What businesses can learn from the TouchPad fiasco

I wonder what Bill Hewlett and Dave Packard would have made of the TouchPad fiasco? One of the fundamental tenets of successful business is to start with a good product - the problem with HP’s defunct tablet is that this was also where it ended.

I was lucky. Using a barrage of open browser windows I managed to order one of the £89 bargains via Best Buy. I didn’t fully believe I’d succeeded until it turned up on my doorstep two days later.

I’m not the first to say that the TouchPad itself is a lovely piece of hardware and, following the immediate over-the-air update, webOS is stable, capable, reasonably fast and well-thought out. Indeed, looking at the package as a whole, whilst the hardware is not quite as luxurious as the iPad 2, I would place webOS well ahead of iOS4 largely due to its effortless multitasking. It’s a technological tragedy that this device and its OS are now a thing of the past.

According to isuppli.com, the TouchPad costs £200 in materials and labour to build, almost exactly the same as the iPad 2. Conventional logic is to take the build cost and add a margin to come to your retail price, aligning yourself to comparable hardware. This lead to a release price of £399 for the 16GB model which is on a par with the iPad 2.

The problem with this is that it gives potential buyers no good reason to choose the newcomer over the established giant. I estimate that Apple makes around £150-£200 profit on each iPad sold and uses the AppStore to drive hardware sales (although their 30% share of the projected £2 billion pound of revenue the AppStore will earn in 2011 is hardly to be sniffed at).

HP couldn’t hope to do the same with such a limited app store, so the only way it could have made an impact would have been to reverse the logic - make its long term money from apps rather than the hardware. Had the TouchPad been launched at £250 it could easily have been a massive success, which would have created an audience for app developers to target. Particularly the work-related apps that HP’s business image would suit. HP could then have taken a cut of its app store revenue.

The problem is that this approach takes time, with HP barely breaking even on the hardware, let alone the associated R&D and marketing costs. Looked at this way, the TouchPad was doomed as soon as HP chose the webOS route - however good the OS is, it has only limited developer support.

Android-based tablets have more chance because developers can target more than one device with a single app. But the real challenger to Apple is likely to be Amazon. It's already demonstrated with the latest version of the Kindle that it's prepared to sell hardware at a market-breakingly low price in order to make money on downloads. As an example, I paid £109 for my Kindle in October last year but I reckon I’ve spent around £300 on books in less than a year since. A £250 Android-based Amazon tablet locked to its app store would blow the market apart.

The lesson for small businesses is to never lose sight of where the money really is. Apple is, as usual, the exception to the rule in that it's able to make profit from every part of the process - the mistake HP made was to imagine it could duplicate Apple’s success. Bill and Dave, you’re no Apple.

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