Bombshell: HP pulls out. Of tablets and desktop PCs.

And speaking of duds, it looks like HP has one on their hands in their Web OS-based tablets.

Best Buy has about a quarter-million unsold tablets in their warehouse and has only managed to sell 25,000 of them. And when Woot ran a special on them, selling them for $120 off, they sold a whopping 612 of them.

And now it looks like HP is just going to discontinue Web OS altogether.

Ars Technica reviewed the Touchpad and found it wasn’t bad overall but had several notable flaws, such as terrible Flash performance, multitasking that could be clumsy at times, a heavy and clunky form factor, and an uncomfortable on-screen keyboard. But probably the biggest problem was the price, which was identical to the Ipad. You can’t compete with Apple by bringing out a me-too product 18 months later and slapping the same price on it.

Some people think consumers were just waiting to see if the price drops further. And that’s probably what needed to happen.

Look at desktop computers. The cheapest Apple desktop I can find has an Intel core i3 CPU at 3 GHz, 4 GB RAM, 500 GB HDD, and a 21.5″ display. It costs $899. At that price point, HP gives you twice the memory, three times the disk space, and a couple of extra CPU cores. But it’s not difficult at all to find an HP desktop PC for under $300, if that’s what you want. Apple won’t go near that.

And I think that’s the problem. People see $300 and $400 desktop PCs with HP’s logo on them competing with $900 desktop PCs with Apple’s logo on them, so they want to pay $199 or maybe $299 for an HP tablet instead of $599 for an Apple tablet. People do that kind of math. Don’t believe me? I was sitting in a meeting discussing a network re-design last month where someone said, “So you’re telling me that for $5 million, you’re going to give me five routers. How about if I give you $2 million and you give me two routers?”

For half price, people probably would be willing to put up with some aggravation. Historically, they have been. But there wasn’t much price difference between an HP tablet vs. an Apple tablet or an Android tablet, so what happened was people who wanted the premium brand bought Apple, people who wanted anything but Apple bought Android, and people who wanted hackability bought Android. And that was why Apple had almost 2/3 of the market share, Android had almost 1/3, and HP had part of whatever’s left.

I think it could have been turned around. Fix the keyboard, fix the Flash, and drop the price, and things might have changed. Ex-Amiga engineer Dave Haynie is fond of saying on Slashdot that the hardware that goes into a tablet costs about as much or less than a netbook, and given that he’s been designing hardware under onerous budgets for more than a quarter-century, he’s in position to know. Yet tablets sell for $600 and netbooks sell for $250.

PC makers haven’t seen those kinds of margins in more than a decade. But HP got greedy. Too greedy. If HP had come out and been the first to be willing to sell a tablet for $299, I think they could have owned a significant share of the tablet market, and consumers would have been relatively patient as they worked out the kinks. And I’m not convinced it’s too late, either.

But HP’s pulling out, so I guess they think otherwise.

Oh yeah. And they’re getting out of the computer market too. That’s the kind of move investors like, but as an IT professional, I’d want to see how much more business HP gets because they can sell you servers and switches and routers and desktop computers and printers and service. Margins on all that other stuff are a lot higher, and dealmakers like one-stop shops. IBM got out of the PC game, but IBM was losing money on PCs. As far as I know, HP’s not losing money, they’re just not making a lot.

It’s sad to watch a tech titan go out with such a whimper.

Update: If you’re a bargain hunter, the remaining inventory of tablets is going on sale starting Saturday, August 20.

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