With the first-gen iPad now starting at $399 and the new model just $100 more, you'd think that Apple's competitors would take notice and price their tablets accordingly. But you'd be wrong: Instead of listening to consumers, the bigwigs at companies such as Motorola have been channeling Gordon Gecko by not only pricing their products higher than the market leader, but also trying their best to chain customers to long-term, expensive data plans they don't need or want.
Reality check: No sane person wants to spend at least $1,100 over two years (the minimum cost of a subsidized Xoom) for a secondary device. Even selling users on a $600 to $800 one-time purchase is a challenge.
And let's face the facts: Tablets are still secondary devices that everybody wants, but nobody (except vertical industries that use business slates) needs one to make their mobile lives complete. Though some have tried, there's no way people are going to give up their PCs and phones any time soon. You need your notebook to do serious work because a slate alone—or even with a keyboard attachment—simply doesn't offer as robust an experience as what you get with a full OS, high-res screen, and comfy keyboard.
You need your smart phone because it fits easily in your pocket, makes calls, and lets you get the web and e-mail wherever you go. Sure, tablets can do a lot of the things smart phones can, but the larger form factor makes slates unlikely to displace handsets anytime soon. RIM won't even let you get e-mail on the BlackBerry PlayBook unless you tether it to a BlackBerry phone.
So why on earth would you want to pay separately for a data plan on your tablet when you're already paying for smart phone data? Considering that you probably have Wi-Fi access in your home and office and that you might be able to use your phone as a hotspot if you carry your tablet around town, the idea of paying separately for mobile broadband is ludicrous—but it's also a carrier's dream.
Just imagine the ideal Verizon Wireless customer's monthly bill, which includes $80 for 10GB of data on the tablet, $30 for 5GB of data on the phone, and $80 a for 10GB of LTE data on a laptop. That's a total of $190 a month before taxes, fees, and a minimum of $40 on voice service. And you still have your home Internet connection to worry about!
When the iPad came out in 2010, it created demand for a product category—media tablets—that didn't really exist before. You can credit Apple's ecosystem or its mystique for the iPad's success, but the company was smart enough to know that to make its slate anything more than an aspirational product that people drooled over but didn't buy, it would have to be affordable and free of long-term commitments.
Even if you buy an iPad with 3G built in, you can choose to turn the service on and off at your own discretion, making the added cost of the cellular modem a worthwhile add-on even if you only plan to use it on vacation. And with the iPad 2 arriving this week, first-gen iPad owners will have fewer qualms about giving Apple their money again, because they aren't bound by contract to the device they bought last year.
By contrast, Samsung rolled out its Galaxy Tab last fall without a Wi-Fi-only version, forcing users to commit to a carrier just for the privilege of ownership. While some carriers sold it unsubsidized, I feel sorry for the people that bought this 3G, Android 2.2 device and signed on to use it for two years, knowing that dual-core slates with blazing LTE would be out before their Tabs were even six months old. Will they be carrying their 2010-era Galaxy Tabs with them in 2012 or 2013 when they're still under contract, or will those devices be sitting in a drawer while their owners pay $20 to $50 a month in data fees for a device they don't use anymore?
Fast forward to today and you still can't buy a Wi-Fi-only version of the Galaxy Tab, though T-Mobile is selling a prepaid version for a modest $450, $50 more than the first-gen iPad. Motorola's Xoom will allegedly cost $599 for the Wi-Fi-only version, but so far you can only buy it from Verizon at $599 with contract ($1,114 total over two years with the minimum plan) or $799 without. We don't have final pricing for other upcoming tablets such as the BlackBerry PlayBook, HP TouchPad, and HTC Flyer, but rumors peg at least some of these with starting prices in the $600 to $800 range.
The reason for the huge price difference between Apple and its rivals has been the source of much speculation, but nobody seems to know for sure why the iPad costs less. Some speculate that Apple has superior command of its supply chain and is able to buy components such as screens and flash memory cheaper. Others credit Apple's ability to distribute its products through its own stores for its ability to charge less, as well as negotiate favorable deals with other retailers. (No one wants to undercut Apple itself.)
Whatever the business reason, consumers don't care. They see the most hyped, highly touted device selling for less than $500 and they expect plucky upstart competitors to either offer more functionality for the same price or the same functionality for less money. You can talk to them about the advantages of Android's open ecosystem, the PlayBook's fantastic multitasking, or HP's webOS until you're blue in the face; they're going to see you as overpriced.
So if you're HTC, LG, Motorola, RIM, or Samsung, you have a choice. You can continue selling high-priced products to the few early adopters who will pay anything to get them, or you can find a way to cut prices to reasonable levels, either by reducing your margins or by developing efficiencies. Tying people to data contracts to make your tablet look less expensive simply isn't going to work.