Apple Inc. (Nasdaq: AAPL) should enjoy its domination of the tablet PC market while it lasts. A flood of tablets from all kinds of manufacturers will hit the market during the 2011 holiday sales season, and many of them will be priced at a hefty discount to the iPad.
The pressure that has been building on Apple, which has resorted to defending its tablet turf in German and Australian courts, is bound to intensify in the coming months. (See: This Apple Win Should Not Stand)
Some people say pricing will not be an effective competitive weapon against the iPad. But the recent case of the TouchPad from Hewlett-Packard Co. (NYSE: HPQ) -- it sold out completely within days after a severe price cut -- indicates many buyers would gladly snap up a much cheaper device than pay $500 for the clearly market-leading product from Apple. (See: Apple Can Be Beaten.)
In addition to the usual PC and smartphone vendors (Asus, Dell, HTC, Lenovo, Motorola Mobility, Research in Motion, Samsung, and Toshiba), I have seen tablets from companies not traditionally associated with the computer market on electronics retailer shelves over the last several weeks. Companies that have entered or signaled they will enter the market include Huawei, LG, Nokia, Sony-Ericsson, and ZTE. The list is stretching out.
For instance, Vizio Inc. has a pretty attractive tablet stocked alongside its flat-screen television offerings at BJs in the United States. The simply dubbed "Vizio 8-inch tablet" is being marketed by the company as an entertainment device that will "keep entertainment freedom at your fingertips."
The Vizio tablet offers exactly what most other tablets do -- access to the Web, TV shows, movies, music, and apps -- and is optimized to serve as a universal remote control for the ultimate couch-potato experience. It runs the Google Android operating system and retails for approximately $329, versus the $499 for the lower-end Apple iPad. Sure, it's not an iPad, as, no doubt, Apple enthusiasts will tell you. But by December, the Vizio tablet may be retailing below $300, making it an appealing purchase for parents, spouses, and even corporate entities. I might buy a product like that for my high schoolers.
Then there is the much touted Amazon tablet, which is forecast to make its debut this quarter at a similarly low price point. With the Amazon name behind it, there's the promise of a tighter link with other offerings by that company, which is reportedly willing to take a loss on the device and make up the difference in other sales: books, music, video, etc. (See: Kindle vs. iPad: 'Nasty' Tablet War Ahead?)
Consumers have a lot of tantalizing options to the iPad. And with the kind of offerings I expect to hit the market, consumers may not care they can't afford the iPad.
My concern is not so much for consumers -- they're in good hands -- but for the OEMs making the tablets and the component suppliers supporting them. A price war hurts everyone. The kind of margins now expected on the tablet could end up shaking up the market, but not before some suppliers and OEMs suffer considerable losses.
There's another solution I believe companies will start exploring soon. This is the bundled strategy that has been well tested by smartphone manufacturers and telecommunication service providers, which heavily discount products or give them away, as long as consumers were willing to sign multiyear subscription agreements. If the industry follows this pattern, not only will we see even cheaper tablets, but many of them likely will be offered free to telecom subscribers.
If the industry goes in this direction, some manufacturers will be forced to exit the tablet market, because the power to determine viable players will shift from the OEMs themselves to telecom service partners. Some, of course, will still exist in the margin, but the stronger players would have to ally themselves with service providers. Apple has done reasonably well with this strategy in the smartphone segment, but will telcoms be as willing to suck up the cost of discounted tablets?