HP's $99 TouchPad Fire Sale Can Teach Everybody A Lesson(readwriteweb.com)
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HP's $99 TouchPad Fire Sale Can Teach Everybody A Lesson
http://www.readwriteweb.com/archives/hps_99_touchpad_fire_sale_can_teach_everybody_a_le.php#.TlJ5Ne32Ubc.hackernews
48 comments
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.
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.
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)
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)
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.
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.
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.
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&... 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... .
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.
Have you seen this? http://www.amazon.com/b/ref=sa_menu_aiv_piv_t10?ie=UTF8&... 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... .
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.
I think there's room in the market for an inexpensive web-only tablet. Before the Chromebook's came out, I had assumed that was what Chrome OS was for -- a real stripped down inexpensive tablet with almost no local flash, a small amount of RAM, etc. Most tablets right now are attempting to match the iPad in every way: capability, size, weight, etc. So, of course, they're in the same price range.
People are trying to match the iPad because even a stripped-down tablet is still going to have to cost ~$400. The extra RAM and Flash add what to the bill-of-materials? $25?
If you could put together a $200 tablet, Negroponte would be declaring victory in the press, rather than quietly rolling back the date of the XO-3 over and over again.
If you could put together a $200 tablet, Negroponte would be declaring victory in the press, rather than quietly rolling back the date of the XO-3 over and over again.
Archos is selling their 10" tablet for $270. The 7" is $240. I've used one of the 10" models and found it fine for web browsing. Sadly, their new models coming out in September are said to cost $300 and $370.
https://store.archos.com/archos-internet-tablet-p-5005.html
https://store.archos.com/archos-internet-tablet-p-5005.html
Are they clearing inventory at the lower price, or were they ~$300 the whole time?
Looking back, I think the original price was $299. I hadn't realized it earlier, but Archos also has a low-end series that runs from $99 to $199. I doubt the hardware is very good in that price range.
http://arnovatech.com/home.html?country=us&lang=en
http://arnovatech.com/home.html?country=us&lang=en
Not crazy at all. The rule in hardware is price it to sell, regardless of profit margins or lack thereof. Then — if you get sales traction — figure out how to drive your costs down through economies of scale, substitution of cheaper components, design simplification, etc.
You have to have very deep pockets, and the ability to pacify your shareholders, to absorb these types of losses. I think people are really underestimating how much HP has lost here.
Microsoft did it back in the day with the Xbox but I don't think it's a good strategy to use against a 70b in cash company who can match your prices to kill you. With that said if you did drive down the price for everyone Apple would be in trouble (so would everyone else but less due to their diversification). Imagine if we expect 300 tablets. That would be hard for a Apple to keep going on for a while, they managed to keep high prices with laptops and desktops but not on the scale of the iPad/iPhone etc.
Thing is, Apple has a lot of money now but MS can run deficits in the tablet business essentially forever. So can Google.
Half of Apples income is tablets. They can run for some time, but not forever.
Half of Apples income is tablets. They can run for some time, but not forever.
I think people imagine it's like safety razors - sell the razor cheap, make money on the blades. The same strategy has worked for printers, where the real money is in ink or toner cartridges, and with phones, where the profit is in selling connection time/bandwidth over a 2 year contract. After all, Apple takes a cut of all sales through the app store and iTunes store, so some tech writers assume that that will work for anyone (even though it's taken Apple the best part of a decade to build the required infrastructure and the company had positioned its products at the top of the market almost since inception).
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.
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.
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.
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
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
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.
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.
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...
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
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...
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
[deleted]
$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.
$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.
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...
[1]http://www.techfever.net/2011/07/hp-touchpad-parts-estimated...
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".
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".
In their earnings call they said they lost $332 million on WebOS in the last quarter alone. Again, people are drastically underestimating the costs of developing, manufacturing, and advertising consumer electronics at this scale. When you have a product that is pretty much a total loss, the number of companies that can swallow that type of loss and continue on can be counted on one hand and HP isn't one of them.
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).
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).
"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.
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.
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!
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.
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.
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.
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-Carr...
Yes, I've read some reports about the hardware cost being in the neighborhood of $300. Definitely not zero margin.
before the iPad 2 came out, I saw an article here that said that an iPad 1 costs Apple about $300 to make.
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.
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)
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.
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?
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...
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).
I think those savvy enough to have pounced on the deal knew what they were buying -- an amazing product for the price. I would have payed more than this for a tablet with just a good browser.
At $99 it doesn't really matter.
Sort of like every Android 2.2 phone ever sold? Has anyone every seen an OS upgrade on their Android Smartphone?
Yes, as has my brother-in-law - 2 different phones, networks, vendors. I have a Nexus one, he has a Droid of some sort.
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.