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Value the secret weapon in mobile battle Add to ...

You might have missed it if you blinked, but there was a moment this month when, for perhaps the first time, a competitor’s tablet was outselling the iPad.

Shortly after Hewlett-Packard Co. announced it was completely overhauling its business by shuttering its new TouchPad tablet and putting its entire consumer PC business up for sale, the company was forced to get rid of existing tablet inventory. It did so by slashing prices on the devices – the original TouchPad, which went on sale for about $500, was cut to $100, making it one of the cheapest tablets on the market.

Even though it seemed certain that HP would no longer support the operating system powering the TouchPad, customers lined up outside retail locations to get their hands on the tablet. HP’s own online store also quickly sold out.

“Even for a piece of junk, somebody will want it for the right price,” said Robert Pavlik, chief market strategist at Banyan Partners. “I don’t know if HP’s tablet is a piece of junk, but nobody seemed to want it before.”

For the company, a fire sale on a device that was launched just a couple of months earlier was an inglorious exit from one of the hottest markets in the technology sector. But the TouchPad buying frenzy did illustrate an important phenomenon: While consumers seem to overwhelmingly prefer Apple Inc. ’s mobile devices, they like saving money even more.

As Steve Jobs steps down as Apple chief executive officer this week, ushering a new era in the company he helped create, that phenomenon is at the heart of what may well be the most promising – and riskiest – strategy for beating the tech giant in the mobile device space: forget the high-end market and focus on making your product cheap and easily available. In a way, it’s a throwback to a battle over personal computers that Apple found itself involved in – and ultimately lost – 25 years ago.

“The landscape right now is very similar to the Mac and PC era in the mid-80s,” said Vincent Cheung, founder and CEO of ShapeCollage.com, a startup that recently launched its first iPhone app. “Apple had very good head start, but at the end of the day you can’t have one manufacturer making every mobile device or computer in the world.”

The idea of trying to loosen Apple’s stranglehold on mobile device profits by competing on pricewas given fresh lifethis month, after Google made a $12.5-billion (U.S.) offer for Motorola Mobility Holdings Inc. The move comes at a time when most analysts see the consumer smart phone and tablet markets as a two-horse race between Apple’s iOS devices, and Android-powered hardware, with Microsoft Corp. and Research In Motion Ltd. playing catch-up. While Apple has positioned its mobile devices as high-end and aspirational, Google Inc. has tried for a critical mass with Android, allowing just about anyone to develop software and hardware for the operating system with few fees or restrictions. As a result, Android devices in total make up the fastest-growing segment of the consumer smart phone and tablet markets, while Apple remains the top single manufacturer.

Although most observers suggested Google’s interest was in acquiring Motorola’s patent portfolio, others are floating a different theory – that Google might try to sell handsets as cheaply as possible to create an even bigger user base for its Android operating system (and to increase its core ad-sales revenue).

“As a venture capitalist with investments across a number of mobile startups, my advice to my portfolio companies is simple: plan for a scenario in which Google gives away Motorola phones for free and imagine how the market would be shaped in its wake,” Rebecca Lynn, a partner with Morgenthaler Ventures, wrote in a recent blog post.

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