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The Wall Street Journal ran an article touting Acer's (OTC:ASIYF) Iconia Tab A500 tablet computer. The new Google (NASDAQ:GOOG) Android-based tablet is notable because at $449.99, it is the first 10" tablet that costs less than Apple's iPad (NASDAQ:AAPL). This is an important industry turning point. As we previously discussed, this was a truly scary aspect of Apple's market dominance. Not only does Apple produce the best product, it also offers this product at the lowest price, despite facing competitors that use Google Android's free open source operating system. This unusual dynamic has made it difficult for competitors to gain market share.

Nice work Acer, but it is hard to get excited

While we admit that the entrance of Acer's proven low cost approach to the marketplace potentially signals the beginning of the end to Apple's unbelievable dominance in the tablet market, the truth is that this erosion of competitive advantage is inevitable, especially in the technology industry. Yet Apple investors should find solace in the fact that the transition has taken so long and it will likely be much longer before Apple's financials suffer from the eventual dual headwinds of a mature market and legitimate competitive pressures. If anything, the minor discount to the iPad and the lukewarm review of the product should actually embolden Apple shareholders and iPad fanatics because the Iconia Tab A500 seems very much like more of the same. Motorola Mobility's (NYSE:MMI) Xoom starts at $599 and Research in Motion's (RIMM) PlayBook retails at $599 but it requires a BlackBerry and the screen is 7", so it is not an ideal comparison.

Biggest winners

As the competition in the tablet market continues to develop, Apple's iPad is the clear winner, but Barnes & Noble (NYSE:BKS) should not be ignored. The bookstore chain's Nook color is a hidden winner following Acer's lackluster tablet. The Tab A500 seems to mainly differentiate itself from other Android-based tablets on a price basis. But at only a $50 discount, this seems unlikely to drive meaningful defections from Apple's iPad. In addition, while the Nook color is a tablet device (but not a true tablet computer) Acer's failure only strengthens the Nook color's niche on the low end of the market.

Summary

Apple and Barnes & Noble continue to be winners in the growing tablet computer market. Acer's lackluster entrance into the market only reinforces each company niche on opposite ends of the tablet market. New entrants should continue to eat away at both companies. But because they operate on different ends of the spectrum, the risks will be different.

Apple investors may be focusing on rumors that Amazon (NASDAQ:AMZN) will release two of its own tablets before the holiday season, but we think the more important development will come from Microsoft (NASDAQ:MSFT). While the computer giant has had mixed success with consumer-based products, the company is expected to preview its new tablet software next week. A successful operating system here could significantly open up competitive pressures to Apple and other existing tablets.

For Barnes & Noble, the biggest risk will come from low end tablet entrants. The Nook color has built a strong market position as a low cost tablet device. At $249, the discount to true tablet computers is significant. Cost reductions in tablet computers will directly and adversely affect BKS' competitive advantage and profitability. Unlike Apple, growth of other operating systems will not affect the Nook color at all since tablets based on the new operating systems will have a hard time challenging the Nook color as it is based on free, open source Android.

Disclosure: I own BKS shares. I have no positions in any other stocks mentioned, but may initiate a long position in AAPL, MMI, RIMM, MSFT over the next 72 hours.

Source: The Improbable Dominance of Barnes & Noble and Apple