Lessons of the HP Touchpad

At full price ($499 for the 16 GB model and $599 for the 32 GB model) the HP Touchpad was a colossal flop. Like AT&T’s first PC clones of the mid 1980s, it was a me-too product at a me-too price that wasn’t quite as good as the product it was imitating. So, basically, there was no reason to buy it.

At closeout prices, it became an Internet sensation. The few web sites that have it in stock can’t handle the traffic they’re getting. At $99 and $149, it’s selling like the Nintendo Wii in its glory days.

And I think there’s a significant parallel there that highlights the missed opportunity.

When the Nintendo Wii was introduced, critics were underwhelmed. It wasn’t as fast or as powerful as a Playstation 3 or an Xbox 360. It was really only slightly more powerful than the original Xbox. But those consoles cost $500 or $600, depending on the configuration. A Wii cost $249. For half the price, people were willing to overlook its inferior graphics capability, because not everyone has $500 to spend on an entertainment device. The 98-pound weakling ended up being a sensation.

The Touchpad showed promise, but didn’t deliver on all of it. And it was late, appearing on the market in June 2011, 14 months after the Apple Ipad.

But I think the buying public would have overlooked all of that if it had been cheaper.

The Touchpad sold for $499, and according to a teardown, cost an estimated $328 to make. Had it retailed for $399, it still would have given HP and retailers a better profit margin than a traditional computer does. And perhaps HP should have put less memory and a slower processor in the 16 GB model in order to get that price down lower. The user experience wouldn’t have been as good, but that would have given users more reason to buy the 32 GB model.

I think at $299, it would have been a success, because on Friday night, when the fire sales were still just a rumor, I watched Amazon sell through its remaining inventory. Because, as-is, even with no prospect of further software development, the Touchpad is still a useful device. It’s fine for reading e-mail, browsing non-Flash web sites and reading Kindle books.

And had HP debuted the device at $299 and, say, $449, that’s what the reviewers would have said: Not as good as an Ipad, but adequate for people who just want to read e-mail, browse social networking sites and Ebay while costing a couple hundred dollars less. And because it cost less, the public would have been more patient with its flaws. The public put up with Windows 3.1 for 3 years in spite of its many flaws.

HP should know this. They sell three times as many traditional computers as Apple does, and part of that reason has to be because they’re cheaper. Since 1977, the most effective way to compete with Apple has been to beat them on price. IBM was able to compete with them for about a decade, which suggests there may be room in the marketplace for a second boutique manufacturer, but IBM wouldn’t have been able to do it if it hadn’t been for Lotus 1-2-3, which was a much faster, more capable spreadsheet than anything that could run on Apple’s computers.

HP didn’t have that killer app, so their best bet was to compete on price instead. That’s not to say the two had to be mutually exclusive forever. But HP should have bought its way into the market with a cut-rate tablet while they tried to nurture a killer app. IBM didn’t develop Lotus 1-2-3. Lotus 1-2-3 was a calculated risk. Visicalc was available for the IBM PC but it treated the IBM PC like any other computer. Lotus 1-2-3 was designed to take advantage of (and require) the IBM PC’s faster processor and at least 256 KB of memory, which was more memory than was available at the time for any other computer. So what ended up happening was that after Lotus 1-2-3 appeared, few people bought IBM PCs with less than 256 KB of memory. If you couldn’t run Lotus 1-2-3, there wasn’t any point.

That’s why I think HP should have done two configurations: a low-priced model to get a foothold in the marketplace, and a higher-priced model with more horsepower than Apple that, theoretically, could do things the Ipad couldn’t. Then, hopefully, some developer could figure out what they could do with that extra power. In the meantime, at least, they have something to sell.

And there’s precedent for a cheaper, less-powerful model. HP sells millions of PCs per year for $300-$400. They aren’t as powerful as Apple’s cheapest computer, which sells for more like $900. People who can’t afford a $900 computer, or don’t think they need $900 worth of power, buy the cheaper HPs instead.

HP has decided it’s too late, and that’s their perogative. But I do think someone else could come in, buy Web OS, and take a value strategy and be successful with it.

PC World agrees, even suggesting selling the device at a loss for a few weeks in order to get market share. I don’t think that’s a bad idea, in the long run. Some of the people buying the discounted device will be developers, because they’re always the most curious. Developers write for the devices they own or can borrow easily. And if a stampede of a few hundred thousand people buy the device in a short time, developers are even more motivated since they have a ready and willing customer base. It’s smaller than Apple’s base, but with less competition, some developers will be will be happy to take a chance on it.

Even if nobody decides to try to revive Web OS, someone could do it with Android. Though that’s riskier since what benefits one Android tablet is likely to benefit all the rest.But somewhere in this train wreck lies an opportunity. The question is who’s going to jump in and make something of it. The most likely bet is Amazon, since they’re in position to sell content for a device, which would make up for selling it at a loss, which means they could do it for an extended period of time. We’ll see.

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