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The Tablet Price Wars Begin: Will Apple Lose?

It’s only fitting that the company that dropped a bomb on the PC industry with the first low-cost netbook would do the same with the tablet market. ASUS has introduced the Eee Pad Transformer, a 10.1-inch Android Honeycomb slate that costs just $399. That’s $100 less than the iPad 2. Meanwhile, Acer is undercutting Apple by $50 with its new Iconia Tab A500. Of course, these aren’t the first cheap tablets, but they’re the first ultra-affordable models running Google’s latest software. And that could spell trouble for Apple.

According to IDC, Samsung’s Galaxy Tab gobbled up 17 percent market share in the fourth quarter of last year, compared to 73 percent for Apple’s class-leading device. Apple has hit back not only with the thinner and faster iPad 2 but with a patent lawsuit claiming that the Tab and Samsung’s phones are copying Apple’s designs. Suddenly, though, Apple has a lot more competitors.

Motorola sputtered out of the gate with its heavy and pricey Xoom, but just in the past week the T-Mobile G-Slate ($529 on contract), Eee Pad Transformer, and Iconia Tab A500 all garnered favorable reviews from us. The G-Slate sounds pricey, but it’s actually $200 less than the 3G version of the iPad 2 with the same amount of memory. Samsung will debut two new Galaxy Tabs this summer starting at $469 that will reportedly match or surpass the iPad 2’s thinness and lightness.

Of all of these new entrants, the Eee Pad Transformer impresses us most so far—and not just because of its low price tag. The 10-inch slate is lighter than competing Honeycomb tablets, features an IPS screen for wider viewing angles, and plugs into an optional keyboard dock that adds more battery life. It’s this kind of combo that could prove a hit with the back-to-school crowd, as well as mobile professionals who want to take notes in meetings. The dock adds a reasonable $149 to that rock-bottom $399 price.

While I don’t imagine that ASUS’ profit margins will be very high on the Transformer, it has put other companies on notice. Anyone releasing a Honeycomb tablet priced above $400 will now have to really justify the premium. And the more companies that cave into ASUS’ price pressure, the more shoppers might start to second-guess the iPad 2’s $499 price. But that’s only if this new price war leads to something else: more apps.

Part of the reason we haven’t awarded any Honeycomb tablet an Editors’ Choice is because at last count the Android Market stocked a whopping 62 tablet-optimized applications. Add three zeros to this number and you still won’t have as many apps as the iTunes App Store has for iPads. However, such devices as the Transformer and the Iconia A500 should start to solve the dreaded chicken-and-egg problem. Developers don’t want to roll out apps for a platform unless it has scale, and the combination of lower prices and the sheer number of PC and mobile phone companies rolling out Android 3.0 tablets will likely compel the big names to devote more resources to Honeycomb.

Although Apple’s tablet sales for the recent March quarter (4.7 million units) didn’t meet analyst expectations, the company still has a backlog due to huge demand. The question is whether this demand will cool if consumers decide that cheaper is better.

Lower tablet prices could also have a domino effect on the 3G versions of the iPad 2. Now that shoppers have a lot more choices that don’t tie them to a two-year contract, service providers will likely be forced to more heavily subsidize their wares. When we first reviewed the Galaxy Tab for Verizon Wireless, it cost $599. Now it’s down to $199. The Xoom is probably next. Apple sells a subsidized version of the iPad 2 in other regions of the world, and it might have to do so in the U.S.

If you look at the PC realm, Apple just reported a whopping 28-percent gain in Mac sales when the rest of the market contracted for the first time in six quarters. This is despite the fact that Apple’s cheapest laptop costs a grand. However, tablets are different. In fact, if you recall, the pitch for the original iPad was “a magical and revolutionary device for an unbelievable price.” Apple still has the magic, but the unbelievable part is gone.