Working title: Why Android Tablet Makers are Screwed and Apple Will Continue to Capture Most of the Tablet Industry’s Profits
It’s clear now that Apple is positioning the iPad as a reasonably priced tablet, which provides the best experience to users. Initially, almost all Android tablets were priced much higher than the iPad, but once that strategy failed, most of them are now focusing on the budget segment to capture tablet market share.
The iPad, which was one of the best priced tablet just a couple of quarters ago, now seems like one of the most relatively expensive ones. However, it remains one of the most low priced Apple products, and the best tablet you can buy. This is why despite the flood of cheap Android tablets, Apple still commands a majority market share, and an even higher proportion of the tablet industry’s total profits.
Amazon was the first tablet maker to kick off the race to the bottom, with the $200 Kindle Fire. It has been a hit in terms of sales, but has weighed on Amazon’s profit margins, with Amazon taking a small loss on each sale.
Now, almost everyone is competing with each other to launch a cheaper Android tablet. Google itself is rumored to be working on a $199 Nexus tablet, which would force other tablet makers to price their products even lower. Once you start competing on price, with no other differentiating feature, it doesn’t take long for the whole segment to become loss making as a whole.
The only tablet maker which isn’t competing on price is Apple, and they don’t really need to, with iPads selling like hot cakes, and selling way more than all Android tablets combined, despite being priced much higher.
Windows 8 is still at least 6 months away from launch, and Windows 8 tablets will likely be priced higher than the entry level iPad, which now starts at $399.
In the meanwhile, while Android tablet app support remains pathetic, Apple continues to improve the iPad ecosystem, further bolstering its position as the best tablet on the market, increasing the gap between the iPad and every other tablet on the market.
This is why, despite having a lower profit margin for the iPad relative to its other products, Apple seems to be the only tablet maker which can remain largely profitable in the long run, while Android tablet makers fight amongst themselves and bleed each other with losses, with only a few biggies like Samsung and HTC possibly standing till the end.
PS: Even Amazon is positioned well, as it never intended to make money by selling the Kindle Fire hardware, but on digital content that it could sell to Kindle Fire users. Most other Android tablet makers are screwed, because selling hardware is the only way they intend to make money, and that seems to be a game in which the only winning move is to not play at all.