It's going to be interesting to see how the HP Touchpad & Samsung Galaxy Tab 10.1 do in the next few months. However, the real competition will start when Amazon jumps into the market with their rumored Kal-El tablets later this year.
The only way to beat them is to attack from below. Make a tablet that is only good for browsing the web. Maybe add a few cheap features like a camera and GPS, but skimp on expensive features like storage.
If you really want to be cool, add some kind of console controls, so teenagers can play games. Maybe even add some sort of social element - allow them to connect to each other through USB, and play arcade games.
Or attack some other niche that Apple don't own. You could add a bunch of graphics calculator functions, and target students. Just be careful you don't do anything that a $3 App won't do.
Price it at half the price of an iPad, and hope you gain a toehold.
Like the iPhone and it's $600 starting price?
[1] http://solutions.3m.com/wps/portal/3M/en_US/TouchSystems/Tou... [2] http://www.pdapanache.com/stylusfaq.asp
The fundamental idea of the iPad is that you don't need something else to make it work. It isn't that you mustn't use something else.
[2] http://www.pcmag.com/encyclopedia_term/0,2542,t=touch+screen... - "A display screen that is sensitive to the touch of a finger or stylus."
Oh wait, because it doesn't suit your purposes either.
They need something more to compete if they don't want it to be a race to the bottom with Chinese, Taiwanese, and South Korean vendors.
For as long as the MS/Windows ecosystem is a going concern, a sufficiently well executed non-Apple tablet will have a market in those who are anti-Apple.