Tablets: Cheap, Cheaper & Cheapest

As companies continue to remix their tablet offerings, providing a plethora of sizes and features that suit the market's appetite for these mobile devices, there is now a concerted effort to do battle over price.

Not only will the price equation further exacerbate uncertainty about which company will win the tablet wars, but price competition reveals what many electronics manufactures have already figured out: If they can't compete in the first tier of the tablet market, there is room to grab market share in the second or third tier.

Ever since Hewlett-Packard Co. (NYSE: HPQ) decided to drop the price of its TouchPad tablets and sell the product for $99, which sparked a fire sale one weekend during the summer of 2011, companies have been eying the possibility of offering a tablet with a $99 price tag.

A little over a year ago Lenovo introduced the Lenovo IdeaPad A1 7 inch for $199. We've also had products with fewer features that satisfy the lower end of the market such as the Amazon Kindle Fire, the Google Nexus 7, and the Samsung - Galaxy Tab 2 Tablet. These are products with fewer features such as screen resolution or storage space, but can still satisfy consumers who are looking for a tablet that sells for less than $200.

Now, Asus has introduced its 7-inch tablet, the Memo Pad ME172V, which will ship for $149. Acer has launched the 7-inch Iconia BI tablet in India and reports are that the company plans to introduce this tablet in the US with a $99 price tag. There are also rumors that Google is planning to unveil a $99 Nexus tablet sometime this year.

Let's face it; there is a market for lower-priced tablets. That said, companies like Apple Inc. (Nasdaq: AAPL) and Samsung Electronics Co. Ltd. (Korea: SEC) that have cornered the high-end market want as much market share as they can grab, and will be hard pressed to surrender market share to other competitors. The ripple effects of a change in market demand come with other unwanted consequences such as a possible rise in inventory levels as demand slows. Years of planning can be dashed when forecasts don't match the realities of retail sales. Already, Apple is trying to inoculate itself from such disruptions.

The introduction of the iPad Mini, for example, gives Apple the chance to break through the $499 price point of the larger iPad, giving consumers a 7.9-inch tablet at a lower price. However, the 16GB iPad Mini sells for $329, the 32GB model has a price tag of $429, and the 64GB sells for $529. It will be interesting to see if Apple decides to offer tablets below the $200 mark, but for now the company has decided to leave that battle to others in the market.

In the meantime, the slow sales of Microsoft's Surface RT tablet during the Christmas season indicates that the tablet market may not be as strong as many thought. Consumers may have settled on Apple or Samsung for their high-end products, and may not want to entertain another alternative that sells for around the same price and does much the same thing as other competing product. The Surface RT sells for $499 for the 32GB tablet, $599 for the 32GB tablet with a touch cover, and $699 for the 64GB version with touch cover.

As it begins to compete in the tablet market, one wonders if Microsoft might not have fared better if it had introduced a tablet at a lower price. It's always good to remember the lessons of the HP TouchPad when it sold for $99, and the enthusiastic sales that followed.

Price does matter. The question is how low will companies go to offer a price tag that grabs consumers, yet still covers supply chain costs while making a profit? I'm willing to bet we will see much cheaper tablets this year. How companies serving the high-end of the tablet market will react to this new reality is anyone's guess.