Amazon’s Opening to Tackle the iPad: A Game of Pricing Limbo

The Hewlett-Packard (NASDAQ: HPQ ) TouchPad tablet is flying off of store
shelves across the land. Pretty exciting momentum for a company that just two
weeks ago announced it was bowing out of the mobile game entirely. OK, it isnt
exciting at all, at least not for HP (or its shareholders). The company is
shelling out millions to compensate retailers like Best Buy (NYSE: BBY ), who
are selling the TouchPad at prices as low as $99 $400 less than the original
sticker price. The company allegedly has set aside $100 million in total to
compensate those retailers. There is a silver lining inside the impressive
liquidation of the TouchPad, though, where keen industry observers can see an
unsurprising trend begin to emerge: Consumers are willing to buy a tablet that
isnt Apple s (NASDAQ: AAPL ) iPad provided the price is low enough. While $99
obviously is far too low for any competitive tablet in 2011 even less intensive
technology like Barnes & Noble s (NYSE: BKS ) Nook Color e-reader sells for $250
the TouchPads swift death has laid out a map for the intrepid technology
company that finds a way to sell a tablet PC at a low-enough cost with
impressive-enough tech that it damages Apples monopoly without bankrupting the
company at the same time. Amazon (NASDAQ: AMZN ) might very well be that
company. Detailed rumors about Amazons entry into the tablet market have been
popping up since June at this point. Tim Bajarin of Creative Strategies told PC
Magazine in June that Amazon would be releasing both a $349 7-inch tablet and a
$449 10-inch tablet later this year, undercutting the lowest-tier iPad by $150
and $50 respectively. A Thursday report at The New York Post indicated Amazon is
likely to go even lower, though. Citing a source familiar with Amazons plan, the
Post article said Amazons tablet will sell for hundreds less than the iPad. If
it can, Amazon might have the hottest holiday item of the year on its hands.
Research group Brand Keys placed both Apple and Amazon in the top 10 of its 2010
Loyalty Leaders Top 50 , ranking consumer devotion to specific brands. While
Apple leads in technology, Amazon comes out ahead as a retailer, and it's that
power with consumers that will give Amazon its in against the iPad. If Kindle
e-book sales, Amazon Appstore sales, Amazon Prime subscriptions and downloadable
media sales are strong enough on an Amazon tablet outselling the more than $1
billion iTunes can generate each quarter then Amazon will be able to sell its
tablet at a significant loss. Its a strategy that has worked for other
technologies in the past. Sony (NYSE: SNE ) has debuted its PlayStation video
game consoles at loss prices since the mid-1990s, instead making its money on
licensing fees from secondary sources (in this case, video games) and keeping a
single model of its technology on shelves for years as the cost of manufacturing
comes down. Apple, meanwhile, was making $200 on every iPad sold when the device
first debuted in 2010. Amazon now knows a $99 tablet can do gangbusters. Its
unlikely it will hit that price. If it can come close, though, Apple might
finally have a fight on its hands. As of this writing, Anthony John Agnello did
not own a position in any of the stocks named here. Follow him on Twitter at