Motorola: to compete against iPad 2, you need a cheaper XOOM

It's the same great Android Honeycomb taste, but less expensive. In order to repel Apple's iPad 2 onslaught, Motorola's XOOM needs to come down in price.
Written by Jason Perlow, Senior Contributing Writer

It's the same great Android Honeycomb taste, but less expensive. In order to repel Apple's iPad 2 onslaught, Motorola's XOOM needs to come down in price.

This week's launch of Apple's iPad 2 was a real eye-opener for a lot of us. Nobody expected the company to be able to deliver a thinner, significantly faster tablet at a base price of $499 for the 16GB Wi-Fi model. Right now, Apple's competitors are eating the iPad 2's dust, and the device hasn't even gone onsale yet.

Some manufacturers, like Samsung, are just plain dumbfounded and are finding themselves having to re-evaluate their tablet strategies altogether and reconsidering their product launches.

Currently, iPad's only "True" competitor that is shipping in volume is Motorola Mobility's XOOM, a 10.1" Android 3.0 "Honeycomb" device. Featuring an AU Optronics 1280x800 high-resolution display with a capacitive touchscreen, 32GB of Flash memory storage, 1GB of RAM, an nVidia Tegra 2 dual-core SoC and dual HD cameras, the XOOM is more than a match for Apple's iPad 2, strictly according to spec.

There's two big problems with the device, however. The Google Android 3.0 OS on the XOOM doesn't benefit from a similarly large developer ecosystem as the iPad, and is severely lacking the optimized applications for its high-res display at launch that otherwise makes Android a very popular player in the smartphone space.

Android has about 100,000 applications written for smaller and lower-resolution 800x480 displays such as those used on Motorola's Droid 2 and Droid X smartphones and just over a dozen games and applications on the Android Market that can take advantage of bigger and higher-res screens.

The iPad, by comparison, has over 65,000 iPad-specific applications on the iOS App Store, and can also run over 250,000 programs written for the iPhone and iPod Touch.

Additionally, the current XOOM being sold is tied to wireless carriers, so it costs either $799 without a wireless 3G contract, or $600.00 with 2-year commitment.

Suddenly, the XOOM isn't sounding so great from the perspective of a typical consumer who really only thinks in terms of dollar signs and doesn't rely on spec sheets with speeds and feeds to make average purchase decisions.

The calculus is really a no-brainer. Either spend $499 for a 16GB iPad 2 with over 65,000 tablet-optimized optimized applications with no carrier sign-up required -- or commit to 2-year contract with Verizon in order to get the subsidized $600 price, on a completely unproven tablet platform.

Obviously, there are iPad models which are more expensive, such as those which use 32GB or 64GB of storage, as well as those which can be used on AT&T's and Verizon's 3G networks. However, only one of Apple's iPad 2 models costs more than $799 -- the 64GB 3G version for $829.00. Apple's comparable contract-free 3G version with 32GB of flash storage costs $729.00, still cheaper than the XOOM.

Apple is able to keep prices low as well as provide multiple SKUs for the iPad low due to the fact that the company is able to commit to Q 10 Million+ component orders and is able to leverage a superior-managed supply chain.

While Motorola Mobility procures a large quantity of components from suppliers in Asia, it doesn't have Apple's supply chain flexibility in order to provide different SKUs, and it also doesn't approach anywhere near the volume of component purchases that Apple does in order to completely own all of its parts inventory, so its discounts are substantially smaller.

This can be easily understood by having a look at the estimated Bill of Materials for the XOOM tablet, which is thought to be around $359.00.

So what's Motorola and its fellow competitors looking to produce similar Android 3 tablets to do? Well, there's some good news -- there will be a Wi-Fi only version of the XOOM available in April, and it is expected to to retail from anywhere between $539 and $600.

Still, even at the lower $539 estimate, the XOOM is $40 more expensive than the cheapest iPad 2. While some consumers may be willing to spend a little bit more on a device that has better specifications in certain areas (the higher-res cameras and the 32GB flash storage being the primary differentiators) the iPad still has a tremendous advantage in terms of applications.

Also Read: Motorola Xoom, Already Closing the iPad Pricing Gap?

Clearly, what Motorola Mobility needs to do is create another SKU for the XOOM -- a XOOM "Light". Same great Android taste, but reduced specs.

If iSuppli's BOM is to be believed to be within striking range of actual component costs, then Motorola can shave anywhere between 50 and 60 dollars off their manufacturing cost on the XOOM by slicing the flash storage in half to 16GB and going with less expensive camera parts, putting it closer on par with Apple's iPad 2. This would allow the XOOM to retail for about $50-$80 less than the entry-level iPad 2, depending on how close the company wants to cut their margins.

The only way XOOM is going to be a repeat hit for Motorola Mobility in the same way the Droid was for their handset business is to undercut the iPad 2 on price. With a lower price and a similar feature set to the iPad 2, a large segment of consumers might be willing to overlook some of the shorcomings on Android 3's current tablet app gap.

Does Motorola Mobility need to create a "Light" SKU for the XOOM to compete better with Apple's iPad 2? Talk Back and Let Me Know.

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