HP Touchpad – The Price Wasn’t Right?

I have to admit I was quite shocked to read on holiday that HP had decided to kill off the Touchpad and webOS after what can only be 2 months since launch. In fact at HP Discover 2011 in June, the Touchpad was centre-stage in all presentations, forming a consistent presentation layer for accessing Enterprise content.

Since being discontinued, HP has decided to hold a fire sale, selling off the 16GB Touchpad at $99.  I’ve tried to get hold of a cheap model in the UK, so far without success as the reduced price point has been incredibly popular.  Should we be surprised? Of course not.

Beating Apple

Any tablet competition coming into the market needs to pitching itself against Apple and the iPad.  This is no mean feat to achieve, as Apple hold the dominant position in consumer electronics today, with a fanatical fanbase that will lap up almost any new device they produce.  I was originally skeptical about the iPad, seeing it as a limited usage device, which for me it has turned out to be.  My original iPad v1 is really an expensive ebook reader.  Yes, I use it for other things, but there’s pretty much nothing I can’t use my iPhone for, unless of course I need the benefit of the larger screen.  For “power” work, I use my MacBook.  However, irrespective of my own personal hangups, it’s clear that the iPad and tablets in general have  developed into a new market segment, with most consumers happy to pay the Apple iPad premium cost.

HP of course were positioning themselves at the Enterprise, selling the virtues of a platform that could securely display Enterprise data and act seamlessly from PC to tablet to smartphone.  Within the Enterprise, customers can be price sensitive or agnostic, depending on the purpose.  This may seem like I’m contradicting myself, but imagine senior executives in a large organisation; they will demand access via iPad and price will be irrelevant.  For large scale deployment and adoption across the Enterprise, however, price is a key sensitivity.  I’d suggest HP was targeting the second group, so pricing their new-to-market, device at a similar position to the iPad  was a clear mistake.

Getting a Bargain

What we’ve seen with the HP “fire-sale” of the TouchPad is that everyone loves a bargain. For consumers unwilling or unable to pay Apple iPad prices, the draw of a $99 tablet is irresistible and so we’ve seen huge demand at this price-point, even though there are few (if any apps) and no statements on future support.  Does this mean HP could have adopted a better strategy?  The initial view might be to have sold the TouchPad at a loss in order to gain market share.  At $99, this would clearly have been a success (as we can now see) and this follows the model Microsoft followed with the XBox, selling the console at a loss against the PS2/3 in order to gain market share.  But there are a number of differences in the market between games consoles and tablets.  Firstly, as far as I am aware, all console manufacturers lose money or at least break even on the hardware.  This is because they own the development platform and charge a premium for game development, taking a cut on all games sold.  The losses of the hardware are made up on profit from the software.  In the tablet market, this isn’t the case.  Apple have to make profit on the hardware as so many apps are sold for free or very low cost, unlike high priced console games.  If HP chose to sell the TouchPad at a loss, they would have no opportunity to make that money back in software as they would have to make app development on the platform free to attract developers.

It appears that HP were in a lose-lose situation with the TouchPad.  In order to gain market share, they would have to accept selling the device at a loss for some time to come, until adoption levels were high enough to either increase the price or charge more for software.  At the same time they would have been up against the Cult of Apple, so it’s understandable that they chose to kill the tablet off so early.  What I don’t understand is why they went down the tablet route in the first place.

The Future

I wonder now what will the future of TouchPad and webOS will be.  There’s clearly a market for cheap tablet computing, the question is whether the devices can be produced at a price point to move people away from Apple.  The Android market beckons; they’ve been successful in acquiring customers who don’t like the Apple Content Control machine.  So perhaps HP should package and sell off the Touchpad to Google.  After all, they’ve just moved into the mobile hardware business and might jump at the chance of being able to beat Apple at their own game.