HP Tablet Fire Sale Lets Us Put A Price On The Value Of A Strong Development Community
from the apple-and-orange-sales dept
A couple of weeks ago, HP made the significant decision to get out of the consumer hardware business, simultaneously shutting down their PC business and their mobile device business built around the WebOS purchase that came with Palm, Inc. When they abruptly did so, HP also announced they would be clearing out the supply chain by offering their very capable, $500+ TouchPad tablet for $100 (16GB models).
What followed was a mad rush of purchasing, with people clamoring for a cheap, but powerful tablet. This is by no means a bad device: remember that the WebOS was critically acclaimed, and this tablet had a 9.7″ screen, webcam for video chat, lightweight, 1.2GHz dual-core processor and more. These are flagship-grade tablet specs, and although we’ve learned that UX is more important than specs, good hardware is a definite plus. The biggest problem with the device was the lack of developer support for the ecosystem, so there are “thousands” of apps available according to HP, but not the ‘hundreds of thousands’ that work with the iPad.
This fire sale has provided a fairly interesting experiment in the market clearing price for non-iPad tablets. The base iPad sells readily for $500, and is often sold out. This is the high-water mark for tablets, which no other has matched. Other vendors have built competitive hardware and tried to sell it in the same price range (Motorola Xoom, Samsung, Playbook) but were rewarded with lackluster sales. Some of those devices, on paper, are arguably better than the iPad, so the most likely reason Apple can extract a premium is the power of their App developer community. An iPad can do much more than a Xoom partly because of what Apple offers, but mostly because of the ‘whole product’ which includes 400,000+ apps.
Device industry executives must stay up at night wondering how to price their tablet. The HP experiment will prove useful. Now we know that at $500, buyers walk away from the deal. But at $100, they literally rush the store like Walmart on Black Friday. This tells us that the correct price for a good tablet with weak developer support is between $100 and $500. That’s a fairly wide range. I wish HP had set the price higher, to provide a better test. Unfortunately, whenever an OEM company sets the price, what we get is their desired price, but not the market value. For that…we have eBay. Many of the buyers at HP’s firesale were just arbitrageurs looking to flip the tablet to make a quick buck, and those tablets quickly showed up on the auction site. A look at eBay today reveals a high number of TouchPads on offer, and sold for a market price of ~$250.
If the hardware alone is valued at about $250, how does iPad sell for $500? Well, we’ll have to attribute some of the premium to the “cool, sexy” mystique of Apple products. But I wouldn’t go too far with that. The Samsung Tab or HP TouchPad are both very slick looking products. A chunk of the premium has to be allocated to Apple’s excellent and easy UX. The mass market doesn’t want to geek out, they want easy products. But Honeycomb and WebOS aren’t so far behind…
No, the dominant reason that iPad can sell out at $500 (even as sales have tipped well beyond the fanboi segment) is the value brought by apps. Apple is making cake because it has the biggest developer community coding around the OS, and the value of that community is currently worth something on the order of $200-250 per tablet. It’s going to be tough for any other tablet to breach this market, where Apple already has the supply chain dialed in, the developer community, the innovation lead, and the brand. Android may progress bit by bit, but for now Tablets are Apple’s private playground. Competition will heat up if Android tablet versions of the Nook and Kindle go to market around the $325 range (making their profit on books instead). Note that the TouchPad has an estimated $318 Bill of Materials (BoM). In a few years, Moore’s Law and steady Android progress will reduce the cost and app advantage iPad now enjoys.
HP will be emptying the supply chain in a couple of weeks with the final production run of TouchPads. I wish they would bump up the price to see if the market would bear $318 direct from the manufacturer (ostensibly, a more desirable seller than eBay members), but it seems that they will keep the current fire sale price.
Filed Under: community, computers, development, price, tablets, value
Companies: apple, hp
Comments on “HP Tablet Fire Sale Lets Us Put A Price On The Value Of A Strong Development Community”
An iPad can do much more than a Xoom...
Be careful with statements like “An iPad can do much more than a Xoom”. While the iPad is a better choice for most folks, and certainly has more apps, there’s quite a bit that the Xoom can do over the iPad — vastly better Gmail support, Google video chat (even over 3G), widgets, much better customization, etc. While you can argue about the usefulness of widgets on a phone, they’re amazingly useful on a tablet.
I think the iPad is selling better partially because of the apps, but largely because of the cool factor. For many people, tablet = iPad, and that’s the end of the story.
Re: An iPad can do much more than a Xoom...
Other things that iPad cannot do (correct me if I am wrong):
Emulators
Programming environments
Playing media from the SD card directly
Connecting to a DLNA home media server
Connecting to Windows shares
Clients for built-in Microsoft Remote Desktop
Playing Angry Birds for free
All these applications are free on Android. In fact, I only paid for one Android app and that’s because my co-worker wrote it.
Re: Re: An iPad can do much more than a Xoom...
All that, plus it has round edges too
HP Tablet sales
Just start checking amazon and ebay for HP Tablets. I’m sure that’s where they’re going to all end up. You’ll find the real price there.
Re: HP Tablet sales
Read literally two sentences after what you quoted.
I'm not sure you understand...
“If the hardware alone is valued at about $250, how does iPad sell for $500? Well, we’ll have to attribute some of the premium to the “cool, sexy” mystique of Apple products. But I wouldn’t go too far with that.”
I’m not sure you understand Apple fanboyism… This is a company that puts out computers that cost $400 more than competitors’ computers, and still sells them. (This is from manufacturers, not when building your own.)
There appears to be something that putting the apple logo on it instantly increases the price, without any other aspect being different… Brand Recognition? I’m not an economist, I can’t say for sure.
Thus, if there were a tablet not made by Apple that could access their app store, then you could look at the price difference and see how much the apple logo is worth, and then find the cost of the developer community.
Re: I'm not sure you understand...
Wait, what? Has Dell started selling PCs with OS X on it, or does Apple sell devices with Windows 7 now?
I’m not saying OS X is worth that premium (I’m rather OS agnostic). Just pointing out that a computer’s specs (especially to nontechnical people) is not the difference. To them it’s all how the device looks on the outside (including the brand) and the user interface (which in this case is the OS).
Re: I'm not sure you understand...
For once, I’ll say that this isn’t a topic where economics offers the answer. It’s more marketing.
But I stand by the fact that the “fanboi” effect on pricing is not a factor anymore. How many fanboys are there? They are the people in line the first day the iProduct is available. But they are not the ones buying it 3 months later. The Apple products (and I’m not talking about desktops) are being sold to people with NO religion, no loyalty, and no horse in the race. They just like the product.
Fanboys account for the first few days of sales, and they would probably pay much more for “FIRST” bragging rights. In fact, iOS products on eBay always sell at a big premium in the first days.
The Android vs. iOS web comment battles are the exclusive domain of us geeks. The mass market doesn’t care, and probably isn’t even aware of the epic battle of who-gives-a-shit proportions that takes place online every day.
Re: Re: I'm not sure you understand...
I agree that fanboizm isn’t a compelling explanation. However, the iPad gets a huge mindshare boost from being the first; it was able to establish market dominance and become the tablet archetype before there was any serious competition. As a result, when people think tablet they think iPad. So, in effect, the decision making process of the average consumer goes as follows 1) wanting an iPad 2) seeing things that are like iPads but not noticeably better 3) buying an iPad
Any challenger has to be able to move people away from that idea that the iPad is the default. If the challenger is merely comparable (or even just slightly better) in a category–as the best alternatives are with OS, hardware and design–it won’t be sufficient to shake people off the iPad. Price is the only way for a challenger to distinguish themselves sufficiently to overcome the iPad default mindset.
App development could have that effect too, but most non geeks I know don’t seem to know enough about the various app ecosystems for it to be a deciding factor.
Re: I'm not sure you understand...
“I’m not sure you understand Apple fanboyism… This is a company that puts out computers that cost $400 more than competitors’ computers, and still sells them. (This is from manufacturers, not when building your own.)
There appears to be something that putting the apple logo on it instantly increases the price, without any other aspect being different… Brand Recognition? I’m not an economist, I can’t say for sure.”
For the true fanboys it goes well beyond Brand Recognition and crosses into the religious fanaticism territory. The BBC did a documentary with some neurological research that indicates that the brains of Apple’s fanboys light up the same when when seeing an Apple product as does the brain of a religious person upon seeing the image of their deity.
http://www.bbc.co.uk/news/business-13416598
Apple has literally become the golden calf worshiped by the blissfully ignorant masses. Perhaps Amazon will send Moses down from the mount with a tablet that will smite the false gods and their followers, but other than that, I think its a lost cause trying to explain to the average Joe why their iPad is overrated. I can’t find the source, but my favorite description of Apple products is that they are a beautiful garden that can only be viewed after paying the outrageous admission price and then you are trapped behind its razor wire tipped walls and its surrounding army of lawyers riding flying laser armed sharks… or something of that nature.
Re: Re: I'm not sure you understand...
I’m happy with my iPad.
Maybe you should relax and let go a little. You sound bitter.
Re: Re: I'm not sure you understand...
“This is a company that puts out computers that cost $400 more than competitors’ computers, and still sells them. (This is from manufacturers, not when building your own.)”
Odd. Then why did the manufacturers recently try to strong-arm Intel into dropping processor prices so that they could compete in the same price range as the Air?
If there’s an “Apple Tax,” then why is it that HP and Samsung and RIM can’t build an equivalent tablet for significantly less than the iPad?
It’s odd, but it seems that when everyone else attempts to build to the same specs — and to the same quality level — their products are just as expensive.
If not more.
Re: I'm not sure you understand...
Hmmm…I believe in what I see.
In the workplace I saw one girl appear with an Android, at first nobody paid attention they all had the superior iPhone, suddenly the girl started appearing with a lot of cool stuff, from face recognition, speech recognition, voice synthesizers, augmented reality social mapping, games, animated wallpapers etc.
What happened a year later?
An iPhone freezone, nobody wants an iPhone they don’t get value out of it like they do with the Android the girl appeared with and they got local support from the girl that became the go to girl about Android related stuff, before they didn’t know how to transfer files from phone to phone now they are using bluetooth and transfer video files with each other something they couldn’t do before because they didn’t had any support.
More importantly they compared features with the iPhone and most agree that video quality is better on the Android.
That explains why Android market share exploded and the iPhone is shrinking dramatically.
The HP move just proved one thing, if you price it right and the community jumps in you can beat Apple, that is how you undermine the number 1, you gather the community around it and price it lower not in equal terms, nobody who bought an Apple device cares about other brands, they want the Apple stuff, the other people the rest of the market don’t care about Apple and will choose the things that are really good there is no brand in that segment so you go there first and let the word spread around that the number 1 is not all that it said it was.
Re: Re: I'm not sure you understand...
Nobody who bought Apple cares about other brands?
Where I work. we have a strong mix of engineering types, business types and creative types (about 2500 people). As you would expect, virtually all the creative people are have macs and prefer Apple’s stuff. But historically, most of the engineering groups had palms and were Windows guys, and the management had BBs and Windows.
A really high percentage of the latter two, though, have bought iphones and ipads. Probably about 1/3 of the iphone buyers then later switched to android phones. But most of them like their iphones fine, and no one with an ipad I’ve met is even contemplating switching to another tablet.
Anecdotes are fun.
Re: I'm not sure you understand...
This is (roughly 🙂 what I was wondering too. Derek argued that a significant chunk of the $250 difference between the iPad’s hardware-only value and its selling price is due to its app ecosystem.
I don’t think many people would argue against Mac hardware being slicker than almost all PC hardware. Many (though by no means all*) people think the UX experience of OS X is nicer than Windows too.
But PCs have a wider range of software than Macs. Most major applications are either available for both (Photoshop, MS Office) or just for the PC (games, principally). So I don’t think the range-of-apps argument works here, but Macs still command a hefty price premium, which presumably then must be attributable to the brand and overall (UX, hardware, shopping) experience.**
* Including me, though there are a lot of ‘legacy’ issues here. 🙂 I also build my own, so I avoid all of the crapware that’s typically bundled with PCs.
** Though the % difference in price is significantly less than the 100% markup over hardware only on the iPad postulated here.
Re: Re: I'm not sure you understand...
You have to wonder how much of that crapware that comes bundled on most every new PC sponsored the price of that PC though…
Re: Re: I'm not sure you understand...
“But PCs have a wider range of software than Macs. Most major applications are either available for both (Photoshop, MS Office) or just for the PC (games, principally). So I don’t think the range-of-apps argument works here, but Macs still command a hefty price premium, which presumably then must be attributable to the brand and overall (UX, hardware, shopping) experience.**”
This. Just this. I’d forgotten about the variety of applications the PC commands, yet the Apple still holds a decent market share in the arena. I believe things have changed recently, but developing for a PC is loads easier and more accessible than developing for a Mac. (www.sourceforge.net Search for Mac projects. Search for PC projects.)
This, by itself, destroys the theory that the price premium is for apps. At least in the PC market. 😉 Given that, however, you can extrapolate a ‘brand-price’ that being a Mac affords a computer.
As for the marketing campaign that Apple has in place, focusing on the apps… What else would they focus on? Name one other thing the i(Noun) family does better than any other comparable product. They’re the only thing they COULD advertise and not run afoul of truth-in-advertising regulations.
Re: Re: Re: I'm not sure you understand...
“What else would they focus on? Name one other thing…”
Oh, man, that’s easy. Just look at any ad from any non-Apple CE OEM.I’m not saying these ads are successful, but Apple COULD focus on things like:
– 5 Megapixel Camera
– Photo enhancement software
– 4″ AMOLED screen with Gorilla glass
– dual core, 1.9999 GHz!!!
– just pencil thin
– FACEBOOK!!
– 3G, 4G, WiMAX
Here’ just have a look:
http://www.samsung.com/global/microsite/galaxys2/html/
What’s funny is I typed the bullet list before I searched for that site, and then basically saw my bullet list.
Most OEMs just read a spec sheet into their ad copy. Apple’s first year of apps focused on the features of the phone (not just specs), but after a year, shifted to apps and that’s all.
Re: I'm not sure you understand...
There is one point that I think you miss that really would change the picture about the ipad and that is, in absolute terms, the bigest group of ipad owners, are iphone owners.
So when looking at sales, one of the things that should be looked at is how well the ipad is penetrating the market beyond iphone users and how well the android tablets are doing with the non-iphone users.
Re: Re: I'm not sure you understand...
Is this really true though, or are you guessing about those numbers?
$250-300
I think if HP would have the smarts about it – they should price the first model at these prices, release the SDK and work closely and friendly with developers, Offer better cut – say 80/20 and don’t be greedy and don’t require (or much smaller) cut from content/subscriptions like fruit company did and lost any revenues from them.
Then MAYBE, just MAYBE they had a chance to sell Touchpad 2 at profit. Does HP have the resources to pull this – hell yes, but profit loosing project are not desirable by current HP management…. too bad
Re: $250-300
Yeah. You gotta wonder why they didn’t just decide to price the units at cost, $318, and see if they couldn’t seed the market that way. Maybe it works, maybe not. But at least you get a shot vs. just killing it.
But WebOS is dead now. HP euthanized it. They can’t undo that. It’s like Ben Bernanke saying the economy is @#$@. He can’t come back the next day and say something to restore confidence.
Re: Re: $250-300
I’m assuming that $318 was what it cost to make it.
Then you have to add in shipping, all the middle men costs, and the requisite store markup. That all adds up to very little less than the original tag price I suspect.
Re: Re: Re: $250-300
$318 for parts. Still need $10/unit for assembly.
Apple UX, aka “Don’t give the user enough rope to hang themselves.” Not the worst strategy obviously, but extremely annoying to a lot of people (myself included.)
What I find exceptionally bizarre about this turn of events is that Apple hated 3rd party developers for soooo many years. To this day, it’s hard to find someone who codes for Mac, much less enjoys it.
Apple has closed the door on the customizable PC, possibly for good. When they say, “Post-PC”, they are really saying, “Web-browsing entertainment appliance.” It’s not a computer, any more than your car is. Yeah, it has chips. That’s about it.
Re: Re:
“Apple hated 3rd party developers for soooo many years”
Yeah. And Apple was AGAINST the idea of an App Store and downloadable apps for the first year of the iPhone. But they learned their lesson, and were able to turn on a dime. That’s clever enough. And then their ads immediately began to focus on the apps, not on the phone. Take a look, it’s pretty interesting to realize that the phone is not the star of the TV ads, but the app functionality IS.
Re: Re: Re:
Sidenote on what I just wrote about their TV ads focusing on the Apps.
Isn’t it evident that Apple realizes why they can charge such a $200-250 premium for their products, based on what aspect they choose to promote on the telly?
Re: Re:
As a maker of consumer products, it’s probably the best strategy.
Let’s be honest. The number of tech-savvy users (and I mean really tech-savvy users) are a small minority in the overall scheme of things.
Being able to do everything and kill yourself while you’re at it is just not a good strategy to take when you’re trying to sell to the largest audience out there.
Like a netbook...
$250 is approximately the same price as most netbooks – so I think that’s more likely why the market has settled there.
As a consumer, it’s pretty hard to compare a tablet and a netbook and not draw a parallel – as an owner of both, I would have sprung for the netbook first – but I picked up several touchpads at the < $200 price point because it’s just a damn good deal by comparison.
Re: Like a netbook...
Bearing in mind, I can get a fully-powered notebook for ?350, it makes sense that the tabs are in the same market as netbooks.
I have had a sprint pre since pretty early on. I was highly satisfied with the UX of webos. Even after getting exposed to a droidx for awhile, there are still details where the “intuitive nature” of webos is better than android. If palm had played things differently, it may have been a better competitor with android. Their hardware wasn’t very durable and obviously wasn’t the exact design people were looking for (of which I would definately agree after having it for 2 years). I think the lack of hardware variation, sprint exclusivity, and the timing (android was compelling right then too) was the reason developer community didn’t build.
Having said all that, the HP execs should have known that they wouldn’t be profitable at th 500 dollar range. I would think its obvious that apple is winning because of developer community. So unless you inject the app catalog with a lot of corporate sponsered, highly compelling applications, I feel you are dead in the water for the same price. The 100 dollar price fire sale is not the experiment, the experiment already happened with the pre (and especially the 2nd gen ones) in my opinion.
Palm died because of the reasons I said. HP bought them and didn’t do a single thing different. Guess what happened to that business?
Touchpads
Bought a 16 and a 32 Touchpad and couldn’t be happier. Did a few well known tweaks and am quite happy with the speed of the thing. Have enough apps to do everything I want to do with them. Touchpads aren’t for app hungry people but critics shouldn’t compare them to iPads which are much more expensive. That’s like comparing economy cars to luxury cars, don’t make sense
Re: Touchpads
I was wondering when someone would bring in the inevitable car analogy. I will concur with the other fellow that claimed that much of Apple’s premium pricetag is due to nothing more than the fruity logo.
This isn’t econoboxes versus luxury cars. This is Ford versus Chevy where Ford has a bizare cult following.
Re: Touchpads
“critics shouldn’t compare them to iPads which are much more expensive. That’s like comparing economy cars to luxury cars, don’t make sense”
Disagree. There are few comparisons that are more apples to apples than the TouchPad (or Samsung Tab 10.1, or RIM PlayBook, or Motorola Xoom) vs. the iPad.
Similar form factors, similar hardware, same target market, similar functions. The other OEMs are all basically chasing (and copying) Apple’s success. How are these things not suitable for comparison?
I know someone that bought a TouchPad on Ebay for $220. It went faulty 1 day after buying it. As the item was sold as “12 months warranty” it was the Ebay sellers responsibility to handle the warranty claim. As obviously the buyer is unable to take it to Harvey Norman, as although he had the original receipt as it was sold for $98, if HP decide to refund rather than fix, they’ll only refund $98. The Ebay seller wasn’t happy at all, but if you want to sell an item with 12 months warranty then you have to abide by the law. So the seller could well be out of pocket because he needs to pay for the return postage of the item, and if the money is refunded also refund the initial $20 postage cost.
If they’re doing another production run on a product they were going to ditch, wouldn’t that tell you (the manufacturer) that the original pricing was a barrier to many folks? A large, well funded company like HP can’t think of a way to monetize this thing outside of hardware price margins?
Re: Re:
oh, and another thought- If they are going back for a second run, doesn’t that imply that they are still making a profit at the $100 price point? Half a loaf is better than no loaf etc?
Re: Re: Re:
They’re not. They’re taking a $200 loss on each touchpad they sell.
Derek’s reply below explains why they’re making a final production run.
Re: Re:
“If they’re doing another production run on a product they were going to ditch, wouldn’t that tell you…”
No. That tells me they had components in the supply chain, manufacturing contracts, and minimum commitments. They will empty the supply chain, and be done.
A few thoughts...
Apple’s advantage is image – as the one who opened up the market for tablets, they have cemented themselves as the “Brand Name” product maker while the rest are “knock offs.” The Apps help, but the cult of Apple is a powerful thing.
I, for one, and looking forward to Windows 8 – which, if press releases are to be believed, will scale across all devices from the smartphone all the way up to the powerhouse gaming desktop. Add in native HTML5 and Javascript app support and the current Windows developer base, it’ll be potent.
The unfortunate thing is that I may have to kitbash a tablet that’ll do what I want, and that makes me sad.
Perceived Value
This is a concept we used to sell steaks (for example). We ran a cycle of featured items (special has some negative connotations, like cheap). We mixed the prices of items up (in a planned and controlled fashion), and then watched the impact on volume. The $15 steak unit sales went up about 20% when priced at $25 (prices are examples, the actual price depended upon the individual market, but the effect was the same). The customer perceived that the more expensive steak must have been one hell of a steak. The increase in overall customer counts and repeat customers told us it was.
Apple learned this a long time ago. Their first excuse was their closed hardware model. That experience gave them plenty of data to analyze, and there has been much since. They know what the break price is, before they decide on a price. I think they have earned a lot of their perceived value, though the last Apple product I bought was in the early 80’s.
uh, no... HP Tablet Fire Sale Lets Us Put A Price
All the fire sale price tells you is that people will spend $100-150 for a very competent tablet with most of the functionality of much higher cost units, at a price point they aren’t likely to see again for awhile. Don’t read more into this than it deserves.
Re: uh, no... HP Tablet Fire Sale Lets Us Put A Price
Brilliant observation…on the first half of the article.
However, the high volume of units being sold on eBay creates a liquid market, which tells us that the true market price (on eBay) is around $250.
So let’s be sure to read into this at least as much as it deserves.
Re: Re: uh, no... HP Tablet Fire Sale Lets Us Put A Price
Is this what passes for analysis here now, wishful thinking? Can no one even bother to do a few scant minutes research into product pricing?
The $99 fire sale tells us that people are willing to spend $250 on a scarce device where the PARTS ALONE cost $318, and that retailed for $500.
But you want them to eat the difference between $318 and $250 ($68), and somehow make it up in volume. Except that it’s not just $68.
You see, $318 does’t include assembly. Doesn’t include shipping. Doesn’t include admin and marketing and legal expenses. Doesn’t include patents and licensing. Doesn’t include any R&D and development costs. And doesn’t include paying off a $1.2B investment.
And most certainly doesn’t include distribution and markup at the retail level. (Remember, retailers are not in this for their health.)
Not to mention one single dime’s worth of profit.
It doesn’t matter what it’s “valued at” if you can’t afford to build it for that and sell it for that. All of those costs are baked into the price of the product. Forget $250. Even retailing it at the part cost of $318 you’d lose money hand over fist. Same for $399.
And your next brilliant plan is to wait for the parts to go down? Fine. Why would the parts go down? Perhaps because people have moved on to quad-cores and retina-level displays?
In which case who’s going to buy your underpowered previous-generation POS tablet again? How many people bought underpowered POS Dell Streaks?
But hey. Let’s say you did decide to lose your shirt in order to gain market share… and you do begin to see a little traction… and then Apple, whose current BOM on the iPad 2 is $268 and with $70B in the bank, drops the price of the previous generation iPad 2 base model to $299. Boom.
The iPad is aggressively priced. Everyone and their kid brother are having problems meeting the price NOW with comparable units. What happens if they get even more aggressive? They can afford it? Can you?
Re: Re: Re: uh, no... HP Tablet Fire Sale Lets Us Put A Price
You make valid points about the SG&A costs, which I don’t discuss because of brevity. BoM is considered the hard costs paid to suppliers, and does not include internal SG&A attributed to this single product, which would be impossible for anyone outside HP Corp Finance to determine. For now, $318+ is what we have to work with in terms of marginal cost per unit.
You make invalid points on:
retailer markup – HP can sell direct, as it is with the fire sale, or as Amazon does with Kindle. But it’s true that to reach a massive market, retail is important. Direct works for fire sales, but not always.
R&D, $1.2B investment – Sunk cost. Irrelevant. they also recuperate none of this with the fire sale or shuttering the product line.
Next, I suggest that Moore’s law will help non iPads. You say it will make them lacking because iPad will have moved on to quad core or the future best-of-breed. However, note that almost nobody pays $1.5k+ for a PC laptop anymore – although $1.5k+ laptops are still available. Turns out that, at a certain point, a quad core i7 laptop is not distinguishably different to the user over than an i3. Intel knows this, which is why they are now focused on changing the features of each generation as well as the clock speed. Are you the kind of guy who will rush out to get a 20MP camera, because you just aren’t satisfied with the 3′ X 5′ poster prints your 10MP is giving you? My point is that, in two years or so, a cheap Android tablet ($200 retail) will give very satisfactory performance to the mass market. Like netbooks ate into laptop sales, these low-end tablets will eat into high-end sales. Will Apple lower their price to match? Perhaps, but their past strategy on the laptop PC side (and smartphone side…so far) does not suggest so. They will protect their margins and own the high end and let the others compete for the commodity market on the low-margin end.
My analysis left gaps because it was brief. But you haven’t pointed out anything incorrect in it. Yours, also brief, made errors like not ignoring sunk cost.
Re: Re: Re:2 uh, no... HP Tablet Fire Sale Lets Us Put A Price
“Will Apple lower their price to match? Perhaps, but their past strategy on the laptop PC side (and smartphone side…so far) does not suggest so.”
Right. That’s why the 3GS is still on sale at a $99 subsidized price point.
Why the Touch is still available.
Why the iPod is available at a variety of price points from $49 to $349, and why Apple dropped the price as components became cheaper.
Why the 11″ Air is at an $999 price point.
Apple doesn’t lower prices at all…
Re: Re: Re:3 uh, no... HP Tablet Fire Sale Lets Us Put A Price
Nice try. Pulling out a subsidized price. Subsidies, obviously, mask the true price of the phone. The price Apple requires for the device is not the $99 you cite, as you know.
Why would you cite that price, when you are trying to argue the price that Apple sells for?
http://store.apple.com/us/browse/home/shop_iphone/family/iphone?mco=MjEyNTI5NjY
Apple iPhone 3GS unlocked is unavailable. iPhone 4 16GB unlocked is $649. iPhone 3 is totally gone, as is 2G version.
So far, Apple does not appear to be motivated to offer a cut-rate iPhone. The unsubsidized market price is $650. Anybody honest would admit that is the high end of the market.
Re: Re: Re:3 uh, no... HP Tablet Fire Sale Lets Us Put A Price
Apple doesn’t lower prices at all…/
Bull. Whenever I’m reading tests in computer magazines, Apple’s new product models have better hardware and are cheaper than their predecessors.
Since they would still have to pay for the development and engineering team as an ongoing expense, it’s hardly “sunk”.
And you need to use the $328 cost, not the $318 one. (I assume that people want to purchase an assembled tablet, and not a box of parts.) And then there’s the retail markup, which again you kind of glossed over.
Basically, to sell at $250 means $25 or so going to the retailer. Even at $328, and ignoring everything in the COGS equation, that means HP is going to eat $100/unit, or $100 million dollars for every million sold to the public at Best Buy. (More like $200 million.) That’s not pocket change.
All to build up some nebulous idea of “market share”, which buys them what, exactly? How — exactly — is HP going to make money going forward from the deadbeats who only wanted a cheap tablet?
Hope they’ll pay double for the next version? Didn’t happen this time. Raise the price, piss off everyone who wanted the cheap version, and watch sales evaporate, again, just as they already did at $499? Blow through millions more, hoping component prices drop enough for you to make at least a few pennies on the dollar? And hope that people will stay buy when your machine hits the low end of the scale?
(And pray that Apple doesn’t do the same with the existing iPad 2, now at $299.)
One more thing. Manufacturing something and selling below cost is called dumping, and there are one or two laws associated with that practice.
If you want a $250 price point today, look at the Amazon Kindle tablet. 7″ screen, single-core processor, only 6GB of NAND, plastic case, forked version of Android tied to Amazon. And that’s the subsidized price.
Amazon can can afford to to do that, because they’ve got something else to sell: Books. Music. Movies. Magazines. They make their dollars downstream, and they’ve got a roadmap for how to do it.
HP has none.
Lose millions. Make it up in volume. Gotta laugh…
Re: Re:
Umm… It doesn’t look like you and I are debating the same topic…or at least I think you are blurring the lines.
The situation with HP is unique. They have announced they are done with WebOS. There will be no more production once commitments are through. They have no further R&D to do. They are not doing the fire sale through retailers, but mostly direct through twitter and HP website. They have no intention to build market share. The don’t intend to make money from the next version, because there won’t be one.
Now, I did talk about Amazon in the original article, and in their very different case, they could sell a tablet at cost, and hope to make money on media and app sales. I thank you for pointing out in your prior comment what was already in the original article. However, the current device remains a Kindle, without access to the Android Marketplace, and is not sanctioned as an Android tablet by Google. A tablet that IS would be a different product, and a potential winner.
If you want to haggle back and forth whether the HP cost/unit is $318 or 328 or 338, frankly I don’t much care. You’re worrying about detail, while misunderstanding the discussion. You are confusing the market exit of HP with the market entry strategy of other tablet makers. You can’t act like anyone ever wrote that this is a great long-term tablet roadmap for HP, to which you could reply:
“HP has none [roadmap]. Lose millions. Make it up in volume. Gotta laugh…”
No, I gotta laugh. Read the first damned sentence of the article, way up top. There is no roadmap, there is no road. It’s a shutdown.
Re: Re: Re:
I understand that HP is shuttering the division. You seemed to argue, however, that the fact that people were willing to spend $250 for a $328/$500 device as proof that they should have tried losing $100/unit to build market share.
Or that someone else should do so as an “entry” strategy.
MY first point was that the PARTS cost is not the only cost factored into the final price, and that you can’t stay in business selling units well below ALL of your costs. The fact that at HP those costs were “sunk” is irrelevant. Someone entering the market would have the same exact kind of expenses to cover.
My second point is that selling Android tablets at cost makes no sense whatsoever, UNLESS you have another revenue stream or a way to subsidize the device. Wireless carriers could bill subscribers. Perhaps newspapers could subsidize them as part of a subscription. Or, as with Amazon, you sell at cost and then make your money selling media.
A hardware company, however, can NOT survive selling devices below cost simply to build market share.
You must have something ELSE to sell.
The fact that those costs will decrease in the future is also irrelevant. Apple has lowered the price of their Macs and iPods over the years. iPads will follow, and multiple models of iPads will follow.
Now, will there ever be a market for cheap, low-end tablets? Probably. Though again, sales of the Streak and other cheap Asian Android devices hasn’t proven that idea out so far.
Re: Re: Re: Re:
“You seemed to argue, however, that the fact that people were willing to spend $250 for a $328/$500 device as proof that they should have tried losing $100/unit to build market share.”
Show me where I did that.
“Or that someone else should do so as an “entry” strategy.”
Show me where I did that (other than for Kindle or Nook, noting that they could offer a device at cost and profit on media – a concept that, despite my mention of it, you seem intent on educating me about twice.)
You can’t make things up, attribute them to me, and then refute them for a win. Work with the words I actually wrote.
Here’s a useful summary:
– Apple easily sells their iPad for $500, others have lackluster sales at the same price
– At $100, HP’s TouchPads fly off the shelf
– TouchPad costs about $318
– The market currently values them at around $250 (note that I never even suggest that this means a successful business strategy for any device maker is to sell tablets for $250. Please read better. Just that this is the market-clearing price for TouchPad. It’s what the consumers want to pay, NOT what the sellers want to charge.)
– Apple’s developer ecosystem offers their tablet a $200-$250 value premium in the customers’ eyes, AND there is some value premium attributable to brand and design.
– Thus, for now, “Tablets are Apple’s private playground.”
– The Nook or Kindle, if done as full Android tablets and priced low enough, stand a chance against iPad.
– It’ll take a few years of Moore’s law and Android progress to reduce the advantage iPad now enjoys.
You would have to be stoned to interpret that as a green light for any OEM to price their tablet at a loss, and make up the difference in volume.
Re: Re: Re:2 Re:
“… should do so as an “entry” strategy.’ Show me where I did that…”
Sure. You wrote, “You are confusing the market exit of HP with the market entry strategy [sic] of other tablet makers.”
I replied to some of the other things below, but I think your original evaluation is wrong in one other aspect. You stated, “Apple is making cake because it has the biggest developer community coding around the OS…”
And also, “customers are willing to pay a premium because of the better app ecosystem, design, and brand.”
Design, certainly. Brand, help. App ecosystem? No.
It’s not the app ecosystem that gives Apple the edge, it’s the ENTIRE ecosystem. Desktops, notebooks, iPhones, iPods, and iPads, and the cross-integration across those product lines. MobileMe/iCloud. iTunes music and movies and books. Podcasts and iTunes U. Apple stores where people can touch and play with the products. The Genuis bar where you can talk to a real person face-to-face and get a solution to your problem.
That’s the ecosystem that no one else can touch.
Re: Re: Re:3 Re:
Ha ha!
You cite MY accusation of YOU mistakenly conflating two things as evidence that I clumsily conflated two things?
Big Fail.
I probably humored this debate too long. I really just stuck around for the fun of winning a public debate. I won’t carry on until you to admit you’re wrong. I only need for the written record to show that you are wrong to the average passer by. Mission accomplished. Out.
Price premium?
Why does everyone here think Apple is charging a premium for the ipad?
They have used their cash reserves to lock in huge amounts of components at very favorable pricing, getting the BOM cost way down. Probably the only competitor who could match that is Samsung, since they make a lot of the components.
The evidence for this is front and center for everyone to see. Every major tablet with similar specs from anyone else who is a notable manufacturer, not a lowest-cost-possible chinese company, is priced the same or even higher (HTC Jetstream).
They are pricing them that way for one reason. They have to for there to be ANY profitability. That they are evidently not willing to lose money in the short run to gain soe market share should tell you how much they would be losing.
Re: Price premium?
“Why does everyone here think Apple is charging a premium for the ipad?”
Because they do. But actually, most of what I said was not “Apple charges a premium” but that iPad “is a premium product”, and customers are willing to pay a premium because of the better app ecosystem, design, and brand.
Premium is also defined as a price above the normal price. The normal price, per my article, is what users actually want to pay for the other tablets, which is proven to be less than $500 by their lackluster sales at $500. iPad sells successfully at $500, other tablets don’t – thus, iPad is a premium product.
You wrote that Apple needs to price iPad at $500 “for there to be ANY profitability”. You’re wrong. They make bundles of profit per unit.
When last reported, Apple made between $208 and $499 PROFIT each, depending on the unit. Need a citation? Here ya go:
http://www.computerworld.com/s/article/9150045/Apple_makes_208_on_each_499_iPad
Apparently, since then, they’ve driven component costs down. Want more recent data, here it is:
http://www.macnn.com/articles/11/07/13/nokia.settlement.may.factor.in.on.july.19.results/
Selling on ebay.
For around $260. Sell at auction is the actual real price.
“When last reported, Apple made between $208 and $499 PROFIT each…”
From your own article:
“…the cost of goods inside Apple’s 16GB Wi-Fi-only iPad totals $270.50. That figure includes a $10 line item dedicated to manufacturing, but doesn’t include another $20 set aside for under-warranty service costs.”
Which doesn’t include $20 set aside for under-warranty service costs. Or retailer markup (even Apple stores have to pay employees, rent, and keep the lights on). Nor does it include a host of other costs which MUST be factored into the product cost before you can determine profit.
You, on the other hand, continually say things like, “When last reported, Apple made between $208 and $499 PROFIT each, depending on the unit.” Or, “You gotta wonder why they didn’t just decide to price the units at cost [sic], $318, and see if they couldn’t seed the market that way.”
Which means that your sole and overly simplistic calculation of profit is retail price – BOM.
Which is, and has been my primary point all along: There’s a lot more to the COGS equation than parts. Subtracting BOM from the retail price and assigning the label “PROFIT” is just, well, wrong.
So, even if HP sold units at $318, they’ed still be losing money hand over fist.
Re: Re:
No, that wasn’t your primary point all along. It was one point you made, and which I already acknowledged and said was unknown and trivial as it related to HP:
Derek: “If you want to haggle back and forth whether the HP cost/unit is $318 or 328 or 338, frankly I don’t much care. You’re worrying about detail, while misunderstanding the discussion. You are confusing the market exit of HP with the market entry strategy of other tablet makers.”
http://www.techdirt.com/blog/wireless/articles/20110831/15471715757/hp-tablet-fire-sale-lets-us-put-price-value-strong-development-community.shtml#c667
Yes, there is more to total cost than BoM. Of course. Duh, even. There are some SG&A (selling, general, and administrative) costs involved in getting a product to market…which I admittedly may have failed to calculate. You got me. Busted!! I admit it. Of course, I also wrote this on Sept. 2:
Derek: “You make valid points about the SG&A costs, which I don’t discuss because of brevity. BoM is considered the hard costs paid to suppliers, and does not include internal SG&A…”
http://www.techdirt.com/blog/wireless/articles/20110831/15471715757/hp-tablet-fire-sale-lets-us-put-price-value-strong-development-community.shtml#c479
If that was your primary point – trying to prove an argument that I have conceded all along – then I’m not sure why we’re still here.
Now, are you abandoning your other primary argument? You know, the one that shows you didn’t really understand the article, where you wrote:
Michael: “You seemed to argue, however, that the fact that people were willing to spend $250 for a $328/$500 device as proof that they should have tried losing $100/unit to build market share.”
Did you manage to find anything I wrote that claims that?
So, at the end of a debate that you lost, you return to a small point that I conceded early on, say it’s your primary argument, and declare victory. Good for you.
See my other comment I just made, but it’s hard to mistake the following…
“… should do so as an “entry” strategy.’ Show me where I did that…”
Sure. You wrote, “You are confusing the market exit of HP with the market entry strategy [sic] of other tablet makers.”
“Did you manage to find anything I wrote that claims that?”
Yes, “You gotta wonder why they didn’t just decide to price the units at cost [sic], $318, and see if they couldn’t seed the market that way.”
It’s pretty hard to translate that other than selling at BOM costs only, in order to “seed” the market. E.g. Build market share. Which, as I’ve pointed out before, does nothing for them other than lose money.
One other note: while the $1.2B is a sunk cost, shuttering the division and writing it off gives them one hell of a tax break, which they couldn’t take if they continued trying to limp along seeding the market…
Really?
All of this and the final answer is the quality of apps? Seriously? Not to be rude to th Apple fanatics out there, but I’ll take the selection of apps available on my ASUS EEE Transformer (Android Honeycomb) over those on my mother’s iPad any day of the week. I have a better launcher, better browser, better on screen keyboard, better email client, better maps, better music player, better movie player, better jabber client, and lastly, a better version of solitaire than anything she either has or can even get. Add to that hardware with twice the specs and a $299 price tag and frankly I can’t understand why anyone would spit on an I pad if it was on fire.
Apple sells I pads not because they are any better at all, but simply because they LOOK better. If I slapped a white case and an Apple sticker on this thing and sat it in front of the typical Apple user I could earn $100/hour in lost bets. When you compare what actually matters (processor, memory, storage space, etc.) Android ALWAYS wins. mainly because it doesn’t include a “coolness tax.”
the really sad thing is, Apple used to be the opposite. there was a time when a G3 would outperform a Pentium 4. then, Steve came back and rapidly returned the company to profitability – by sacrificing ACTUAL greatness and substituting PERCIEVED greatness in its place
The masses are sheep. That Apple computer has more cash on hand than the US Government just proves this point.
Anyhow…awful rant, I know, but I had to say it somewhere. Since OP was an editorial I figured why not here.
Apple is making cake because it has the biggest developer community coding around the OS, and the value of that community is currently worth something on the order of $200-250 per tablet.
You just assigned brand image, support, ecosystem, and the operating system (and any other advantages I’m forgetting or don’t know about) a total value of zero. You sure that’s a good analysis?
Android may progress bit by bit, but for now Tablets are Apple’s private playground.
What about all those other companies selling tablets? Maybe I’m misunderstanding what you mean by “private playground”, but it sounds like you’re saying Apple has the market to themselves. Clearly they have competitors.