Flood of low-cost tablets expected in $200 to $300 range

Analysts are predicting that a flood of $200 to $300 tablet computers will hit the market this fall, prompting the essential question: Which device will come out on top?

Several analysts are betting on Amazon.com to be at the top of the heap with an expected $299 Android-based tablet introduced sometime in October. The reason it will do well is only partly because of the low price, which is below the market-leading iPad 2, starting at $499.

But analysts also expect Amazon to offer content for its 9-in. tablet that approximates or even exceeds the content that Apple can offer for the iPad. Amazon will make money on the content it sells, which is expected to more than make up for any loss it incurs in selling the tablet at a price below the cost of making it.

"Amazon has an ecosystem like Apple, with its own app store that offers music, movies and videos, and a bookstore," said Bob O'Donnell, an analyst at IDC. "Not only would you get a cheaper device [than the iPad], you would get the integrated Amazon experience. That's what makes Amazon's tablet the most interesting and where other [Android] tablets will be challenged."

In effect, Amazon's approach will be to entice buyers with a much lower price, "but have all the services of Apple," O'Donnell said.

Other Android tablets with which Amazon would likely compete include a $199 Lenovo IdeaPad A1 tablet announced Thursday, the cheapest 7-in. Android tablet from a top device maker. Another contender is the original Samsung Galaxy Tab, which is being sold on Amazon for $279.99, after having first appeared late in 2010 for $600.

That original Galaxy Tab is being replaced by the Galaxy Tab 7.7, announced Thursday by Samsung at the IFA conference in Germany. It includes a Super Amoled Plus display for greater clarity. Pricing in the U.S. hasn't been set, but the Galaxy Tab 7.7 is expected to cost less than $800 without subsidies, according to Samsung officials in Sweden.

Analysts wondered what the price will be for the new, thin Toshiba AT200, also announced at IFA on Thursday. It has the advantage of shipping with Android Honeycomb, the tablet-optimized OS, while Lenovo's device runs the older Gingerbread.

The HP TouchPad dropped to $99 after HP said recently it would stop selling the device, but HP this week said it would make a final round of the machines because of the sudden interest in that low price. The TouchPad price drop was further evidence of the importance of low pricing to buyers, analysts noted.

O'Donnell and other analysts said Samsung and most of the major tablet makers will likely bring prices down by the end of the year in order to compete.

Meanwhile, Apple isn't likely to drop its iPad 2 prices by much, if at all, in the next few months, according to O'Donnell and Jack Gold, an analyst at J. Gold Associates.

IDC recently said the iPad and the iPad 2 took 68% of the tablet market in the second quarter, a share that is likely to stay roughly in place over the next two years, even with a higher price. That has to do with the iPad's being first to market, but more importantly because "the iPad is considered a better device with a nice experience, and for buyers, the $499 starting price is low enough to give it a try," O'Donnell said. "Until now, there's not been enough of a price gap to find something else."

Gold said the iPad will keep its higher price for a long while, just because "it is regarded as the BMW or Lexus of tablets, while Lenovo historically tends to be more of a Chevrolet."

Keeping to his car metaphor, Gold said that at $199, a Lenovo ThinkPad A1 tablet could be perceived by buyers as something of less quality. "Perhaps a Hyundai?" Gold said.

With tablet prices between $200 and $300, "that opens opportunities for buyers," O'Donnell said.

Lenovo's $199 pricetag is especially interesting because Lenovo is considered an established manufacturer, analysts said. Some lesser-known device makers introduced tablets in the 2010 Christmas buying season for less than $200 without making much impact, O'Donnell noted. One company that did so, Augen, "is already out of business," he noted.

Gold said that manufacturers have to be careful to assure consumers that low-priced tablets "are not a piece of junk." Low pricing tends to put pressure on manufacturers to use parts that are one generation older, and therefore cheaper, than what is currently available, Gold said.

"While $199 is potentially very attractive for consumers, it can be fraught with problems for manufacturers," Gold said. "Can companies like Lenovo or Samsung make any money selling them at that price? You'll see a lot of low-end tablet devices this fall, but the key is if the makers can do it profitably. If they can't, they won't do it very long."

Copyright © 2011 IDG Communications, Inc.

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