price against Apple is almost impossible to do with an Android-based product given that most underprice their Apple counterparts at volume," Enderle said. "This is one of the reasons I think the iPad remains untouchable for most of this year-they have a huge price advantage until display production ramps up."

Kevorkian isn't ready to blame component costs for the Xoom's price tag, noting that display manufacturers have been planning for a ramp-up in media tablet production for months, and the cost for other key components, like mobile broadband modules, has come down during the past year.

"Motorola has deferred to Verizon for pricing, and it's easier to start high with the price on a new product and come down based on demand," Kevorkian said. "But we would think the market would have learned from the Samsung Galaxy Tab's example which was also priced too high out of the gate and has suffered limited demand as a result."

Indeed, Verizon launched the 7-inch, Android 2.2 Galaxy Tab last November for $599, while AT&T charged $649 at launch, both sans contracts. Verizon and AT&T eventually cut prices for the Tab by $100.