HP's $99 TouchPad Fire Sale Can Teach Everybody A Lesson

No, here's the lesson:

You can't sell a me-too tablet for the same price as the "real deal" ipad. People with $499 get ipads, not Galaxies.

You can either be much better or much cheaper. If you've got neither then you've got nothing. Apple is damn hard to beat on the better front, but if you show up with a capacitive multi-touch screen and you're at least half as good, but cost a lot less, you get sales. Lots of them.

Nobody can do that yet, but now we know what happens if they figure it out.

I've seen this written by a couple of different people over the weekend and it terrifies me every time. It's as if the author is completely divorced from reality.

As if "just price it lower" is some kind of poignant observation that no one thought of. As if it were easy to compete on price when Apple is buying parts in quantities you couldn't hope to match.

I'm always critical of people who make the argument that "free is the right price" for services but at least that is somewhat valid. Suggesting companies like Samsung target "$200 or less" is just crazy.

Pricing them at $99 with the current inventory amounts to almost a hundred million dollars in what would have been losses to establish a beachhead.

Except, there is no beachhead to be established here. Its not like the kindle because HP has no track record in selling media like Amazon, and its not like the iPad because they don't have the vertical integration like apple does, and its not like android because they don't have the massive advertising business to 'justify it.'

The only way to justify this was to stick it out long term and build a profitable product, and they chose not to. I still think it may have been a big mistake, but $99 bucks isn't a strategy.

The Nook Color is an example of a $250 tablet with less functionality than an iPad. Though Barnes and Noble has not released any official sales figures, it is easily outselling all other tablets except for the iPad. This seems supportive of the authors assertions and I'm surprised this information was not included in the post.

http://www.businesswire.com/news/home/20110708005437/en/Medi...

And the following is the first 2 paragraphs of a Q1 digitimes report:

Barnes & Noble already takes delivery of 3 million Nook Color e-book readers, say sources

Yenting Chen, Taipei; Steve Shen, DIGITIMES [Monday 28 March 2011]

Barnes & Noble has taken delivery of close to three million Nook Color e-book readers from its production partner, according to an estimate by sources from the Nook Color supply chain.

With a clear differentiation to Apple's iPads in display size, targeted market and pricing, the Nook Color, priced at US$249, has actually taken up over 50% of the iPad-like market in the North America market, indicated the sources.

EDIT: inserted (accidentally omitted) word

$99 is obviously just 'get rid of them' pricing, but there's a big gap between $499 and $99.

$249 or $299 pricing may have lost HP a bit per sale, but during that time, they could have really established a bigger presence without using much advertising budget.

Is it better to have lose $30 per device and sell a million - which then gives you a million + devices in the marketplace with a unified hardware/software platform - or try to sell at $499, then spend $x on nebulous marketing/advertising which may or may not make a dent?

HP would have sold far more at $299 than $499. They'd have still had a business - even if they wanted to sell it to get out of hardware. It would have been worth far more than a massively damaged brand due to a total abandonment of a market that you've been public touting for more than a year.

Charles Eames once said that reducing the cost often makes a product more useful, if quality is not compromised. I was intrigued, but I couldn't find a tangible example of it.

Now we have one: suddenly it's not stupid to stick a tablet to your fridge for convenient online grocery shopping, or in your home office as a display for monitoring your servers. At a $99 price point it makes it useful using it even as a digital portrait!

I think if HP has to flood the market with zero margin devices to make a dent it did the right thing by getting out of that business once and for all. It has better ways of occupying its resources.

EDIT: I fully realize the TouchPad costs more to make than $99 and the margin during the fire sale was less than zero. If anything it probably barely covers the cost of supporting the units and software through the support period given some fixed costs of support and the small number of units. That only drives home the point further that HP was right to just shut it down and get out.

The key factor everyone's missing from a loss leader strategy is that the consumables must be a requirement to use the device. Consoles, razors and printers can all sell for a loss because they are worthless without games, blades and ink. You can get by on a tablet (and I bet a majority of non-tech savvy users do) by just using the built-in apps and/or free apps.

If HP went with this strategy with the TouchPad, it would require that a user spend $1000 on apps to make up for the $300 loss on each TouchPad. At an extremely generous $5/app, that's still 200 apps per user. And what happens when the TouchPad 2 comes out? Does HP sell it at a loss, necessitating yet another $1000 to be spent on apps, or do they bump the price up and deal with the negative press?

The best thing HP could have tried would have been to negotiate better component pricing from its suppliers. The problem here would have been that they have no leverage, despite being the world's largest PC manufacturer, since their traditional PC components consist of hard drives and Intel chips, neither of which have any place in the mobile market.

HP, with their non-Android based WebOS, was the only company capable of making a dent - or a beachhead - against iPad sales. When you have two parties making h/w and s/w for a tablet all you get is finger pointing and blame when problems arise. My LG Optimus smartphone crashes/reboots about once a week. Nobody takes responsibility. I cannot pay $50 to get Android 2.3 or 3.0. As soon as I buy the device the support is gone. It's the disposable feature-phone market all over again, but this time with tablets and Android.

It's not always the tech or sexiness of the Apple brands that attract people, it's their commitment to fixing bugs. (I'm not saying they're superb at it, but nobody else seems to be trying at all)

The best strategy for this would be to do a contest or limited daily deal sort of offer. You would never have to slap a reduced price next to your device so people won't feel entitled to get the reduced price indefinitely. We live in an era with Internet riots over a $7 NetFlix price increase after all. With a contest/daily deal type of offer you would have people going out of their way to register on your site everyday to win. All the tech sites will give you tons of free advertising. Give the winners the free, or heavily discounted, device and upsell them on accessories in the process. Throw in $10-$20 worth of App Store credits to make developers very happy.

Isn't this exactly what console manufacturers did? Microsoft took a huge loss on the original xbox (and the 360?) and made a shitload of money on the xbox live + a few in house games. In short, they created a platform/ecosystem and took a loss up front.

It's riskier, and can only be done by companies that have significant runway. But it's likely the only way to compete with someone like Apple, who has an enormous domination in the current market.

HP's fire sale will actually aid all Android tablets in the long run (assuming an android port does follow for the touchpads). Cheap tablets for hackers/developers will result in better software for the entire Android ecosystem.

I wonder if people understand they are buying a discontinued product that will see no future development. Is that being made clear by the retailers?