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Sunday, August 21, 2011

HP's WebOS shows how critical price is - too late

HP announced earlier this week that it would abandon its WebOS tablet, which it bought from Palm only a few months ago and which never really caught on.

It is little surprise that it never caught on. The HP Tablet was essentially the same price as the iPad. But the iPad has had a major head start in capturing the market. People willing to spend the money have been generally happy with the iPad. Why would anyone spend the same amount of money to get something that only *might* turn out to be as good? Customers are not going to invest only to wait and see whether HP can built up an App base as good as the iPad, if they can just go buy an iPad. As a result, HP tablets sat on store shelves with almost no interest.

But look what happened as soon as HP announced they were killing the tablet - retailers slashed prices to at little as $99 for what was $399 a week earlier. Tablets flew off the shelves as consumers snapped up the deal, even though they know the tablets will no longer be supported, no one will develop new apps, and they will have to get a different tablet and learn a new OS the next time they upgrade. The cheap price was too hard to resist!

The moral of this story is that if you are going to try to topple a market leader, you have to be very competitive on price. Sell the tablets at a loss for a couple of years, build up major market share, then make your money with app sales, advertising, or some other way. Until you build up a critical mass in the market, you have to give on price. HP refused to take a short term loss in order to make a long term gain. As a result, the billions they invested in this venture are down the drain. Others should learn from this lesson.

So what happens to WebOS now? If they are smart, Microsoft will buy up the division from HP (along with all those patents). MS is going to be the only serious contender to the iPad with an OS that is proprietary (everyone else is using the free Android OS from Google). The WebOS is technically superior to what Windows has been developing, and the HP patents will let MS keep Apple and Google tied up in litigation for years over various alleged violations. MS can probably pick up the WebOS at the fire sale price of a few hundred million dollars. If it uses that to improve its Windows Tablet OS and is willing to take some losses for a few years, it will eventually challenge the iPad for dominance.

The problem, of course, is Android. This free OS has caught on strong. It may continue to dominate the low end market, especially as hardware manufacturers begin to force down their prices. At present, most Android devices are priced similarly to iPads. Until there is a real price war, Apple will continue to dominate.

Learn from HP's mistake. Sell cheap. Sell at a loss. Build market share. That is the only way to win.