the Touchpad failed because one thing: price.
it's too expensive for what it is. sure it's a nice little tablet and far from junk but my reason and opinion on why i believe it also failed to sell:
it doesn't have some of the features similar tablets have for the same price or even cheap (Acer iconia).
The Acer for example (which can be had for around $350 by the way):
Has aluminum housing, HP is plastic
Has SD Card slot for memory expansion, HP does not
Has higher resolution 1200x800
Has larger screen 10.1 inch, HP has 9.7
Has NVIDIA Tegra GPU, HP does not
Has Dolby Mobile Sound
Has micro HDMI out, HP has nothing
Has USB 2.0 and micro port, HP has only 1 micro port
Has 5MP rear camera and 2MP front camera WITH Led Flash, HP has only 1 crappy front 1.3MP camera.
I could add a few more to the list but can't think off the top of my head right now. those differences above alone are my primary reason why i would have never i paid the price HP was asking for when the Touchpad came into the market.
Personally, they would of been a huge success if HP hadn't been so dumb and sold the Tablet at their cost.. $250 for 16gb and $300 for 32gb and this thing would of sold like hot cakes.. sure they wouldn't be making huge profits but the idea here is to sell many units.. once you can sell a lot and you have a bigger market share is when you start to make money. Spending cost per unit also drops as HP sell more and more Touchpads.. HP tried too gain profit from device too quickly by overpricing it.
Its a great little tablet and has a lot of potential with webOS but it needed to be at least half the MSRP or have all the features i listed above plus more if they wanted to price it higher.
I think it would be a huge mistake for HP just to dismiss the tablet.. they can come back to life and continue to sell them but only if they price them carefully.