Next-Gen Android tablets still can't hang with iPad on price

Apple's advantage with the iPad? It's a Price Equalization Effect.

Back in November, ZDNet Editor-In-Chief Larry Dignan made an astute observation about the state of Android tablets -- they can't compete with the iPad on pricing. Not a single one of them.

Over the weekend, preliminary pricing emerged on the new Motorola XOOM, which looks to be the first legitimate iPad competitor in terms of feature set. It's an awfully nice sounding device, using Google's latest Honeycomb 3.0 version of Android, with a dual core nVidia Tegra 2 processor, high-resolution 10.1" screen, plenty of memory, and doodads galore.

The problem? Its unsubsidized full retail price at big box retailer Best Buy is likely to be close to $699.

My colleagues at ZDNet are split on whether the XOOM's pricing will make for a lukewarm reception in the marketplace. Jason O'Grady attempts to compare it to the existing iPad as well as the yet to be announced iPad 2. Matthew Miller insists we look at the specs of the XOOM itself and compare Apples to... uh, Apples, and that Cupertino's "Reality Distortion Field" has clouded everyone's judgement.

There's definitely an effect that Apple is generating, but it's not a Reality Distortion Field. It's a Price Equalization Effect. Apple is therefore PEEing on their competitors' tablet device parades.

When the original iPad was announced in January of 2010 for $499 for the base 16GB Wi-Fi model, that set the watermark for what ALL tablets should cost, regardless of specifications and speeds and feeds. That's the entry point, period. As a competitor you either come in at that price with better specifications, or you come in lower. Not higher with the same, and absolutely not higher with less.

Right now, we have no idea what the iPad 2 specifications may be, even though we can take a bunch of educated guesses about what might be under the hood. But I think we can safely say that trying to compare the XOOM to the existing iPad that is on sale today is a futile exercise at best, since we're very likely to get an iPad 2 announcement over the next few weeks, just before the XOOM ships.

One thing we can say about Apple is that they are fairly consistent about keeping prices standardized for base models across their product lines when they do yearly refreshes. So I don't expect the base model iPad 2 to cost much more than the one that is currently being sold.

We might see a slight variation, perhaps as much as a $50.00-$100 increase as we've seen with some of their other products, but I'm not expecting a $200.00 jump. Apple isn't suicidal, at the end of the day they want to move product. Apple also has the flexibility in that it can offer different flavors of the iPad (16GB/32GB/64GB, Wi-Fi/3G) to fit different consumer profiles and price points, as well as having a superior distribution channel overall.

Apple has not disclosed how their sales breakdown of the iPad went last year in terms of how many of each model were sold, but if I were a betting man, I would say that around 40 percent of their channel inventory was the $499.00 model and the rest was a mix of the medium and higher-end models.

Motorola and even companies like Toshiba, RIM, Dell and HP don't have the flexibility that Apple has in offering six different flavors of the same tablet device. At best, most of these companies can do two, one with 3G/4G and one without. Perhaps a 7" and a 10", such as what some of the Taiwanese/Chinese Tier 2 firms that exhibited new products at CES 2011 are doing.

That makes their ability to compete that much more difficult, since they have to put all their efforts into marketing one or two models, and it eventually has to force them down closer in price to entry-level iPad territory.

What does this mean for you and the consumer? I think it means that we can count on some very hard pricing decisions being made by companies like Motorola in the near future if they want to stay in the tablet game.

Are the prices of full-size Android 3.0 tablets going to equalize with the release of the next-generation iPad? Talk Back and Let Me Know.