Elgan: Will tablets soon be free?

How low can tablets go? I think tablet pricing could soon go all the way down to zero

The price of touch tablets used to make sense. Apple's iPad has cost between $499 and $829 since it first shipped a year and a half ago. And for a while, competitors all hovered around that price.

The Motorola Xoom and RIM's BlackBerry Playbook both start at $499 and go up from there with added connectivity and storage.

Hewlett-Packard's TouchPad used to cost about the same.

This $499-and-up range was considered a reasonable price for these powerful and useful little computers. It's a price point that works, right?

Well, no. It's a price point that lets Apple run away with the market. So in the last month or so, we've seen touch tablet pricing go nuts.

How low can they go?

When price competition hits a market, it usually happens gradually. But in the touch tablet market, the bottom seems to have suddenly dropped out.

HP shocked everyone when it announced last month that it would get out of the tablet business and stop making all webOS hardware. To move excess inventory, it announced a stunning $400 reduction in TouchPad prices.

Apparently $99 is a popular price point. The tablets were completely sold out in a matter of days.

Of course, that's not a sustainable price for HP. Pundits estimate that it costs HP about $300 to make each TouchPad, so the company is probably losing about $200 on every tablet sold.

That's why HP confused everybody when it announced that it would manufacture more TouchPads through Oct. 31 in order to respond to the "stunning" uptick in demand.

This makes no sense at all. That demand was the direct result of a money-losing price designed to clear inventory. Why would HP make more devices?

There are three likely reasons. First, many of the costs for manufacturing the TouchPad have already been paid, including factory tooling, some components, package development and so on. So the cost of manufacturing additional units may not be as high as the initial run.

Second, HP may have freaked out the supply chain with its sudden cancellation of expected TouchPad manufacturing. Companies are in competition with one another to get components such as screens and other scarce resources. By making more, HP can keep component suppliers happy.

And third, HP may be hedging its bets, and possibly planning a comeback. It's possible that the company could say later that it was impressed by demand, and that it plans to either stay in the TouchPad business or sell off the webOS hardware organization to another company -- possibly the same company that buys its PC hardware business, which HP announced will soon be for sale.

HP's TouchPad price is a fluke. However, other companies are dropping prices, and they intend to keep them low.

Amazon.com, which currently sells its feature-limited Kindle e-book reader for $114, reportedly intends to ship a full-featured Android-based touch tablet as early as next month for "hundreds less" than Apple's iPad. If that's true, it means the Amazon tablet could start at $299, or even lower.

Lenovo announced recently that, outside the U.S., it would charge $199 for an 8GB, 7-inch Android tablet called the IdeaPad A1, which will include front and rear cameras. A 16GB version will be sold in the U.S. for the impressive price of $249.

India's human resources minister announced last summer that Indian researchers had reached a "breakthrough" in the costs of tablet manufacturing, and by "early 2011" would unveil a $35 touch tablet -- a device whose price could drop to $10 in the future. The announcement was wholly cow manure, nothing more than politicians pandering to the public. But the media -- including CNN, the BBC and others -- fell for it, reporting the "news" without skepticism. I exposed the sham in this space in July of last year.

In June, a wave of reports suggested that a small number of units would ship within a month at the price of $49. It never happened. The whole project is still smoke and mirrors, even as Indian politicians continue to claim credit for the project, promising a shipment of 1 million units this year.

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