Motorola Mobility (NYSE:MMI) dropped the price of its poor-selling Xoom tablet device by $100 today. The Wi-Fi model is now $499. The price drop will not only eat into profit margins, but is unlikely to boost unit sales.
For Motorola, the second generation release of the Galaxy Tab 10.1 will prove to be a more compelling alternative and the Asus Transformer with removable keyboard will attract consumers looking for an in-between laptop-tablet device. When compared to the Apple (NASDAQ:AAPL) iPad 2, the Xoom device is less compelling at similar prices, is not as easy to use and has fewer desired apps available.
This begs the question: why do all android-based tablets touted as an Apple “iPad killer” fail?
It’s all about having the choice for many apps. Apple cemented the app mantra for the smart phone. Most recently, Apple’s App store hit 15 billion downloads, while rewarding $2.5B in payments (70% of revenue) to developers. There are now 425,000 apps available on the iPhone.
Apple’s early entrance in the tablet space enabled the company to gain developer support. The aggressive price point for the apps and for the device continues to resonate at the sweet spot for consumers.
2) Android User Demographics
Android is popular because it is a cheap smart phone alternative to any other offering. BOGO (buy one get one free), 99 cent and free (with contract) offerings are popular. The same user base is unlikely to spend an additional $400, let alone $499 for Motorola Xoom tablet.
The demand side for android-based tablets is not there.
To compete effectively with Apple, Android tablet manufacturers would need to offer free, smart phone/tablet combo deals, or offer heavily subsidized deals to entice the Android smart phone consumer to buy an Android tablet.
3) Specifications Matter Little, Ease of Use Matters Most
The average consumer does not care about processor speed, memory size, HDMI or an SD reader (the SD card reader on the Xoom is not yet functional in North America, even though a patch was released in Europe).
The consumer cares about ease of use, a smooth experience and many apps. The iPad 2 is elegantly designed. Motorola’s Xoom is heavy and bulky.
Research in Motion (RIMM) released a lighter, 7-inch Playbook tablet that at least gave the company a form-factor advantage over Apple. The Playbook is also very responsive and fluid.
4) Android not Truly Open Source
Android fans tout that its operating system is open source, but an open source is defined by freely available code to the public that may be redistributed with or without modification. Manufacturers have access to the source code because it is needed for building the device.
Motorola Mobility Is Not a Buy
Until Android evolves to be more user friendly, less buggy and offers a more fluid experience for consumers for tablets, the next Android “iPad killer” will be yet another mirage. Motorola Mobility, down nearly 18% since spinning off from Motorola (NYSE:MSI), will continue to perform poorly as an Android play.
Microsoft (NASDAQ:MSFT) offers an indirect investment play for the boom in Android-based devices in smart phones. Microsoft is currently negotiating a $15 license fee for every android sold. It currently makes $5 for every HTC Android sold.
Disclosure: I am long MSFT.