08/25/2011, 02:06 AM
Whoever the naysayers are that still think HP’s move was “idiotic” and “stupid” need to open your eyes. HP’s move here was significant and utter genius. Be prepared for a long analysis of Apple’s strategies and why I believe HP made a brilliant move:
Over the past few years, Apple has accomplished something significant. They have eliminated the notion of the Apple Tax with their mobile devices. We all know what the Apple Tax is. It is paying a significant amount more money for lesser or equal specced hardware while receiving a product that is better built (physically), and has a more crisp, fluid, intuitive and user-friendly user interface. It was meant as the PC for the average person (that can afford it), not the power user. In terms of PCs/laptops, Apple found their niche (and a growing one at that). People who could afford the Apple Tax while getting less “bang” for their buck but a better overall user experience.
And that’s where PC makers like HP, Dell, Toshiba, etc. made their niche and became the biggest tech companies in the world. They took advantage of the Apple Tax. They provided their product with an inferior (again for the AVERAGE user, not power user) but perfectly capable Windows OS. But the devices came with features galore. These machines were specced out with the best hardware; fastest processors, most RAM, HDMI out, touch screens, bluray drives, SD card slots, etc. And these machines diluted the market. Every single manufacturer had (and has) different model lines, from entry level to flagship. And all of this at a significantly lower price. More bang and more devices for LESS buck with a capable OS. Less buck being the key strategy here.
But this all changed with the iPhone, although not initially. Apple learned fast that the mobile landscape is much different than the laptop/PC landscape. While the Apple Tax obtained their desired niche with the laptop/desktop industry (though see lessons learned below), the mobile device industry is completely different. They released the iPhone for $500/$600 to a shocked public stating that you "had to be a millionaire to afford an iPhone". They realized that no one wanted to pay that much for a phone. No matter how good the phone experience was, people weren’t going to buy it. And two months later, sure enough Apple dropped the price to $400. However, this was still twice the price of the competitors. The Apple Tax was still in full effect; people were paying twice as much but for a lesser or equally specced hardware while receiving a product that is better built (physically), and has a more crisp, fluid, intuitive and user-friendly user interface (I’m going to repeat this a lot). No doubt the iPhone was successful, but the competitors were not really feeling it that much. EXTREMELY inferior products were released to market and actually did very well (think LG Voyager, HTC Touch). Pricing (read: Apple Tax), lack of 3G (lesser hardware) and exclusivity to AT&T were the original iPhone's biggest downfalls (for lack of a better word).
It all changed with the release of the subsidized iPhone 3G, with a $199 entry price. People LINED up for this device. I believe this is the first phone ever released that I had seen lines for. Even though the world knew this was coming, the competitors did not seem to react. The 3G’s biggest competitors around that time: HTC Diamond, HTC Touch Pro, HTC Samsung Instinct, Samsung Omnia, Sony Xperia 1, Blackberry Bold, Blackberry Storm, Palm Treo 800/Pro (yay Palm!). They were ALL priced at $200 or more. And the iPhone 3G crushed them. Why? Was it better specced hardware? No, the competitors all offered better specced hardware with various features that were intuitive for the time. Some included SD card slots, removable batteries, HDMI out, cameras with high megapixels (at the time), front facing cameras (Omnia overseas), more RAM, etc. The issue was that it was more (hardware) bang for the SAME buck now. No Apple Tax. It proved that the average consumer could care less about “specs” and “features” in the phone industry. So people flocked towards the device that had better build quality, and had a more crisp, fluid, intuitive and user-friendly user interface. To spell it out; the phone’s OS shined. People raved about multitouch, a usable touchscreen keyboard without the need for a stylus, an extremely usable browser (finally), easy to setup email (no need for incoming/outgoing mail servers confusion), easy integration with iTunes, an amazing media player, the introduction of the AMAZING APP store concept, and a ton of other great software features. But at this point, for the first time ever, the Apple OS ecosystem was offered at the same (or lower) price than it’s competitors. And all competition fell victim to the 3G's warpath. Windows Mobile was destroyed, Symbian was destroyed, Blackberry OS was destroyed, Palm OS was already destroyed, and yes, even WebOS was destroyed. The Apple Tax was eliminated.
And this dominance continues to this day, but there is one OS that has caught up to the iPhone. And that’s Android. Why has Droid caught up? Yes, the OS is pretty good; but definitely not to the level of iOS. There are apps for it. A bunch. There is multitouch. There is a usable browser. The OS is extremely usable. It is the new Windows for mobile OSes. But if software was the only reason Droid caught up, there then WebOS would have caught up too. I think we are all in agreement that WebOS, as an OS by itself, is even miles ahead of Android (and arguably iOS at the time). There were 3 reasons why Droid caught up, and none of them were hardware:
1. Usable current OS (as previously discussed)
2. Market Dilution: Every manufacturer uses it. That allows for market dilution. Demand for the iPhone was high on Sprint, T-Mobile, and Verizon, but the iPhone was unavailable. Droid capitalized by being released on all of these carriers (and AT&T) before the iPhone made it to it’s second carrier.
3. Pricing: MOST importantly than market dilution was the fact of what market dilution allowed for. It allowed for different price points, again. Free phones, $50 phones, etc. were all released with this extremely usable OS. Sure there were flagship devices with all the bells and whistles, but the PC vs. Mac market schematic was again defined. A FREE phone with a usuable OS vs. the iPhone 3GS for $200. Well that is a significant price difference, especially in the phone market. That sounds like a REINSTATEMENT of the Apple Tax. Android had become the Windows of the mobile industry.
Regardless though, Apple was (and is) learning again that the Apple Tax needed to go away. With the release of the iPhone 4, they had their flagship device in which they went head to head again the flagship Droids. Flagship Droids = better features by hardware, but Apple Tax was negated. Apple also kept the iPhone 3GS as an entry level model of $50. Again Apple Tax negated. They’re releasing more competitively priced laptops (read: well specced 2010 model Macbook Air for $999). Apple Tax negated.
But they changed it all again when they released the iPad. The iPad came out with the entry level price of $500. Apple was praised for releasing it for such a lower price. Rumors of prices were from $400-$1000. $500 was like a dream come true for most though. An extremely low price for a tablet PC; the first of its kind. All with NO discernable Apple Tax.
The competitors were all dumbfounded and had no idea how to handle this. They seemed to forget what made their PC markets so viable against the Mac: taking advantage of the Apple Tax. In fact, they did the exact opposite. The main competitors came out at either a equal or HIGHER price than the iPad. Sure there were some hardware features (stop me if these sound familiar) such as faster processors, more RAM, cameras, SD card slots, promises of 4G, removable batteries in some cases, usb ports – pretty much just like the phone market. But now you were getting more, as discussed before, irrelevant bang for either an equal or HIGHER price. Galaxy Tab - $400 on contract, $600 off contract. Motorola Xoom - $600 on contract, $800 off contract. Playbook – Entry level price of $500. HP Slate - $800. Galaxy Tab 10.1: ~$500. Sure there were some stragglers that came to the realization that they needed to lower the price (Asus - $400, Vizio - $300) but these are seen as the bottom of the barrel tablets. And sure, manufacturer's dropped the prices, but only to a level EQUAL to, or slightly lower, than the iPad. Still no Apple Tax.
And while all of this is happening, the other competitors were also focusing on updating their software to match that of iOS rather than focusing on what really mattered: the price. And look at the preliminary results on both tablets and phones: Windows Phone 7 (failing), Android tablets (semi-failing), Palm OS (failed) WebOS on Palm phones (failed), Symbian (failed) Maemo (LOL!!), QNX on the Playbook (failing), Blackberry OS on phones (nose diving), Windows 7 on tablets (failing), Samsung Bada (LOL!! X 2), WebOS on HP phones (seemingly failed). All while the iPhone and the iPad are thriving. And that’s not to say that some of these OSes aren’t great. WebOS was (is) great. Windows Phone 7 has potential to be great. But the only real success has been Android on phones, as discussed above, based on market dilution and pricing. With all the negativity and failing tablet market besides the iPad, it seemed like it was game over.
And then comes our beloved HP Touchpad. Where do we begin? The Touchpad went against everything that HP knew (and the industry knew) about competing with Apple. They followed the industry standard for tablets. They priced it exactly the same as the iPad 2; $500 entry level. Less bang for the same buck. WHAT WHERE THEY THINKING? Just like what was Motorola thinking with the Xoom and RIM with the Playbook, etc. They quickly realized the mistake, but it was too late (just like the rest). They tried some tactics to save face; reduced the price by $100 for a limited time sale (allusion to the public of a deal). No one took the bait. Than it was the permanent $100 price drop. Again same reaction. The tablet landscape is different than the mobile phone landscape. It’s somewhere in between that of the mobile phone and PC/laptop industries. $100 while semi-significant for a phone is not at all significant for a tablet (as Asus and Vizio are learning). The Apple Tax was still eliminated.
However, the Touchpad was (nay, is) a great device. WebOS is an AMAZING OS. It’s just that NO ONE knew it except for the tiny WebOS community. However, something DRASTIC had to occur for any real success to happen or for the average consumer to take notice. And it had to occur fast for HP. Here’s where the brilliance came into play.
The announcement. The state of WebOS devices; discontinued. The media spun the story as WebOS not being supported anymore. That was the message sent to the consumer base. WebOS is dead.
But the Fire Sale was freaking GENIUS. Like game changing brilliant. But you can’t just have a fire sale for a “living product”. At least not to THIS extent. $100 for a tablet is unheard of, nonetheless a GREAT tablet. The crap tablets from Asus and Vizio still break $300.
The fire sale has also proven (and is continuing to prove) a lot of things. For the right price, even a “DEAD” OS can be sold in millions. Imagine what an OS like Android (living and living well on phones; struggling on tablets) would do at the right price with a high quality manufacturer?
The Touchpad is flying off shelves. Early adopters are being refunded and subsequently kept happy (I think this might be a first since the original iPhone…hmmm). Retailers are being refunded and kept happy (if HP was out of the consumer industry, why would they want to keep both retailers and early adopters THIS happy?). There’s LINES outside stores for the device (the last non-Apple phone/tablet that I’ve seen lines for was the Blackberry Storm). Stores like Best Buy, Walmart, Target, Staples, Office Depot, Radio Shack are all answering their phones with the message “Thanks for calling ______, we are sold out of the HP Touchpad”. There are signs up when you walk into stores saying “HP Touchpads are sold out”. There are news reports about the Touchpad. There is a FRENZY of people rushing into stores; crashing websites, all trying to get the Touchpad. There is word of mouth, friends telling friends and family about this great price for this great HP device. Overnight the Touchpad went from the flop among flops to the tablet on everyone’s mind. And what's that called? It's called advertising! And people know what WebOS is now. The same people that had no idea what WebOS was are talking about it. The fire sale changed the game for WebOS and tablets in general.
And yes; part of it is people wanting to port Android to it. And yes; some of it is the allure that once it is sold out that the Touchpad will never exist again. And yes; part of it is people wanting to sell it for a profit on eBay. But MOST of it is that the average consumer finally has a (great) tablet that they can buy that not only reinstates the Apple Tax, but makes the Apple Tax look absolutely silly! 80% more for an iPad 2? 80%! That’s insane! That’s the highest Apple Tax ever.
And you better believe that the resell market will dictate the true price at which people will actually buy tablets other than the iPad. Most Touchpads are selling on Ebay for $250-$350. People WANT the Touchpad for this price. Let’s average that out to $300; even $250 for the entry level price. That’s $250 less than the current iPad. A 50% difference. So the result of the fire sale was a market research experiment like no other. At what price point would the tablet need to be sold at to reinstate the Apple Tax perception? Well they have that answer now. $300; $250 to be safe. HP just rebaselined the price for all future tablets. Sure cost of manufacturing might have an effect on this; but a loss now for a future gain is what's needed in this industry. Eventually once the user base is big enough they can sneak the price up a bit more to where there is a profit from the sales ($350,etc.).
And what else did they gain by it? Brand name recognition via advertising. Brilliant unconventional advertising. People know what the Touchpad is now; they know what WebOS is, and they generated a huge user base.
Need more proof: Look at the situation for the Pre 3 in the UK. It is selling out like crazy. Again, part of it is the rumor mill of the $75 Pre 3 (as is already sold out in France and Germany). But that price point is apparently under serious reconsideration by HP. It’s possible that they sell it for less of a discount (wise) or no discount at all (unwise) due to the extreme demand. WebOS is out there!
At this point; HP has definitely played all its cards right since 18Aug2011. To let WebOS go and die now would be silly. To license it would be sort of silly as well. To ride this momentum with continued support of current, in demand products, and releasing them at a new, rebaselined, Apple-Tax reinstated price point; well that’d be extremely smart. And it’d be extremely smart for other competitors to follow suit.
We’ll see what happens. But regardless I can’t imagine WebOS is dead anymore. And I can’t imagine that someone at HP didn’t have this planned (we’ll never know; we can speculate all we want though). One thing I do know is that Apple must be ****ed that the Apple Tax is back; even if it’s only for a short period of time with this fire sale. Assuming competitors don’t learn their lesson, it might not be around for long. But as of typing this; the Apple Tax is back!