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Tablet PC Makers Kick Off Price War

Electronics companies have long shaped their businesses around the mantra, “Make it faster, better, and cheaper than the next guy.”

It shouldn't come as a surprise then that this exact scenario is starting to aggressively play out in the still fledging but already heated tablet market, where everyone and their mothers seem to be diving into the unknown and trying to win a piece of the action.

What comes as a bigger surprise is that the company starting the price war isn't even your traditional electronics enterprise. It's an e-commerce company with global market muscle.

Last week, {complink 11480|Amazon.com Inc.} shouted a battle call in the direction of {complink 379|Apple Inc.}, and hinted at the idea that the skirmish might be won via some combination of price and customer experience. Apple has since fired back. It introduced the iPhone 5 this week and cut the price of both the newest device and most of its predecessors. What this implies is a possible price cut for the next-generation iPad.

During the official product launch, Amazon CEO Jeff Bezos announced that the new Kindle Fire HD 8.9-inch tablet with 4G would sell for $499, which syncs up to the base price of an Apple's iPad. The WiFi-only model comes in at $299, and the 7-inch, 16 GB one with WiFi at $199.

Widespread commentary about Amazon's move to better position itself in the market points to a general market strategy that pits price right up against customer experience. And, even if Amazon's first version of the tablet had some lackluster reviews, the latest product suite appears to rectify earlier shortfalls.

As ReadWriteWeb lays out in detail, Amazon takes a “Sell Now, Make a Profit Later” approach, and Bezos emphasized that the company wants to align with customers (at a more competitive price point) and will make money after the initial hardware sale when consumers use the device. Apple, however, sells products at a much higher price point, which means it counts on making profits on its hardware rather than the services or apps its sells after the fact.

MarketWatch also points out that Amazon isn't only going to bat with Apple; investors see Amazon's tablets directly competing with Microsoft's upcoming Surface tablet and Google's new Nexus tablet.

As in the smartphone market where Apple and Samsung (via Google's iOS) are slinging it for market share, the tablet sector is looking to become a horse race with a handful of players charging forward and a bunch of secondary players picking up the scraps. Gartner forecasts that media tablets sales could reach 119 million units in 2012, up from 60 million units last year.

Meanwhile, in the secondary market, even a big-box toy store wants in on the potentially lucrative tablet segment. This week, Toys R Us said it was launching its own $150 version for kids, including WiFi connectivity, extensive parental control features, and 50 pre-loaded apps. And, as a side note to the competitive picture of the smartphone market, Amazon may not have announced its smartphone plans just yet, but there is all sorts of chatter about it being a possibility somewhere down the line.

With the field still open and consumers still deciding where their loyalties lie, each major company in the field is putting a stake in the ground. In a few quarters, we should see which strategy took the gold medal home.

28 comments on “Tablet PC Makers Kick Off Price War

  1. Cryptoman
    September 14, 2012

    I welcome more competition in the tablet market. Apple should not be the single strongest player that monopolises the majority of the tablet market.

    I think if Amazon provides a bit of flexibility to its users by including a USB port on the device, that could be a huge advantage over Apple. iPad is a nice platform however it is very closed and does not allow user to do everything it needs. One example of this is data transmission over Bluetooth. Apparently, iPad only allows voice transmission over Bluetooth and not any other type of data. Also as every iPad user knows copying files to iPad is not as straightforward as it is for a PC.

  2. Adeniji Kayode
    September 14, 2012

    @rytoman,

    Good points, Apple too may be looking into this area, its going to be about who act first because if any tablet is thinking of this then why not Apple- at least to stay on top of the market.

  3. t.alex
    September 14, 2012

    I believe any new iPads will have the new connector similar to the iPhone 5, and it's gonna be more headaches. Competitors have been using USB all along which is very convenient.

  4. Taimoor Zubar
    September 15, 2012

    “I welcome more competition in the tablet market. Apple should not be the single strongest player that monopolises the majority of the tablet market.”

    @Cryptoman: Apple isn't the only player dominating in the tablet market today. Android-based tablets own a major share too but that's not concentrated with one manufacturer and it's spread out amongst companies like Samsung, Toshiba etc. Even they will be affected if Amazon decides to launch its tablet in the market.

  5. Taimoor Zubar
    September 15, 2012

    I think slowly and gradually Amazon is stepping out of the e-book reader market and putting up Kindle to directly compete with other tablets in the market. One of the reasons behind it could be the fact that Amazon realizes that e-book readers can't survive alone for a long time because they're only catering to a single purpose whereas tablets cater to multiple uses. I think it's a good diversification strategy and Amazon is making the moves before it's too late.

  6. Cryptoman
    September 15, 2012

    @TaimoorZ Gartner's forecasts for 2015 indicate that Apple will have 46% of the tablet market, followed by Android devices at 35%, Microsoft at 11% and QNX at 8%. Those figures tell me that Apple'sdominsnce in the market will continue. Although Apple is not the only player in the tablet market, it is THE biggest player surely and that's what İ was trying to emphasise.

  7. Taimoor Zubar
    September 16, 2012

    @Cryptoman: I'd consider the 46% and 35% market share figures to indicate that the market is in fact quite competitive and it doesn't seem like a major player is “monopolizing” the market. Apple is the biggest player but I think its market share is gradually declining.

  8. Cryptoman
    September 16, 2012

    @TaimoorZ Numerically, 46% and 35% are close enough to indicate a healthy competition but we need to look at what they include. 46% is Apple's share as a brand whereas 35% includes ALL Anrdoid based tablet brands such as Samsung, Archos, Google, Asus, Sony, Toshiba, Acer, Huawei and Motorola. Do you still think Apple's iPad is not monopolising due to its substantially larger share based on individual brands? İ am totally for Apple's share to decline in the market to establish a more balanced user base between different technologies and İ hope Amazon's move is going to help to achieve that.

  9. Anand
    September 16, 2012

    Apple, however, sells products at a much higher price point, which means it counts on making profits on its hardware rather than the services or apps its sells after the fact.

    @Jennifer, thanks for the post. Isn't it true that Apple is already making money by selling app's also? Do you think Apple will be forced to eventually reduce the price of its hardware ?

  10. Anand
    September 16, 2012

    Apple should not be the single strongest player that monopolises the majority of the tablet market.

    @Cryptoman, I totally agree with your observation. Everyone is aware of the fact that Apple has the highest profit margin per device sold. This competition will eventually bring down the cost of the product. 

  11. Anand
    September 16, 2012

    Apple is the biggest player but I think its market share is gradually declining.

    @Taimoorz, you are right. Samsung Galaxy 3s has overtaken the Apple in market share but after the courts verdict people are worried about future of Android phones. So we might see sharp rise in  Apple sales figures.

  12. Anand
    September 16, 2012

    I think it's a good diversification strategy and Amazon is making the moves before it's too late.

    @Taimoorz, you are absolutely right. This is smart move by Amazon to conquer the  tablet market before its too late. One of the big advantage of e-Bay is that it can sell the device at lesser cost and still make money by selling softwares/e-books.  

  13. _hm
    September 16, 2012

    @Cryptoman: You can look at other way too. Apple will have 90% of profit in Tablet market. All other combine will have 10% of profit. It will be very difficult to survuve and invest in R&D with very low profit for long.

     

  14. Daniel
    September 17, 2012

    Jennifer, apart from product price, service provider can also provide a host of services as a bundled along with the device. It's like a type up with the service provider and device manufacturer. Along with the device a host of other services like free data usage/calls, free access to certain contents, coupons etc are offering. But customer may have some minimal commitment period and this is good for both customers and service providers.

  15. Daniel
    September 17, 2012

    Taimoor, you are right. One cannot capture or retain the market for a long time, without constant changes in business strategies. In that way Amazon has diversifies from e –reader to other potential customers. I think they can offer a host of Amazon services through tablets, which may be interested for both the enterprise level and normal customers.

  16. bolaji ojo
    September 17, 2012

    Apple is bound to drop hardware prices in the longer-term if it wants to maintain market share. What's happening right now is that the other computer, phone and tablet vendors realize they can't compete against Apple's marketing hype. They may be left with surviving not just on the strength of their products but also on cost. The onslaught will eventually take its toll on Apple although many don't think so.

  17. Anand
    September 17, 2012

    It's like a type up with the service provider and device manufacturer.

    @Jacob, that is a very valid suggestion. I think many companies are already following this strategy. This is win-win for both the service providers and device manufacturers because they can attract more customers by giving them good offers.

  18. Jennifer Baljko
    September 17, 2012

    @cryptoman, @adeniji @talex – I often wondered why tablets lack a USB. I'm sure it's a deliberate engineering design thing and a way to push for the cloud services each company offers, but, for me, it's a design flaw… give all the devices we have and the multitude of information we need to consume on different devices, sometimes it's just plan easier to put stuff on a USB stick, avoid multiple log-ins, etc.

  19. Jennifer Baljko
    September 17, 2012

    @TaimoorZ  – yes, Amazon may be exploring a diversification stratgey for its Western markets, but the market for e-readers is far from dead, I think.. In classrooms in the developing world, for instance, e-readers present a simple technology solution for a massive problem: Put books into the hands of teachers and students who otherwise wouldn't have access to books, in a relatively low-cost/affordable way.

    As a disclaimer, I work with Worldreader, a non-profit bringing Kindles to Africa, and right now we're in Ghana, Kenya and Uganda. It's extraordinary how those single-use devices are changing lives, and I would think that developing world represents a huge opportunity for Amazon still.

     

  20. Adeniji Kayode
    September 17, 2012

    @Jennifer,

    You are right, the inability to be able to use a USB device on tablets is really a major disadvantage and this is a reason why most consumers will keep their PC for a long time

  21. bolaji ojo
    September 17, 2012

    Jenn, That's why I can't wait for the Microsoft tablet. I believe it will integrate more PC-like functionalities than the Apple style tablet, which I believe is flawed.

  22. bolaji ojo
    September 17, 2012

    Jenn, I wonder, will lower pricing change the market share structure in favor of Apple rivals? Many of them have tried this strategy without success. What's different now?

  23. Adeniji Kayode
    September 19, 2012

    I hope Microsost will look in to this and take up the advantage.

  24. Wale Bakare
    September 19, 2012

    Can Apple inhibit on Amazon's growing wings in OEM sector? I dont think anyone of the rivals is strategically placed enough to stop Amazon's free flow into consumer markets. Microsoft? May be.  The truth is that – Amazon would dominate both software and hardware markets soon.

    As per USB port — I dont see non USB port embed as a flaw or an oversight of design. Apple may try not to put all its eggs in one basket.

  25. Daniel
    September 20, 2012

    Anandvy, most of the customers are looking for services rather than procuring the device. The procuring cost is a onetime investment and there after monthly tariffs like burdens. So any bundled packages (call/Data) along with the devices are more attractive for both customers and service/device providers.

  26. Jennifer Baljko
    September 21, 2012

    Bolaji, I agree, generally. One would think there would be a decline in Apple's hardware prices, but, luckily for Apple, people have been willing to pay the price for “cool.” But, eventualy, all cool  becomes “so yesterday.” Yes, pricing could well split the market, but if compeitors don't come up with an equally-hyped up and great-looking electronic toy, maybe price will only go so far.

  27. Jennifer Baljko
    September 21, 2012

    Jacob – that's a good point… the choice of which device is fairly easy — people will likely make an initial hardware/tablet choice either on brand loyalty, promised features or price. But how they use it afterwards and the kinds of services/apps they want could also begin to sway the hardware vote.

  28. Daniel
    September 24, 2012

    Jennifer, the point I raised is a valid customer voice. I had purchased a Samsung tab 620, which is a onetime investment and there after every month am paying a good amount to the service provider for availing various services. When I brought my Tab, I never realize that the data package and other services can burn my pocket this extends.

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