Even after the CES at Las Vegas no company has been able to shake the roots of Apple iPad. Now, with iPad 2 rolled out by Apple last week, the fact remains that no other tablet PC maker can beat the price point of iPad.
Since the launch of the original iPad last year, Apple has sold at least 5 million pieces amounting to a cool $9.5 billion of revenue. But this is just a piece of the cake say experts. It has been established that this market could expand to $35 billion just by 2012.
For this reason, computer makers like HP (TouchPad), LG (G Slate), RIM (Playbook), HTC (Flyer) are all itching to launch their versions of tablet PCs. Although Motorola (Xoom) and Samsung (Galaxy Tab) are already in stores, their feature and price point do not match that of iPad at all.
An analyst at Stanford C. Bamstein, Tony Sacconaghi said, “There have been nearly a hundred competitive tablets that have been introduced since the iPad. But it seems that no one has eclipsed or even matched Apple on pricing.” Industry experts give credit to Apple Inc’s enormous $60 billion cash reserves for being able to maintain price monopoly. They say that Apple has formed a kind of alliance with its suppliers who provide expensive input parts like flash memories in bulk at cheaper rates. This, amounting to cheaper making cost and hence the low price advantage.
Also, Apple has waived off the licensing fees that was charged on other inputs like the A4 and A5 processor chips. These chips are very thin and expensive and are produced in-house by Apple. They are originally made by a company that Apple bought.
The App Store yielding at least a billion dollars a year also gives some leverage to the company since they can afford an even lower profit margin on the iPad (25%). The iPhone yields 50% profit which is also a big money earner. Not only this, but Apple also has a wide distribution network of its own Apple stores so third party charge is also avoided. With so many advantages to its name Apple can hardly be beat on its price mark by any other company.
Openly mocking at other tabs in the market, Steve Jobs, at the launch of iPad 2 said, “is 2011, going to be the year of the copycats? Most of these tablets are not even catching up to our first iPad.”
To cut costs in a similar manner, Samsung manufacture many parts of its Galaxy Tab in-house. Its software is Android which is freely available from Google. But still, is not able to sell the seven inch Tab at lower than $549. IHS iSuppli analyst Rhoda Alexander said, “Just because a company sources internally doesn’t ensure that they get the best pricing on components. It doesn’t necessarily guarantee efficiency from a cost perspective.”
Samsung’s vice president for strategy, Justin Denison, said that prices of the product are set by carrier partners and the company is not skeptical about the price competition from iPad. In fact, he says that the opening sales of Galaxy Tab have been quite healthy.
However, a major barrier to slashing prices for companies like Samsung is the lack of exclusive company outlets. This will eliminate the middle men cost and make the tablet computers cheaper. This doesn’t mean that spending millions of dollars to build shiny stores around the world is a cheaper option for smaller companies like Motorla. It Xoom costs$800 in the U.S. without a network connection. It has a front and a rear facing camera, 10 inch screen and a dual processor. With these features Xoom is $70 costlier than the 32-GB iPad 2 of equivalent features.
Alain Mutricy, senior vice president for Motorola has justified Xoom’s price saying that it has a high resolution display, large internal memory and is compatible with Verizon’s 4G LTE network. Also later upgrades are totally free for Xoom users.
“The Xoom is priced exactly where it has to be. It’s not that we are trying to lower the price and cannot,” he said. “We are pricing the Xoom based on what we are offering consumers.” However, he did say that Motorola has planned to make lighter and cheaper tablet computers in the future.
S7 Slim from Huawei, a Chinese manufacturer with 7 inch display, 1-Ghz processor and Android OS is said to be looking to come to the U.S. market at $300. The officials at Huawei say that the low cost is a result of low profile marketing campaign by the company. Recently he said, “We didn’t set our margins based on massive advertising campaigns.”
A Forrester Research analyst, Sarah Rotman Epps, said that as time progresses pricing will be more and more crucial. She said, “Consumers expect that over time, electronics get cheaper. They’re seeing all these other devices in the market and not necessarily distinguishing between processor speeds. There’s a huge variation in price and power but from a distance, they all look like 7-inch touch screens.”
Analysts say that as companies get efficient, tablets will become cheaper. “The iPad may continue to own the market if competitors don’t get more realistic on their pricing,” Rhoda Alexander said. “Right now, it’s too high relative to what the iPad has for the product.”