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The Globe and Mail

After Apple, will any company make a profitable tablet?


From the FT's Lex blog

The future will be crawling with tablets. The success of Apple's iPad has convinced the world that a slim rectangle with a touch screen is tomorrow's computer. Unit sales will grow at an average annual rate of more than 50 per cent from this year to 2015, when nearly 300 million tablets will be sold, Credit Suisse expects -- about the number of personal computers sold in 2008.

But will any company besides Apple make sustainable tablet profits?

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A tablet is, in one sense, just a simple PC that, like the netbook before it, could be subject to brutal price competition. Lenovo's introduction of a $199 tablet is one indicator of this (Hewlett-Packard's $99 fire sale of its discontinued TouchPad does not count).

Various competitors -- Motorola , HP, Research In Motion , and recently Sony -- have tried to price theirs near the iPad's $500. Sales have been meagre and price cuts have often followed. There is no reason to pay up when Apple's operating system runs more smoothly than the only real competitor -- Google's Android -- and the iPad is seamlessly linked to pools of applications and content that many customers already use.

This could indicate that Apple will lock-up the high end of the market while commoditization of lower-end devices means only advertisers such as Google, or content producers and distributors from Disney to Netflix, will profit meaningfully from cheaper tablets' popularity.

If, however, the quality gap with Apple's operating system closes over time (probably a fairly long time) there is a chance that another company will back up its tablet with an arsenal of content and services to rival Apple. If Amazon introduces a tablet, as is expected, its position in retail and digital media could provide just this threat -- especially if Amazon offers a price as low as $250. In that scenario, price competition could touch even Apple's beautiful devices.

Then the game becomes how to control, price, and deliver services and content. The actual little rectangle will become an afterthought.

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