

HP's $99 TouchPad Fire Sale Can Teach Everybody A Lesson  - duzins
http://www.readwriteweb.com/archives/hps_99_touchpad_fire_sale_can_teach_everybody_a_le.php#.TlJ5Ne32Ubc.hackernews

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noonespecial
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.

------
TomOfTTB
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.

~~~
Duff
Ultimately, price drives decisions. My neighbor doesn't understand why he
can't sell his house. The reason is simple -- he's asking 25% more than the
market price without giving people a compelling reason to spend the money.

The Touchpad is telling you something about the iPad market (there is no such
thing as a "tablet" market). People are willing to line up to spend $500 on an
iPad. But they are also willing to spend $99 on a tablet that does/will do
less than an iPad.

So, you need to: \- Take massive losses on hardware (Microsoft, for example,
could afford to do this) \- Build something that takes advantage of advantages
that you have over Apple. (ie. Apple doesn't get enterprise at all) \- Come up
with some other value proposition (integrate with my car, use as interactive
visual display, etc)

~~~
jerf
That last one is why Amazon is the one to watch. They have a plausible "sell
the Kindle-pad at a moderate loss" scenario, in that they have numerous for-
pay services they can hawk from a privileged position on their tablet, and
with Amazon Prime's integration with their video service, a plausible way to
turn a Kindle-pad into a recurring revenue stream as well, a recurring revenue
stream that encourages additional one-time purchases of media content.

Contrast this with Google, where I don't think even "lots of ads" is enough of
a per-customer-value proposition to enable them to take a couple hundred off a
tablet's price very easily.

~~~
cube13
I honestly don't think that Amazon or Barnes and Noble consider their devices
to be iPad competitors, though. They're selling them as eReaders that just
happen to be able to play Angry Birds, not as full-featured tablets.

~~~
jerf
That's what they are selling them as... _now_.

Have you seen this?
[http://www.amazon.com/b/ref=sa_menu_aiv_piv_t10?ie=UTF8&...](http://www.amazon.com/b/ref=sa_menu_aiv_piv_t10?ie=UTF8&node=2676882011)
Or anything else on the left sidebar under "Instant Video". Or their music
plays. Or [http://www.amazon.com/mobile-
apps/b?ie=UTF8&node=2350149...](http://www.amazon.com/mobile-
apps/b?ie=UTF8&node=2350149011) .

There's a lot of things they've been doing over the past year or two that
makes a lot of sense in the context of planning to create a blessed Amazon
media player. It does not exist yet, but it's hard to imagine it won't.

------
lucasjake
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.

~~~
MatthewPhillips
It would be much more loss than that. The components alone cost over $200 more
than that price. I'm sure HP is willingly swallowing 500+ million in losses to
get out of the consumer computing business.

------
FilterJoe
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...](http://www.businesswire.com/news/home/20110708005437/en/Media-
Tablet-Sales-Lag-Optimistic-Quarter-Targets)

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

~~~
drzaiusapelord
But compared to an ipad or a Samsung Tab its terrible. I have one. Its VERY
slow, it has no hardware buttons (annoying), no camera, no GPS, heavy for the
size, underwhelming battery, etc. Using it as a tablet is a hack. I can get an
Iconia for $399 right now that blows it away. Is an extra $150 worth it?
Absolutely. Another $100 gets me an iPad2 or a Samsung.

I'm not sure what the magic price point is to get Joe Sixpack off his couch,
but its probably around $200-$299. He just won't be happy with a Nook Color. I
love this stuff, deal with its issues, and have a lot of patience with Android
and I still find it annoying. He will just return it.

Of course, as an ebook its very nice, but an ebook is not a tablet. Half-assed
tablets really is hurting Android's tablet image. Pre-Honeycomb junk on slow
processors with no hardware buttons shouldn't be recommended.

~~~
FilterJoe
You're absolutely right that Nook Color is a far worse general purpose tablet,
for all the reasons you mentioned. If the question though is how to carve out
niches in the overall tablet market, then Color Nook answers with one
possibility:

A sub $300 e-reader than can, in a pinch, work poorly as a tablet. The Color
Nook can do quite a bit of what a typical person wants, right? Like consume
news (Pulse), check and respond to e-mail, and browse text-heavy sites.

You can of course do so much more and so much better on an iPad or Galaxy Tab.
But not everyone needs "so much more" enough to pay for it.

Surprising tidbit about the Color Nook: women love it for the women's
magazines:

[http://www.nytimes.com/2011/05/23/business/media/23nook.html...](http://www.nytimes.com/2011/05/23/business/media/23nook.html?_r=1)

Not the profile of a typical hacker news member but hey - if there's a niche
for a device you can stick in a purse to substitute for a handful of women's
magazine's - what's wrong with that?

Maybe the market will bifurcate into iPads at Galaxy Tabs at the top, and a
bunch of niches serviced with less expensive devices?

EDIT: reworded awkward sentence

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mgkimsal
$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.

~~~
MatthewPhillips
The parts alone cost $328[1] I think it's safe to say that your pricing plan
would have them losing $100+ per device. So selling a million Touchpads (which
wouldn't even be that great) has them losing at least 100 million. And who
knows if they would have even sold that many at $299. There are Android
tablets priced at what you're suggesting, but I doubt their components cost as
much, and I don't think their sales are anything massive.

[1][http://www.techfever.net/2011/07/hp-touchpad-parts-
estimated...](http://www.techfever.net/2011/07/hp-touchpad-parts-estimated-to-
cost-only-328/)

~~~
mgkimsal
Most of the Android ones I've seen at that price are pretty abysmal compared
to webOS. Personal view, obviously, but webOS in general is a nicer
experience.

So... they paid $1.2billion for a company, but another $100 million (I suspect
the delta would have been less) is too much to put in to an investment?

If you actually had a million of those devices sold even within 6 months,
that'd be a big momentum for a third party player. Devs would have paid money
to be part of their dev program - jumping on a unified platform bandwagon for
$99/year (same as Apple) would have led to some revenue as well to offset some
of those "losses".

~~~
glhaynes
Even if they sold 1 million of them at a loss, that'd still put them about 30
million units behind Apple - so still a distant loser, especially with Android
being in the game too. Besides, then all they'd have bought is a chance at
selling to roughly that same small group again next year, _again at a loss_
because most of the folks that only bought this year because it was super-
cheap aren't going to be willing to buy at $500 next year.

The key to a sustainable platform is to make a profit on each device _or_ be
able to make it up with highly profitable post-device sales (video games for
consoles or blades for razors).

~~~
mgkimsal
"Android" is not a standard hardware platform - it's pretty much whatever any
manufacturer wants to ship. The TouchPad had the potential to be much more
akin to the iPad/iOS line because one company was controlling the hardware
experience.

~~~
glhaynes
I agree it had that potential in theory, but in practice it had nearly none of
the market advantages of the iPad. It didn't have the Apple (or iPod / iPhone)
brand name to catapult off of nor a large base of users that already own
similar devices; it didn't have many apps nor much developer support; and,
importantly, it didn't have the iTunes ecosystem of easily-obtained media.
It'd be awfully tough to out-Apple Apple right now. Without some really strong
differentiator, I don't know why anybody - least of all those at HP - would
have thought they had a chance.

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duopixel
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!

------
ansy
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.

~~~
Lewisham
I don't think the firesale was even zero margin; I think it was just cheaper
than dealing with the shipping/storage/recycling costs. I expect the hardware
cost more to make than they were sold at.

~~~
reemrevnivek
You're right: According to iSuppli, the BOM for the hardware was about $300.

[http://www.isuppli.com/Teardowns/News/Pages/HP-TouchPad-
Carr...](http://www.isuppli.com/Teardowns/News/Pages/HP-TouchPad-
Carries-$318-Bill-of-Materials.aspx)

------
martingordon
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.

------
hackernewz
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)

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jsz0
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.

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endlessvoid94
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.

------
gravitronic
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.

------
jasonfried
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?

~~~
Lewisham
I don't think anyone who actually managed to snag one was under any illusion
about what the device was or wasn't. You had to be on the top of your game to
locate a device; it's not like you stumbled into Costco and went "Oh, that
looks nice." It was a process of hours of researching, phone calls, queuing,
refreshing...

~~~
nazgulnarsil
i hopped on bestbuy.com and bought one. granted ship to home went down about 5
minutes after I was done checking out. Guess I got lucky. (or unlucky if i get
a cancellation email).

