Pricing a Tablet in the Apple Dominated Market
It’s no secret that the iPad is the tablet king. Gartner estimates that about 74% of all tablets sold in 2011 are iPads. However, there are numerous other manufacturers and tablet operating systems on the market. Google has its Android Honeycomb operating system that appears on a number of tablets including the Samsung Galaxy Tab. And until just recently, HP had the webOS operating system that ran on its TouchPad.
The price tag on all of the aforementioned devices is (was) about the same. For $500, you can get a tablet with WiFi and access to some kind of app market place. For a little extra, you can get more storage space and/or 3g data access. But a divide remains between the iPad and the others. Namely, the non-Apple products have better hardware, but the iPad has a far better app ecosystem with 400,000+ apps, the Apple brand, and an arguably better user experience. And for the latter reasons, people are overwhelmingly choosing the iPad.
If people value the ecosystem so highly, it is clear that other tablet manufacturers have to lower their prices to gain market share. But what is the market-clearing price for these other tablets? To find out, we can look to the HP TouchPad. About a month ago, HP decided to leave the consumer hardware industry and abandon the TouchPad. In order to clear its supply of TouchPads, it set the price of the tablet to $99. What followed was a mad rush to buy TouchPads, and a demand that far exceeded the supply. From this fire-sale it becomes clear $99 is not the market clearing price because the set of buyers were constricted. Therefore, the market clearing price for non-Apple tablets is higher than $99 but still lower than $500.
To get a better estimate of this price, we can look to auctions. Because HP underpriced the TouchPad during the fire-sale, many people bought the device with the intention of reselling. Looking at eBay today, post fire-sale, the entry level TouchPad is going for around $250. In the second price auction system (similar to the one on eBay because you may end up paying less than your bid), buyers bid the amount they value the item. Therefore, the market clearing price for a tablet with a dead app ecosystem is about $250.
If a tablet with a dead app ecosystem can go for $250, then $250 appears to be about the market clearing price for the hardware alone. Companies still fighting Apple’s dominance will have to find the price between $250 and $500 at which people will value their combination of hardware and less sought-after operating system.
Sources:
http://www.techdirt.com/blog/wireless/articles/20110831/15471715757/hp-tablet-fire-sale-lets-us-put-price-value-strong-development-community.shtml
http://www.itnewsafrica.com/2011/09/gartner-apples-ipad-dominates-tablet-market/