I also disagree with Arrington on the Touchpad, but Gruber and other Apple acolytes' disregard for high-volume low-margin markets seems misplaced. Yes, Apple makes a lot of money by tailoring devices for high profit margin markets. That's clearly a lucrative way to do things, if you can pull it off. But, obviously, not everyone can. Surely there's room in the market at large for both models? And surely it's good for everyone to see competition at all levels?
There is no room in the market for selling products at a loss, and without a clearly lucrative business model behind it, there's also no room in the market for selling products at cost. Those aren't pundit opinions; they're laws of physics.
There's a back and forth to be had about the value of the app market for HP, but the best available evidence suggests that by itself it is nowhere nearly large enough to justify a strategic investment in tablets.
So if you want to make the point that there are other strategies besides Apple's, sure. Nobody can argue with that; it's not falsifiable. To make your comment useful, propose a way for HP to make real money on those tablets.
The Xbox is sold at a loss but overall is a profitable division for Microsoft. There is room in the market for loss-leaders, it's just a question of where to build a revenue model from.
Unlike Android, HP could have run an end-to-end product, controlling the hardware, software, and app ecosystem, but could have tried doing it at a lower price. There's no guarantee the market would have supported it, but seeing how eagerly people snatched up the fire-sale tablets, it's kind of disappointing not to even see them try.
The Xbox is only useful in tandem with its consumable $30 games. It's a prime candidate for a razor/blades strategy.
In comparison:
(a) Tablets are useful without buying a single app.
(b) The price point on apps is far lower than on Xbox games.
(c) Apps are on the whole less consumable than games, most of which lose much of their value after just a week or two of use.
(d) The sole use case of the Xbox is to facilitate games, which means that everyone who owns an Xbox buys them. The key value propositions of a table are "watch video, browse web, read books", and in each of these three categories the apps to facilitate them are either built in or free.
I share your disappointment, but don't believe my disappointment rebuts economic reality.
Don't forget the vast quantities of accessories for consoles. Extra controllers, Xbox Live, downloadable content, are huge profit centers for the Xbox division.
The difference here is that Apple has such a good supply chain that it's practically impossible for anyone else to undercut Apple without selling at a loss. It's quite likely that an inferior competing device has a higher manufacturing cost than the iPad.
Don't conflate Apple's high-margin & (relatively) low-marketshare/volume computer business with their high-margin & high-volume iPad/iPhone business.
In order for someone else to win on price, they are also going to have to beat Apple on cost. If a Dell laptop and an Apple laptop cost the same, who would ever buy a Dell? And the prices aren't even close, sometimes Apple is 2x the price of a Windows machine (and yet people still choose to buy Apple). But in the tablet & phone space, Apple prices are not much higher than Android/WebOS/Wp7/Blackberry. And Apple's costs are clearly lower.
There are a lot of reasons why this is so. Right now Apple has their own distribution network, the other guys generally don't. Apple has better brand value and has negotiated killer deals with the phone carriers. But at the end of the day the most important factors are the volume & the narrow choice of parts.
Apple has more volume than anyone else, by an order of magnitude. That means they get better prices from suppliers and they can spread their fixed manufacturing costs across more units. Higher unit numbers always leads to lower unit costs for a lot of reasons.
So if you want to compete on a device that is close to the iPad, you are going to be really hard pressed to beat the manufacturing cost unless you ramp up to build the same number (which is super risky if they don't sell).
The only way to get a lower manufacturing cost is to buy components that are lower level than the iPad. This is what happens in the computer business. Going back to Dell v Apple, how many people really would argue a $700 Dell is better than a $1200 Apple in the quality? Maybe in value, but not in quality. In the tablet & phone space, there are not as many corners to be cut. You can fill a computer with a cheap motherboard, hard drive, etc. You can stamp out a crappy sheetmetal case or mold some plastic rather than machine the case like Apple does. Most people won't notice the difference becasue you interact with the computer through peripherals.
On the mobile device the big cost drivers are hard to skimp on. A smaller battery makes a functionally inferior device. A crappy case or screen impacts the look & feel of the device in the way a case on a desktop doesn't. There are few options for CPUs and we don't have the same extraneous CPU cycles like in the computer world so a crappier one is very noticeable.
So how do the other companies get to a lower cost? I just don't see it happening without making a drastically inferior tablet, and I don't think people are saying that tablets are unnecessarily powerful right now.
