Why Apple’s iPad need not fear cheap, low-end tablets

Forbes’ “Brian Caufield asks the question if Apple has any future with the iPad given the potential for $99 tablets,” Horace Dediu writes for asymco.

“The question is indeed why not introduce an ultra-cheap tablet, for example from Amazon, which makes up for the low price with an innovative business model like selling content or user behavior data. After all, game consoles are sold this way. This is the classic razor/razor-blade business model,” Dediu writes.
The answer to ‘why not’ is actually not simply that the economics don’t work. They might work some day even if they really don’t today.”

“The answer to ‘why not’ is that the iPad is not good enough,” Dediu writes. “People will yearn and beg for more functionality and will drop the last generation for the next without hesitation. This pattern of breathless upgrades is symptomatic of a product racing up a trajectory of improvements which are relevant to buyers. So until buyers find the n+1 version of the iPad to be superfluous and over-specced, having too much battery life, too big a screen, too much storage and with more speed and bandwidth than needed, the iPad need not fear the low end.”

Read more in the full article – recommended – here.
 

[Thanks to MacDailyNews Reader “DAN K.” for the heads up.]

Related articles:
HP’s $99 TouchPad fire-sale burns Apple’s iPad foes – August 31, 2011
Why the undead $99 TouchPad might portend iPad’s doom – August 31, 2011

18 Comments

  1. The iPod has never had to fear the low end. Nor the iPhone. Why should the iPad? It’s simple – people by the tens of millions are finally realizing that they don’t have to put up with banal cheap rubbish for their computing needs.

  2. Ok, really?!

    Why should a company fear a company selling a tablet for 99 dollar while making no money on it, paying overhead, with little potential return money? LOL, here today gone tomorrow, fear a fleeting threat.

    Maybe, the writer should only accept 5 percent pay to get far more articles in other media sources. Then his/her competion will fear the price under cut.

    Sell cheap, die fast, and get out of the way.

  3. Had an opportunity to buy the 32GB version for $99. As always, being respectful, I informed my wife about the opportunity. The first question about the TouchPad, does it run iPad apps? When I said no, her reply was don’t bother.

  4. Tis article is ridiculous. These dumb writers have no idea of just how successful Apple has been at reducing hardware costs like memory and screens and locking up inventories. A competitor simply can’t produce a similar hardware device unless it is significantly more expensive (see Moto Xoom), and that doesn’t even take into account the OS.

    There simply isn’t enough margin in selling music, movies, books, etc. to make up the difference in hardware prices. Even on the low end, we’re talking $400 between a $99 table and Apple’s base model iPad. That’s a LOT of mp3s to sell, especially at Amazon’s historically undercut pricing.

    That also doesn’t factor in that Apple can self-subsidize it’s iPads with profits from it’s own content sales. IOW, no one else stands a chance, ever.

  5. what Dediu is writing about is what actually has happened to the HDTV market. for many years Sony made the best TV’s and had many buyers willing to pay premium prices for that. but once the prevailing technology reached the 1080p goal – the best image practically available that people can use – consumers instead began shopping for price – 1080p HDTV’s became a commodity. same with DVR’s etc.

    Sony has tried to adapt by adding all kinds of tech spec features and bells and whistles the others don’t offer, but few buyers are willing to pay much more for these. so Sony has been forced to joing the price race to the bottom, and has seen its TV business profits disappear as a result.

    when will tablets get to this point? i dunno – there are still so many more innovatioins to come. and the ecosystems have that are also becoming an integral part of these products keep evolving too.

    not for quite a few years, that’s for sure.

    1. While I sort of agree,,,,, the author also is saying that to cover the loss, you sell something to put on the pad to make up the cost.

      Apple sells all kind of apps but does not add much to the cost. Overhead and credit processing. So what will HP add to its
      Little Apps,
      Little books,
      Little everything and most of that coming thru Amazon or such where they make the money.

      There is not really a market like Apple has created for things to put on your iPad but not android thingie.

      Just a thought,
      en

  6. HP’s fire sale is only a threat to those companies hoping to sell low end tablets. HP has now established the expectation that you can get some sort of tablet for $100.

    The sort of person who only buys a $100 tablet was never going to buy an iPad and was not in Apple’s sights. Apple is only selling quality products at sensible prices. The companies competing at the low end can get involved in a race to the bottom if they choose to, but Apple will keep on selling iPads as fast as they can make them.

    Entering the market for low end tablets will be an expensive mistake for most companies who try. Entering the market for high end tablets will be an even more expensive mistake.

    1. I agree with this.

      The problem that I see with a lot of articles right now is this assumption that everybody else (HP included) can continue selling product at this price point. HP got rid of their tablet, and instead of sitting on inventory, decided to sell it at a huge loss. The device has already been discontinued – so why not. But they lose vast amounts of money on every sale.

      However, this does not mean that tablets can magically be manufactured at $99. This price just is not logical.
      This isn’t just a “low-end” price-point, this is suicidal price point.

      And frankly, after seeing the Acer tablet of a friend of mine, it just does not compare to my iPad. The build quality, ease of use, abundance of quality apps., quickness on waking from sleep, lack of greasy finger prints on the screen… all of this was lacking on my friend’s knock-off, and makes my iPad a delight to use. And he didn’t save that much over an iPad. I just don’t get it.

  7. HP’s 99$ sale is a way to avoid a landfill full of TouchPads.

    The same goes for the extra production run. They will have reserved oodles amounts of parts they will never be able to use in printers (10 inch LCD panels for instance). When the stock of Touchpads and its parts are gone its game over and the buyers are definitely stuck with a dead platform going nowhere.

  8. What writers and bloggers like Caulfield fail to understand is that while such a razor/razor blade business model may work for Amazon, other Apple iPad competitors that try to emulate a low-cost strategy will fail. It’s a race to the bottom.

    Among the Apple competitors, only Amazon has secured solid content deals with book, magazine and newspaper publishers, film studios, TV networks and record companies. Amazon has a solid brand position and has built the necessary store ecommerce infrastructure to do this. Perhaps only Amazon can successfully use such a model of offering an Android tablet family at no profit and attempt to profit instead on selling content.

    Still, Amazon is dependent on the quality of apps and the Android operating system as well as the Android App Store ecosystem to assure being a successful competitor to Apple.

    By contrast, competitors like HTC, Samsung, Dell, Huwei and others have no content deals in place. To slash prices dramatically to compete puts them in a position of reducing their available market to one of microscopic margins, hardly a formula for success. And HP? Just because a lot of people flocked to Best Buy does not mean that the company actually profited. Without developer support and access to content, the TouchPad is still doomed.

    So where does this leave Apple? Doomed? Hardly. Writers like Caulfield fail to comprehend that Apple has likely anticipated what Amazon would do. He fails to consider that Apple has considerable assets in the iTunes Store for music, TV, movies and class ware, and its own burgeoning iBooks bookstore for books, magazines and newspapers. The company is about to launch iCloud, a strong value-add for the distribution and back-up of data. iCloud will also enable millions of iTunes customers have access to all their music, movies and TV shows wherever they go. While Amazon is likely to do something similar, it means that they will only be able to match, but not beat Apple at their game.

    Apple has become an enormous success through innovation, design quality and style as well as something that neither Amazon nor any of its iPad competitors can offer: a global network of retail stores that have become not just stores, but urban and tourist destinations. This ecosystem and market leadership allows Apple to sell its products at competitive or even higher prices. Its sales leadership and huge cash horde allows Apple to corner the world’s supply of key components at the best prices possible, assuring that Apple will realize higher margins for every iPad sold. Its competition, including Amazon, will have to buy components at higher prices, further constraining margins and even limiting a price at which they can sell their products at a scant profit margin. And if Apple wishes, the company can lower prices and further pressure its competition.

    The simple fact is that Apple has priced the iPad in a range that many people can afford. It may not be the lowest price, but it is still within the realm of discretion. Its margin allows Apple more flexibility to price competitively if the company so chooses, but history shows that Apple has done very well by never forgetting that profit margins matter more than gross sales.

    It’s points like these that writers like Caulfield simply fail to understand. And it’s why Caulfield is a writer, not a business executive. Thank God for that.

  9. Show me the iSuppli teardown of a $99 tablet. It does not exist. Perhaps the Chinese government can subsidize a tablet to DUMP on the American market to undercut the iPad, but that would risk fair trade law.

    A large pool of avid amazon consumers could monetize an Amazon tablet, but we saw the iPad outsell the entire history of the kindle in 1 quarter, so AMZN shareholders should run for the hills once they realize the 91.5 P/E is only going to get higher in the short term. bozaks

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