Engadget broke a story on Sunday that included a scan of an upcoming Best Buy (BBY) advertisement that featured Motorola Mobility's (MMI) new Xoom tablet, which would normally be a positive and exciting thing for investors bullish on MMI. As always, there was some fine print - and in this ad, it was a horrible thing for MMI investors and consumers considering buying a Xoom.
The fine print stated that at least one month of a wireless data plan must be purchased [from Verizon Wireless (VZ)] before the Xoom's WiFi capabilities become unlocked. Later, the story was updated to clarify (after receiving word from Best Buy employees) that the tablet cannot be purchased without agreeing to the dataplan activation at the same time.
If the information in the ad is factual (which it may not be - as of noon Monday, Engadget has not updated the story to include any official comment from Verizon or Best Buy), the Xoom tablet may be doomed to fail. Many (if not most) potential tablet buyers have access to WiFi at work, home, school, and public places, and have no need for an expensive wireless data plan.
Beyond the cost itself, comsumers are more likely to perceive the tied-to-contract Xoom negatively; requiring a plan limits personal freedom, creates a huge barrier to entry for consumers who would otherwise be willing to give the Xoom a try, and just makes Motorola seem like a company that's out of touch with tech consumers. The comments on Engadget's article are overwhelmingly negative and likely representative of the thoughts of the general tech-saavy population, and a lot of people express that their interest in the Xoom is lost because of this dataplan requirement.
It's unclear why MMI agreed to this arrangement with Verizon. While Motorola may receive some portion of the data-plan revenue, they didn't seem to realize that they may sell drastically fewer tablets becacuse of the required plan.
As a MMI shareholder, I hope that this advertisement's fine print ends up being incorrect and that the Xoom will be available without any sort of contractual obligation. There had been plenty of positive sentiment behind Honeycomb (Google's (GOOG) Android 3.0 operating system for tablets) and the Xoom itself, and the Xoom would have benefited from being the first tablet on the market utilizing Honeycomb.
However, this positive momentum and consumer interest seems negated by requiring buyers to activate a dataplan - and I'm worried enough in the ability of Xoom to succed under these conditions that I may sell my shares if this advertisement's details are confirmed.