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Spending $195 to deliver a $200 platform, and then making an additional $5-10 per customer on app sales, is not a terrible spot for a business to be in. It's n

Spending $195 to deliver a $200 platform, and then making an additional $5-10 per customer on app sales, is not a terrible spot for a business to be in. It's not Apple territory, and maybe it's not worth the risk or opportunity cost for HP given their profitability in other spaces. But one need not be a "big dummy" to think there might be room for a profitable player to use that model. Incidentally, I only addressed the part of Gruber's post I thought needed responding to. He's right that the fire sale doesn't prove anything about market viability for an at-cost device.

tptacek 15y ago
First, HP makes $3Bn/quarter in gross profit. The tablet business you propose is a major strategic initiative that, EVEN IF it pulled neck and neck with the prohibitive market leader, makes only $23mm/quarter†. That's a disaster. Second, when you're making $15 per customer and the prohibitive market leader is making $200 per customer, your business exists at the pleasure of the market leader; they can cut their prices by 10% and put you out of business; the can plow an order of magnitude more money into marketing and product development and still beat you easily on the numbers. † And even that assumes that the money from the app store is pure profit, which it isn't for Apple.
- lotharbot 15y ago
  I don't understand where you're getting the $23mm/quarter number. The last quarterly numbers I saw for Apple were just under 10 million iPads sold; using the $200/tablet and $15 profit numbers I gave before, that'd be $150mm profit on $2Bn revenue. Those aren't "blow your socks off" numbers, but they're not "disaster" numbers either (whereas what actually happened with the TouchPad was a disaster.) Numbers like that are at least viable for a major strategic initiative for a company like HP, provided there's sufficient motivation for such an initiative. With the market leader making $200/unit and you making $15/unit, they could put you out of business if they're at a comparable price point. But if the competition's $600 iPad cuts its price to $550 or even $500, it's not going to pull a lot of customers away from your $200 hPad; you're serving very different segments of the market. Similarly, a 10% price cut by Maserati wouldn't threaten Cooper Mini sales. I'm not saying HP necessarily made the wrong move here. I'm just saying, I don't think you have to be a "big dummy" to think there's room for a low cost, low margin tablet that makes some profit from software.
  - tptacek 15y ago
    You're forgetting that those 10 million iPads were sold over many quarters. Re-do your math. There is absolutely room for a low-margin low-cost tablet. The Kindle is one of them. But there isn't room for the HP Touchpad at HP. I kind of doubt there's room for the HP Touchpad anywhere, because it's intrinsically positioned against a superior product sold by an extremely competent company.
    - lotharbot 15y ago
      > "You're forgetting that those 10 million iPads were sold over many quarters." "Apple sold 9.25 million iPads during the quarter" -- http://www.apple.com/pr/library/2011/07/19Apple-Reports-Third-Quarter-Results.html http://www.apple.com/pr/library/2011/07/19Apple-Reports-Thir... My math is fine. > "there isn't room for the HP Touchpad at HP" There, I agree. The HP TouchPad is trying to be direct competition for the iPad, and that's why it was a total disaster. If instead HP made the WeakerPad, with higher capability than the kindle but lower than the iPad, and targeted the $200 price point (where their main competition is a bunch of 7" Android 1.5 tablets with resistive touchscreens), they might find a sweet spot in the market.

tptacek 15y ago

First, HP makes $3Bn/quarter in gross profit. The tablet business you propose is a major strategic initiative that, EVEN IF it pulled neck and neck with the prohibitive market leader, makes only $23mm/quarter†. That's a disaster. Second, when you're making $15 per customer and the prohibitive market leader is making $200 per customer, your business exists at the pleasure of the market leader; they can cut their prices by 10% and put you out of business; the can plow an order of magnitude more money into marketing and product development and still beat you easily on the numbers. † And even that assumes that the money from the app store is pure profit, which it isn't for Apple.

lotharbot 15y ago
I don't understand where you're getting the $23mm/quarter number. The last quarterly numbers I saw for Apple were just under 10 million iPads sold; using the $200/tablet and $15 profit numbers I gave before, that'd be $150mm profit on $2Bn revenue. Those aren't "blow your socks off" numbers, but they're not "disaster" numbers either (whereas what actually happened with the TouchPad was a disaster.) Numbers like that are at least viable for a major strategic initiative for a company like HP, provided there's sufficient motivation for such an initiative. With the market leader making $200/unit and you making $15/unit, they could put you out of business if they're at a comparable price point. But if the competition's $600 iPad cuts its price to $550 or even $500, it's not going to pull a lot of customers away from your $200 hPad; you're serving very different segments of the market. Similarly, a 10% price cut by Maserati wouldn't threaten Cooper Mini sales. I'm not saying HP necessarily made the wrong move here. I'm just saying, I don't think you have to be a "big dummy" to think there's room for a low cost, low margin tablet that makes some profit from software.
- tptacek 15y ago
  You're forgetting that those 10 million iPads were sold over many quarters. Re-do your math. There is absolutely room for a low-margin low-cost tablet. The Kindle is one of them. But there isn't room for the HP Touchpad at HP. I kind of doubt there's room for the HP Touchpad anywhere, because it's intrinsically positioned against a superior product sold by an extremely competent company.
  - lotharbot 15y ago
    > "You're forgetting that those 10 million iPads were sold over many quarters." "Apple sold 9.25 million iPads during the quarter" -- http://www.apple.com/pr/library/2011/07/19Apple-Reports-Third-Quarter-Results.html http://www.apple.com/pr/library/2011/07/19Apple-Reports-Thir... My math is fine. > "there isn't room for the HP Touchpad at HP" There, I agree. The HP TouchPad is trying to be direct competition for the iPad, and that's why it was a total disaster. If instead HP made the WeakerPad, with higher capability than the kindle but lower than the iPad, and targeted the $200 price point (where their main competition is a bunch of 7" Android 1.5 tablets with resistive touchscreens), they might find a sweet spot in the market.