New technologies face a formidable and constant obstacle: pricing. Cell phones provide a wonderful example. When they were first introduced — before they were universal devices — they were massively expensive. The phones themselves and the monthly service costs priced most people out of the market. It wasn’t until prices came down that people started to buy. The pricing issue cropped up later in the cell phone’s life, too. The original Motorola RAZR, remember, was $400. Early smartphones, including the Apple iPhone, were also priced well out of many people’s ranges. It wasn’t until the prices of those devices fell that they gained wide adoption.
The newest technology craze, tablet computers, faces similar issues. For many, the iPad is priced out of affordability. Many of its early competitors have faced similar issues. The Motorola Xoom and the Samsung Galaxy Tab, for instance, both featured price tags at or above the level of the iPad. That necessarily limits their adoption rate. Worse yet, many people consider tablets luxury devices, as opposed to the necessity of cell phones. The market in general seeks pricing considerably below the level of the iPad. It seems that some companies have answered that call.
Amazon was the first big company to jump into the cheap tablet fray. While the Kindle Fire is far from the most powerful and full-featured tablet on the market, Amazon got right the most important aspect: pricing. They sell the Kindle Fire for $200, or $300 cheaper than the least expensive iPad. This opens up an entirely new market to them. While Apple, as is their wont, goes for the higher-end customer, Amazon has targeted a population that simply cannot justify spending $500 on a tablet. In doing so, they might have broken the tablet market wide open.
Presales for the Kindle Fire caused Amazon to go back and order more production. The device sold at high levels in the early days of availability, and Amazon sold four times as many Kindles this Black Friday than on last. While those numbers certainly got a boost from the new Kindle Touch and the more general Kindle device, the Fire was easily the most popular of the Kindle line. While we don’t have exact sales figures, it would not at all be a surprise to learn that the Kindle Fire has sold multiple million units. In other words, it is likely the second most popular tablet on the market, to the more established iPad.
The low price tag clearly played a large role in Amazon’s ability to sell so many tablets. It appears, too, that Amazon knew that the pricing was perhaps the biggest factor in tablet adoption rates. They actually lose money on every Kindle Fire sale — the device costs more than $200 to manufacture, and that doesn’t even factor in all the other associated costs. Amazon was able to justify this, because the Fire is loaded with Amazon services. More Kindle fires sold means more Amazon Prime memberships, more videos rented from Amazon Instant Video, more music downloaded from Amazon’s MP3 store, and more purchases from Amazon.com. The loss on the tablet itself gets recouped by these means. Other manufacturers simply don’t have that kind of back-end market.
Last year Research In Motion unveiled their tablet PC, the BlackBerry PlayBook. Suffering a bit from lackluster sales of its latest smartphone line, RIM was eager to show off its state of the art tablet. The more they showed, the better it looked. The PlayBook featured an entirely new, more powerful operating system. It contained top of the line hardware — it even rivaled the iPad in that regard. In other words, it was supposed to be RIM’s foray into the future.
Things didn’t go quite as planned. The PlayBook launched about a month after the iPad 2, which certainly hurt sales. It also launched absent some of the most important BlackBerry features: email, calendar, and contacts. BlackBerry users could tether their smartphones to it, but that’s never an ideal solution, especially for core functions. It also left non-BlackBerry users in the dark. RIM promised updates, but they kept getting delayed. To this day we haven’t seen those updates, and they’re not scheduled to hit the PlayBook until February, 2012.
Yet RIM still needs to sell these units. The only problem is that they can’t entice people to buy at $500, which is the cost of the 16GB PlayBook — the same as the 16GB iPad. With the holiday season upon them, RIM decided to make a desperate plea: $200 for the 16GB PlayBook. Big box retailers picked up on the deal, and apparently people flocked to the PlayBook. Best Buy sold out of the 16GB model, going so far as to cancel some customers’ orders. Staples, too, is out of stock. People snapped up these devices as RIM had hoped from the beginning, despite the tablet’s incompleteness.
The sales of the Kindle Fire and the previously lackluster BlackBerry PlayBook ask the question: is $200 a sweet spot for tablet manufacturers?
Big Names Win The Day
Both Amazon and BlackBerry share one competitive advantage. Their brand names go a long way with consumers. Therefore, when Amazon and BlackBerry offer discount products, people will generally gravitate towards them. People buy the Kindle Fire because they view Amazon positively and believe that they’ll deliver with a tablet. The same goes for BlackBerry. People might have been skeptical at $500, but at $200 the BlackBerry name goes a long way. The same cannot be said for other manufacturers.
Walk into any electronics retailer, or search on Amazon.com, and you’ll see a number of cheap tablets. These mostly run the Android operating system, since manufacturers do not need to pay royalties to install the Android OS on their devices. Tablets from manufacturers such as Superpad, Le Pan, Coby, and Archos sell in the $200 range. Some of them even contain high-quality hardware. Yet they don’t sell nearly as well as the Fire and PlayBook have in the past month. That’s because people don’t trust those brand names.
For recognizable brands, then, $200 might be the sweet spot for tablets. People seem to be responsive at that price point, as the PlayBook and Kindle Fire have shown. But consumers won’t pay that $200 for any tablet. They have to trust the name on the box. Few consumers who walk into a Best Buy have even heard of Coby electronics. It takes quite a level of salesmanship to convince them that buying a Coby tablet is even worth it at $200. The Kindle Fire and the PlayBook, on the other hand, sell themselves at $200. They’re cheap enough that even if the device doesn’t get that much use, it’s not a huge deal.
The tablet market figures to absolutely explode in 2012. Apple laid the groundwork and continues to serve the high-end market. Android has developed an operating system that works with both tablets and smartphones, which makes it easier for developers to create tablet applications. The PlayBook is set to get a big update. And that’s not to mention the iPad 3, which we’ll surely see next year. One reason that the tablet market has started to fare better, and will grow even more in 2012, is pricing. Recognizable brands have brought down the pricing level of tablets, and now others will try to get in at that level. The $200 price tag might not be a sweet spot for everyone, but recognizable brands will sell plenty of units at that price point.