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 isn’t 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 isn’t 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 TouchPad’s 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 Apple’s monopoly without bankrupting the company at the same time. Amazon (NASDAQ:AMZN) might very well be that company.
Detailed rumors about Amazon’s 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 Amazon’s plan, the Post article said Amazon’s 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.
It’s 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. It’s 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 @ajohnagnello and become a fan of InvestorPlace on Facebook.
