So in the last 24 hours, we got an announcement about how the HP Slate is finally considered “real” – and that it’s going to cost almost eight hundred bucks. We also recently heard that Samsung’s new Galaxy Tab will be sold at the $600 price mark.
It’s a fundamental fact of hardware sales that you need to be willing to lose some money to get your product “out there.” The problem is companies like HP and Samsung can’t afford to do that. It’s not that they don’t have money in the bank to take a few quarters of losses; the problem is if they do lose money, they have no way to make it back.
In 2008, Sony admitted losing $130 on every PlayStation 3 console sold – and analysts thought it could be much more than that. Even earlier this year, we learned that Sony was still losing $18 for every PS3 sold. It was estimated by BusinessWeek that Microsoft was losing in the neighborhood of $125 on every Xbox & Xbox 360 sold. We have no idea how much the iPad costs to make, and how much money Apple is losing by selling their lowest end model at $500.
Some of you are thinking I’m crazy, wondering why on earth anybody would sell a product they’re going to lose money on. Because they can make it back with services they bundle. When Microsoft launched the original Xbox, it was more of a marketing ploy to lose money – and hope to make the money back by selling games and software licenses. With the PS3 and Xbox 360, they have great money making services like the PlayStation network and Xbox Live to make them money hand over fist. Even the Apple iPad has the App Store.
But what about Slate, Galaxy Tab, and all of the others trying to get in to the market? They will fail. You can’t take a loss when you sell a product like those, because you’re going to be using Google’s “Android Market.” That money goes to Google. If you make a Tablet running Windows 7, you can kiss all hope of making money through software sales goodbye. So if you can’t subsidize the cost of your tablet with anticipated software sales, you can’t price it low enough to compete with the iPad. If you can’t be priced to compete, you can’t expect to succeed.
It is, unfortunately, all too straight forward. This market will continue to be dominated by Apple until Google or Microsoft decides to get in to the hardware game and make the kind of decisions that can only be made if you have another revenue source.