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Tablet timing: What the TouchPad says of the market

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I missed last week’s big news of HP ending the TouchPad and other webOS hardware by only a few hours. The issue was one of timing for me, as about two hours prior to HP’s(s hpq) bombshell revelations — the company is also looking to exit the PC market, where it holds the no. 1 spot globally — I was feeling ill and ended up taking a few days off to rest up and recoup. As it turns out, timing is a central reason to both the demise of the TouchPad, and also why Apple’s iPad is still well positioned for years to come against challengers in the tablet market.

I hit upon the issue of timing earlier this month in a GigaOM Pro article (subscription required), noting that Apple’s iPad was announced in January of 2010 and that so far, no other tablet has yet caught up to what Apple offers. Yes, there are plenty of folks happy with a Google Android Honeycomb (s goog) tablet, but fewer that purchased a BlackBerry(s rimm) Playbook. I’m not suggesting that Apple’s iPad is the best tablet for everyone. It’s can’t be, because consumers all have different needs and preferences. But from an overall sales perspective, there’s no data yet to dispute that Apple currently holds the tablet crown.

How else does timing impact the overall tablet market as well as HP’s decision to table the TouchPad?

  • Consumers aren’t buying devices for their potential. I’d argue that for most people, the iPad is the most complete tablet solution available. Why? Out of the box at launch it had strong third-party app support, as well as backward compatibility with phone apps, a media store, and an operating system interface that tens of millions were already used to. It took more than a year before the first tablet contenders even appeared, and they’re still just now gaining some key features: movie stores, stretch and zoom capabilities for phone apps, for example. Consumers want a complete tablet experience, not one that’s “coming soon.”
  • If tablets are the future, companies must commit for the long haul. HP’s $1.2 billion investment in webOS convinced me that it was in the tablet race for the long haul. I defended the company’s move to sell the TouchPad at a discount — and bought one of my own at the time — only to find out a few days later that I was wrong: HP wasn’t selling the tablet at low prices to quickly expand the user base and help attract developers. HP apparently gave the TouchPad one brief chance to gain an audience, which it didn’t do at full price, so the product’s plug was pulled in a short amount of time. Research In Motion and the many Android tablet makers should take note: To compete with the iPad, be prepared to invest much time and money.
  • When a product comes to market is nearly as important as the product itself. The tablet landscape might be very different if all of the iPad competitors arrived a year ago. I still believe, for example, that webOS offers a smart and effective user interface. Had HP been able to deliver the TouchPad last summer, it might have held the No. 2 tablet spot right now. Instead, Apple’s iPad has the mindshare of both developers and consumers, in addition to enterprises. By not delivering viable tablet alternatives for more than year, Apple gained valuable market share. At this point, hardware makers are only setting themselves up for strict comparisons to the iPads already in use.
  • Timing is key to partner strategies. It’s easy to look back in hindsight, but clearly, HP should have lined up a hardware partner to license webOS before announcing the demise of the TouchPad. At this point, the lack of a hardware partner makes the webOS software look like a dead product to many, including consumers and developers. Now the webOS asset looks more like a liability: Who will take the chance to create hardware by licensing the platform now? Had a partner been announced first, the future of webOS on a tablet might show promise. Instead, it now looks like a big risk that already hasn’t paid off for two different companies: HP and Palm.

One other aspect to the tablet market that’s worth mentioning is pricing, since the $99 TouchPad fire sale has resulted in nearly a complete inventory sellout in just a few days’ time. Consumers are willing to pay between $100 and $150 for a product that offers solid basics. The TouchPad certainly has glaring software gaps, but excels a browsing, email, calendar activities, and messaging to name a few functions. Even though the future of webOS as a platform is murky at best — and so too is third-party developer support for a platform that has no hardware to run on — a very basic tablet at a low cost may be hard to keep on store shelves.

I think that bodes well for an Amazon(s amzn) tablet entry because the company is likely to differentiate its tablet from the sea of slates. A low-cost device — say $150 to $200 —  that does the basics really well, along with Kindle experience, Amazon’s Unbox video service, and a limited but curated application store, could be a big seller, even if arrives later than all the other tablets. And that’s the key: If you’re going to jump into the market later than others, you either have to offer a complete package at an appealing price from the start or be willing to commit for long haul. One look at how Apple entered the crowded MP3 player market and rose to dominance shows how such a strategy can pay off.

15 Responses to “Tablet timing: What the TouchPad says of the market”

  1. Yogesh Pandeya

    Why not make WebOS open source and HP can sell services around it? Surely there will be many to give it a serious thought as it will not have the same issues as Android.
    Any taker?

  2. I don’t believe Apple ipad is having any better time of it than any other tab retailer. When you have an established laptop population not to mention a substantial netbook population, the only group to continue on and purchase a tablet are the extreemers. The average Joe will settle for just having current tech until economic conditions improve.

    It doesn’t make since for a netbook to run around $200.00 – $300.00 and a few higher, and tablets to run in the average price range of laptops. I believe HP demonstraited volume sales Verses safe sales. Apple sales a high quality product for a high price which I don’t think will continue as HP has realised. I wouldn’t be surprised this one of the motivations for patent trolling of late by Jobs.

    • The data clearly shows you to be incorrect that Apple is having the same challenges that other tablet manufacturers are. The iPad is outselling everything else by a wide, wide margin. People are buying iPads, and not buying other tablets. How long this lasts is unknown, but it is clear Apple is cleaning up the tablet market and taking all of the profits right now.

    • Marcos_El_Malo

      Are that many people still buying netbooks? Reports I’ve read said that market was moribund.

      BOM on the 16 GB TouchPad has been estimated to be $318. I don’t understand how a tablet manufacturer can sustain itself selling $318 worth of parts for $99. HP didn’t demonstrate “volume sales” or “safe sales”, they demonstrated a Fire Sale, i.e., a going out of business sale. I wonder which recent tablet we will next see being sold at a loss. The 7″ Galaxy Tab? There might be hundreds of thousands, maybe a million, sitting in warehouses. If they don’t get shipped back to Samsung to be dumped in a landfill, they’re going to be placed in the bargain bin for <$100 a pop. Probably much less, seeing how the TouchPad has set the standard for non-iPad prices. That's the biggest problem that HP is creating with this fire sale: they're creating the expectation among the public that non iPad tablets shouldn't cost more than $100 – $150.

      Not sure what definition you're using for patent trolling, but I doubt it is the correct one. A patent troll is an individual or company that makes no products of its own. Apple obviously makes products. Whether or not you think patents on the whole are wrong or right, or whether Apple's patents in particular are valid, it is incorrect to call them patent trolls. You want to see a patent troll, look up Lodsys. I personally believe there are real problems with the patent system and that it needs to be fixed, but until it does get fixed, Google, Apple, Samsung, etc. are all still under the same rules so I don't feel sorry for any of them.

  3. This is why Google and their partners shouldn’t focus “too much” on beating Apple at the $500 level. Sure they shouldn’t give up that, but they should also focus on selling $200 “quality” tablets, with the minimum necessary specs, and dominate the market. That’s exactly what the TouchPad is showing us – that there is a HUGE potential market for inexpensive tablets, even for people who didn’t consider one before.

    Unfortunately, I don’t think the manufacturer will get it until next year. Amazon might be the first one to get it, but even they were only willing to sell a dual core $350. And after they’ve seen the TouchPad is their most popular CE product on their site now, they might consider slashing $50, or even $100 before it even launches, so they can dominate the market in volume.

    Google should realize this,too, and that they need volume to attract developers, and get out of this catch-22 problem where they don’t come because there are no sales, and customers don’t buy them because there are no apps.

  4. Kwasi Nti

    Kevin “stretch and zoom capabilities for phone apps, for example.”

    This kills me. Yes, it was added to Android 3.2, but a Xoom user who is now using the EEE Pad Transformer, I have yet to find an app that actually looks better with stretch to zoom.

    Stretch to zoom is an Apple problem. It’s not a problem for the number one contender, Android whose apps are already designed to run at multiple resolutions. This kind of FUD bothers me, because many people haven’t actually used these devices yet.

    Where’s the playing up of the MicroSD and HDMI (and full SD and 2 USB ports with the dock) of the best Android tablet? This article tells me that people have trouble looking past the iPad, which is evolving about as fast as the iPod (not fast enough).

    • Kwasi, many of the existing Android phone apps I used on the Xoom, Iconia Tab and Galaxy Tab 10.1 before stretch and zoom showed some rending issues; particularly with text. That’s one reason I mention the capability, which was created (at least in my opinion) because it’s taking developers some time to add multiple resolution support to their apps. As far as the other hardware components you mention: yup, they’re lacking on the iPad. But if people want those features, they’d be buying Android tablets instead of iPads. The sales data says otherwise. Note that I’m not saying one is better than the other; I’m saying that people are presumably buying what is meeting their needs.

  5. Kevin – to give you the credit here, you were predicting what made the most sense for HP still. Some of us disagreed due to practicality, but you were right about how they should have tried harder. Once they have made the mistake and bought Palm, they should have tried for at least 1 more year to become #3. Maybe even run emulators to run iPhone and Android apps. Their product wasn’t bad. Here comes a new CEO and shifts the strategy of a giant. Well giants can’t change direction in the middle of the run. We knew about Nokia and RIM from day one. We know about HP today too. With much less reserves now too in the bank with the Autonomy acquisition its a slippery slope.

  6. Peeyush Rai

    Kevin, when HP bought WebOS a couple of years back, it surprised me and I was convinced it was a dead investment. HP has had no history or culture of being able to successfully deliver a mobile device (remember those IPAQ Bricks?), and is certainly not known to have delivered world class (consumer) software products.
    I think the fall off of WebOS and RIM is a natural evolution in tablet markets. Both companies have not innovated and are today, not even close to competing with either iOS or Android. As its obvious these days, for any platform to succeed, there needs to be a very solid ecosystem of developers (who develop apps), delivery and commerce platform (marketplace) and a good channel/partner ecosystem. HP and RIM had none of these, and they did not put in enough effort to build any of these – hence the result.
    I believe hardware vendors like Samsung, Acer, LG and Lenovo will innovate on the hardware and use Android (and possible WinMo) as platforms for their tablets. I have no doubt some of those will be as successful as iPad, since they can leverage a strong ecosystem (software, marketplace, developers) while producing a variety of hardware options for consumers to choose from. For Tablets, I see a similar path as Mobile (with iOS leading the way initially, but Android maturing and gaining fast).
    To me, the fall out of RIM and HP was just a matter of when, not if.

    • Peeyush, I understand where you’re coming from and I do remember the old iPaq’s: my first PDA was an iPaq 2130, one of the first models with a color display. However, the Palm acquisition bought not only webOS, but mobile device expertise, i.e.: you can’t overlook Palm’s successful Pilot and Treo days. In the end, we now know it didn’t work out, but I suspect it was more due to the current CEO’s vision than anything else.

  7. Phil Hendrix

    Kevin, our findings support your hypothesis that tablet prices are highly elastic. Among prospects (38% “very” or “extremely” interested in Tablets), 1 in 2 say they would “definitely buy” at a price of $320; at a price of $220, 3 out of 4 prospects say they would “definitely buy” (Market Outlook for Tablets, immr, March 2011) Dr. Phil Hendrix, immr and GigaOm Pro

    • Which I think makes Amazon the toughest competitor. They can subsidize whatever tablet they come up with as a shopping machine with the Amazon experience either as a major app or the GUI shell that runs the tablet. Since they can sell it at a loss and assume $300 is break even, then you might see Amazon push them out at $199-249 and that would change the landscape. Not to mention Amazon would be in it for the long haul, essentially forever.

      • The Kindles sells in the range of $114 to $379. How will Amazon offer a full feature tablet within that price range? Also, why would Amazon subsidize their tablets? What will propel usage to their store with only Amazon tablets? What would be the marginal revenue increase and the associated cost of risk to give Amazon the appropriate profit level that management expects and stock investors want? How will this business model increase their valuation for portfolio investors?