Tuesday, August 30, 2011

Strategy to gain market share with low cost tablets

After deciding to end support for the webOS software, HP dropped the price of its TouchPad tablet to $99 for the 16GB version and $149 for 32GB and within a short span of time, the existing stock was sold out. Now, the company plans to manufacture at least one more limited run of tablets to meet the overwhelming demand. When it was priced competitively to the iPad there were no takers, but at the new price, people are apparently prepared to invest, even without the promise of a future ecosystem. Efforts are on to release an Android port for the TouchPad, which would link it to the Android marketplace, and that would make the TouchPad an attractive buy. But the story of the TouchPad makes an interesting case study about how to fuel mass adoption for a new alternative platform. Discount the hardware, create a large user base in a short time span, and then automatically the developer community will step in to build applications. It's a viable market strategy for a company with long term ambitions and deep pockets. Sadly, HP has not chosen this route.

Now Amazon seems prepared to walk this path too, with plans to launch two Android tablets by Q4 2011. Analysts at Forrester Research have predicted that Amazon could sell as many as 3 to 5 million tablets if they are prepared to sell the hardware at a much cheaper price than Apple, even if they lose money in the short term. In any case, the device will be a platform to integrate Amazon's services like Kindle Books, Cloud Drive and the App store, which the company will make money from. And they will be cashing in on the Android boom while upgrading the Kindle ebook reader, which was becoming obsolete as tablets move to touch based technology. Amazon has already promised that their tablets will be 'hundreds of dollars cheaper' than the iPad.

So far, Android market expansion has been driven by hardware manufacturers like Samsung, who have no incentive to discount that hardware. In the tablet space, this has prevented them from making much inroad against Apple. Let's put it bluntly, when Apple and Android tablets are priced equivalently, people incline towards Apple because of its head start in apps, and the useability, refinement and stability of the interface.

The story has been different with Android phones, where budget offerings from HTC, Samsung and others have expanded the Android user base. People are keen to invest in budget offerings to sample Android, get access to the marketplace, and do the same things that people do on high end smartphones. In fact the success and growing market share of the Android platform has been based on rapid adoption across price points. Surely the same paradigm can apply to the tablet segment also.

Do note that this argument only holds when the basic hardware and operating system is sound, and when the future holds some promise of an app ecosystem and/or cross platform migration. It's early days yet to say whether TouchPads will end up becoming obsolete, or whether Amazon will enjoy the same success with their new tablets as they did with the Kindle. But if I were Google, fresh from buying out Motorola, I would take a good look at the potential of low cost tablets as a means to end Apple's dominance.

Source : Ars Technica