It's not a race to the bottom for tablets, it's strictly an iPad market

Some pundits believe the low prices of the Kindle Fire and the Nexus 7 have killed the tablet market. That view mistakenly overlooks the lack of a proven tablet market to begin with.
Written by James Kendrick, Contributor
JK Tablets

Apple started an avalanche of activity with the introduction of the iPad. Companies shifted gears to go after this undiscovered new tablet market. In spite of the number of players in tablets, no company has discovered the magic bullet to knock the iPad off the top of the tablet heap.

Colleague Adrian Kingsley-Hughes has a thoughtful piece blaming Amazon and Google for killing the tablet market. His reasoning is that by releasing the Kindle Fire and the Nexus 7 at $199, Amazon and Google have started a "race to the bottom" of the tablet market that will ensure no profitability for anyone.

Adrian's reasoning is solid, but it overlooks one thing I have said for a long time. There is no proven tablet market. Even after all the activity in the tablet space, there is still only a proven iPad market. 

The only company with any tablet sales to speak (besides Apple) is Samsung, and the company has not been quick to claim a lot of profits. Even Samsung had to release a whole slew of tablets in every size and shape to try to steal iPad sales, seemingly to no avail.

Historically, when a race to the bottom (reducing pricing so low prifitability is not a given) is dictated by the market, it's more a sign of a lack of a market in general. If enough buyers aren't willing to pay enough for a product to make producers a profit, the market is just not sufficient.

That's what we are seeing in the tablet space. Apple has struck a balance with the iPad to create sufficient demand that buyers are willing to pay profitable prices for, but no one else has even come close. There's an iPad market, but not a conventional tablet market.

That doesn't mean that Google and Amazon won't make money on the Nexus 7 and Kindle Fire respectively, just not in the conventional sense. What the situation is indicating is that the real (and only) market for tablets without an Apple logo is from auxiliary sales created by having the products in buyers' hands.

For Amazon those sales are content and other product sales the Kindle Fire is stimulating through customer usage. The company is not specifying what those sales might be but odds are they are significant.

The Nexus 7 is too new to the market to make definitive claims, but odds are Google will get good mileage selling mobile ads and Android good will from the tablet. The end result will likely be a net positive for Google, even if the Nexus 7 is selling at a break-even price or a slight loss.

The company with a big exposure so far is Asus, the maker of the Nexus 7. Unless Google is paying Asus a lot of cash to make production of the tablet profitable, it might not be able to make them for long. Asus doesn't have any auxiliary sales from the Nexus 7, so the exposure to the race to the bottom is very real.

Don't get me wrong, I believe there is sufficient demand for non-iPad tablets. I just haven't seen any proof that consumers are willing to pay enough for them to make companies any money. 

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