Linked by Thom Holwerda on Tue 30th Aug 2011 21:25 UTC
PDAs, Cellphones, Wireless We're living in crazy times, that's for sure. Less than two weeks ago, HP announced it was going to quit making webOS devices. To get rid of existing stock, HP drastically cut the price of the TouchPad to a mere $99 - and this has resulted in a massive run on the device. Lines formed everywhere, and the device is now completely sold out. So, HP has just announced it is going to... Build an additional limited run of TouchPads.
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RE: Comment by OSbunny
by atsureki on Wed 31st Aug 2011 08:36 UTC in reply to "Comment by OSbunny"
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What HP should do is continue to sell the hardware as a loss leader and make money from app sales. In other words the same business model it uses for its very profitable printer business where it makes money from cartridge sales but sells printers at a loss. It's also the same model adopted by console makers like Sony.

What you're suggesting is completely impossible, like a car dealership giving away the cars and making all their money on what the increased foot traffic brings to the candy machines by the entrance. HP is eating about $200 on every TouchPad they sell at the firesale price. If they took the industry-standard 30% cut on app sales, each of their customers would have to spend $667 on apps, or about 222 apps averaging $3 each, just for them to break even. Of course no one has ever done that, and no one ever will. Besides, apps don't come anywhere near averaging $3 each, in large part because most apps are $0 (and actually cost the vendor money in hosting expenses: $0 price * 30% cut = $0 revenue - miniscule hosting cost = negative profit).

And if they only lost, say, $20 per unit instead of $200 ($67 on apps, nearing remotely plausible territory) there's no guarantee the much smaller price advantage to an iPad would be adequate to convince buyers to choose their alternative.

Advertising is a dead end as well; Google makes less than $10 per Android user per year in ad revenue. If HP can hit that number, they'll have to squeeze an average 20 years of TouchPad use out of each buyer, again just to break even (in unadjusted dollars, over a period of twenty years). Also, HP has no advertising framework or experience, so that's more money on the table.

Meanwhile, if they're not maintaining 0% failure, return, and warranty claim rates, they're back in the hole.

The only other avenue left is carrier subsidies, but that hasn't sold any Xooms. There's no evidence that consumers accept the value proposition of expensive data contracts to have tablets online during the small gaps between home networks, free WiFi at coffee shops and McDonald's, and smartphones with WiFi hotspot tethering. Business users might be a different story, but if their priorities are significantly different, it's only evidence that there aren't many of them buying.

The way this market works now and for the foreseeable future, if you're not making the money up front, you're not making any money.

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