The tablet market

Today, the clear leader in the tablet market is Apple, with its iPad. According to a study by iSuppli, the device costs Apple between $230 and $346 (depending on configuration) to manufacture and is sold between $499 and $829.

Meanwhile, HP came out with its touchpad and, thanks to another isuppli study, we learned that it costs between $306 and $328 (depending on configuration) to manufacture it. Currently, the company has put those device in fire-sale mode, retailing them for $99 and $149, leading many to highlight that the company is losing large amounts of money.

Comparing the two, based on roughly the same feature sets, we get the following (for the sake of comparison, I used the non-3G version of the iPad since HP has only sold WiFi enabled tablets and doesn’t have a 3G product out):

Looking at this chart, it is clear that Apple is substantially more efficient in its supply chain, being able to build a tablet for about a third less than HP. But what also becomes clear is that the Cupertino company has been pricing the device to maximize profit and there seems to be a lot of room for selling tablets at a lower price without losing one’s shirt.

But how much would people be willing to pay?

Listening to the market

One of the most fascinating things I’ve noticed recently is that the price of ebay auctions, on most goods, tends to be relatively consistent as the auction comes closer to its conclusion. Take any given good and you will find that there is relatively little difference in the bids on several auctions for the same thing ending within minutes of each other.

Another interesting artifact is that the price of a second hand device on craigslist tends to be close to the price of the same device at the end of an ebay auction.

Those two facts seem to point to a natural equilibrium when it comes to pricing goods, where a majority of sellers and buyers cluster around a price point that seems to be what the market is agreeing to as a price point.

On its face, it’s interesting to see that iPad2, as a product, does not seem to loose much value on the resell market, with second-hand versions reselling for roughly the same price as the retail one.

However, there is an interesting phenomenon here with the HP Touchpad selling for over $100 more in the after-market than the suggested retail price. While this is partly due to scarcity, it is interesting to see that the price ceiling has actually sustained itself for the last couple of weeks, even as more supply has been made available.

The evidence seems to point to customers being interested in buying a 16Gb tablet for between $200 and $250 and paying up to $50 more for double the space. The challenge still remains that HP actually would continue losing money at those price points.

Looking at this, however, it seems the losses could get lower if HP priced the market closer to what the market currently seems to dictate. However, a loss is a loss and there would still be question as to how the company could actually make this a success.

Options for HP

Based on the above data, it looks like there could be a chance for HP to attack the marketplace and make WebOS the second most popular operating system in the tablet space, succeeding in establishing WebOS as an alternative to iOS and potentially besting Android in that arena. To do so, the company could look at a number of different approaches to subsidize the difference in price.

One of the first things HP might want to look at is the lifetime value of a customer. Is there a way they could recoup the $28 or $56 they are losing on that customers.

Could they, through the sales of apps, make that money back? Assuming a 30% cut, as most people seem to take these days, it would mean that they would need to sell $96 (for the 32Gb) or $186 (for the 16Gb) worth of app. Assuming apps are selling for $3 per app (which a cursory look at the recommended apps seem to point to as an average price point), they would need to sell an average of 32 apps per 32Gb Touchpad sold or 62 apps per 16Gb tablet sold.

What about movies? A downloadable app on the Touchpad is called the HP movie store. It appears movies rent for $3.99 and sell for $20. Assuming the same 30% split, they would make $6 on every movie sold or $1.20 on every movie rented. To recoup their cost, they would need to either sell 10 movies per 16Gb tablet or 5 movies for the 32Gb model. Alternately, they would need to rent 47 movies for the 16Gb model or 24 on the 32Gb one.

Assuming a two year life on the devices and its associated customers, it seems that recovery of cost could be realized.

But let’s not forget some of the other (potentially more lucrative options). As a successful alternative to iOS, the company could develop an ecosystem of components (keyboards, cases, etc…) that work with the device. They could charge a small fee for certification as “Made for HP Touchpad” and receive revenue from that source. Furthermore, with a strong position in the market for their offering, they could then potentially license out the operating system itself (as more and more devices enter the market, the chances that more developers will be attracted to the platform increase), generating enough revenue to more than subsidize the cost of the initial production run.

Looking at the production costs of Apple’s iPad, it also seems clear that there is much that can be done to optimize the supply chain and manufacturing of the Touchpad. HP could initially target their own internal efforts with a goal to get the Touchpad produced at a rate that was low enough that they could first offer them at cost and eventually make a small profit on the hardware itself.

As a long term play, though, it looks like the main goal of this slew of HP touchpad would be to establish WebOS (and thus HP) as a leader in the tablet market. To do so may allow the company to build some strong margins on OS licensing at some point in the future. However, it would require a willingness to take some short term losses (under 12 months) to establish a strong position in the market in the long term.

Options for tablet manufacturers

It seems the HP touchpad has given the industry an idea of what the market is willing to pay for a tablet not produced by Apple. While it is true that the WebOS operating system is very polished, I think that factored less in people’s interest in the device. The market wants an inexpensive tablet that works relatively decently and they’re willing to spend $250–300 for it.

There are now rumors that Amazon is considering entering the market with its own Android-flavored tablet, priced in that range. To do so, considering the fact that Amazon will generate revenue from alternate sources like the Kindle store, the app store, and streaming movies and TV shows, seems to be a natural evolution and it appears that a pricing strategy that would be the tablet in the sub-$300 range makes sense. If they do so, it will be interesting to see how their offering fares. A failure to take off could translate in trouble for Android as a lower price point Android offering ought to be successful and failure would mean a problem with the OS. If it takes off, Amazon could reignite the tablet market and cut off HP’s chances to establish their operating system as a strong contender in the tablet space.

Because technology costs continuously go down, it is clear that we will see a sub-$250 tablet within the next 24 months from someone other than Apple (Apple has a tendency to price rigidity and may drop some older generation iPad models to the $299 range but I doubt they would go much lower than that). Efficiencies in production and supply lines make that not just a possibility but pretty much a sure thing.

As to who will control the second most popular operating system (assuming Apple retains its lead) in the tablet business, it’s really up to HP to decide how it wants to play. It has a unique opportunity to take that spot right now but the window of opportunity may be closing extremely fast for them.

As a final note, realize that the observations I’m making above are only relating to the tablet market and do not affect the smartphone marketplace at this time: that ship has mostly sailed and it’s a two-player game at this time: iOS and Android.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Pricing a Tablet. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Tivo and Digital Media Servers. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

In the United States, cable television has what is called a tiered structure. That means that channels are grouped in packages that are then sold as a whole. The most basic service includes the regular “free” networks (for people who have low or no reception), the next package above that generally offers an extended set that includes CNN, ESPN and a bunch of other channels. Then, on the third tier, you can buy more expensive channels like HBO or Showtime, which are not supported by advertising.

If you were to draw a parallel to the online world, you would have Internet access being the basic package, then a pre-paid package which would offer access to a certain number of sites (similar to what AOL is starting to do by pulling Time and Entertainment Weekly behind its own service), and then would pay extra for a few one-off sites that may warrant it.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Paid Content on a tiered structure. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

First of all, by acquiring Linksys, Cisco gets a strong foothold in the small office/home office market as well as the hobbyist/consumer market. Why? Largely because this is where Linksys’ strength is. What Cisco gets out of this is a new source of revenues in a market it has had troubles getting into. The announcement that they will not change the name of the company and will let it run as an independent unit seems to point to that end.

Second, it provides Linksys with strong support in enterprise sales. Linksys has been getting into the enterprise largely through the back-door, with employees installing cheap wireless routers in offices. Now, with Cisco’s backing they can get into the enterprise as part of a more complete solution.

The next question is what this does to Cisco’s strategy as a telecom vendor. Linksys already sells voice over IP products. There may be some people at Cisco edging their bets in terms of the telecom bet. It could be that they figured that VoIP could also come in through a cable connection, which in itself would undermine sales of equipment to large phone companies and move more telephone traffic into the hands of cable companies. Alternately, Cisco could start selling solutions that would allow for a complete end to end solution for VoIP: Large offices would use Cisco’s existing solutions and smaller branch offices could take advantage of the Linksys offerings.

However, the real prize in this acquisition is in the wireless space. Linksys has already established itself as one of the strongest players in that market and Cisco will probably take advantage of those gains, eventually demising its own offerings in that market. The advantage for them is consolidation of product lines and an early toe in the 802.11g arena.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Cisco acquires Linksys. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

As many of you already know, the game station is a small box that attaches to your TV and on which you can play video games. However, the firepower of new generation boxes now on the market is now equivalent or higher than that of most computers. The main logic behind this was that gamers wanted a more realistic experience and crunching 3D representation in an ever-changing environment required more and more processing power.

Playstation 2 opens the gate

Last year, Sony introduced the Sony Playstation 2, a new gaming system that included a built-in DVD player and a 3D graphic engine that made computer video card look ridiculously outdated. At that time, Sony admitted that their goal was to go beyond games and control the digital living room. Recent partnerships with Macromedia, AOL, and Real Networks seem to show that Sony has established a clear roadmap as to how it would get into the online market. And with a growing installed base of (8 million so far, and an expected 34 million by 2004), Sony could become a major online player.

Microsoft unveils the Xbox

Having survived the browser wars with Netscape (Internet Explorer now controls 80% of the market), Microsoft is starting to worry. If one could download music and exchange videos via a gaming station, as well as play video games, where would the home PC go? And where would that leave Microsoft’s ambitious .net strategy?

As a result, Microsoft had to play in that field and to do so, it went to game developers. After much discussion, the result is here for everyone to test: it’s called the Xbox, and is essentially a PC packaged as a gaming station. If you read the documentation, the Xbox becomes more difficult to classify as simply a gaming box. For starters, there is a DVD player, which was added just to match Sony’s Playstation 2 DVD player. But Microsoft goes further by building a Dolby decoder within the system as well as adding parental controls to the box.

The second thing they added to the box is the ability to put in a CD, play it, and burn it onto the built-in hard drive (through what they call a music manager). All of a sudden, the Xbox becomes a music stereo box.

Going further is the matter of the Ethernet port and the mysterious broadband network touted by Microsoft. Early inside reports point to the first broadband gaming network that might go beyond gaming. At the current time, there are rumors of a network that would also allow for Internet browsing, email, and instant messaging, as well as gaming.

The messaging portion is an interesting one since it would include and optional plug-in for the box called the communicator, a headphones and microphone device people would use to communicate either via IM, or while playing online games. The unit includes a wireless headset with microphone, which could easily be used to make phone calls if Microsoft uses some of the technology it is currently building into the Microsoft Messenger. Long term, the Xbox could become another entry point into MSN, and into the web as a whole.

Moving forward: the Playstation 3

Sony, however, is not resting on its laurels. Now that Microsoft is entering its turf, the company is seeing its dominance on the digital living room being challenged.

With the PS3, originally slated for mid 2003 but possibly being released earlier, Sony plans to integrate offerings from its music and movie divisions into the system.

Considering the fact that the company already offers a suite of MP3 players, it is easy to see that the company will build that functionality into the next box.

Rumors are that the company will build a large hard drive within the box, which would make it a perfect storage area for an MP3 collection.

But going beyond music, the company is also looking at packaging a digital TV recorder within the unit, turning it into a device that would compete with Tivo and Replay in the market for customized television.

Also built into the box would be a TV tuner, and rumors has it that the system would also include a satellite TV decoder. In order to counter the online capabilities of the Xbox, Sony will release an online pack for the PS2 but will build that functionality directly into the PS3 box.

The unit would be offered in two different version: a light version, which would focus on gaming and be sold for around $250-$300 and a more expensive full featured convergence version which would retail for $400-$500.

Games Only: The Game Cube

Meanwhile, Nintendo believes that games and only games is what consumers want out of their boxes. As a result, the GameCube is a smaller, less pricey gaming box. However, this does not mean that it is offering less performance. It’s just that it’s a different take on the world. As far as Nintendo seems to see the world, gamers will want to pay no more than $200 for a gaming box but may be willing to pay extra for new features.

In a concession to Microsoft and Sony, the box will soon sport two different modem adapters: a 56k module for people who use a phone line and a faster broadband module for people who have a network at home. Rumor has it that Nintendo is preparing a membership network with services like online video game, full Internet access, and the distribution of music data. Since the GameBoy advance can interface with the GameCube, it seems that Nintendo is working on a hardware strategy that will make the gamecube a connecting station into the home, while the GameBoy will become a roaming device that can get updates from that box.

Convergence is here

Based on those recent developments, it seems pretty clear that hybrid boxes are now starting to pop up and that we will soon see more applications (initially in the gaming world but eventually in other areas) become the norm. I would strongly recommend that TNL.net readers who are involved in developing online consumer applications pay attention to the gaming space as it is the next arena for which we might have to format our outputs. Based on early showing, I would say that Playstation 2 will keep its predominant position for the next year or so but may be getting some competition from the new underdog in this arena: Microsoft.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title The Convergence Game. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

Since Boo’s failure, we now all know that trying to attack 15 markets at once is sheer insanity when you’re a startup. As some of the people within Boo used to say, if we make it, people will think of us as geniuses, and if we don’t, there will be studies written about how it’s impossible to do it. Hindsight being 20/20, we can now say that the attempt to capture so many markets quickly failed.

In my discussions with European companies, however, I’ve noticed a number of ways in which companies are globalizing. Here’s a quick rundown.

Partnerships

When Internet.com started expanding overseas, we were looking at a way to limit our potential risk. As a result, the approach we took (back in 1996) was one of joint partnerships, offering our content in exchange for a stake in the new business unit. Internet.com would focus on producing content and the partner would translate the content, market the brand in the local market, and sell advertising in the local market. In exchange, Internet.com would receive a quarterly fee based on a percentage of advertising revenues. This approach has advantages for content providers in that it does not affect the bottom line in a negative way. The downside, however, is that you do not have much control over the total deal and it makes it harder to assume full control if you feel like doing so.

Franchising

Etrade is now in 9 countries outside of the United States. In doing so, they have been using a franchising model. Entrepreneurs have approached them and bought the rights to the name and are renting the technology from Etrade. If the market succeeds, Etrade then looks at the partnership and talks to its franchisee about possibly merging the operations within the global Etrade by acquiring the franchise. It’s an interesting model in that it goes beyond what Internet.com did. The one extra step is the license of technology. As a result, Etrade is a financial technology company when it comes to the international market. This model seems to have worked well for Etrade and seems to be the most cost-efficient approach to going global.

Glocalization

This is a term popularized by Yahoo! The basic idea of glocalization is best embodied in the slogan think globally, act locally. In entering foreign markets, Yahoo! hires a completely local team which has full control of the local Yahoo! portal. The team strikes partnerships, sells advertising, and does marketing as an almost independent company. Essentially, the local Yahoo! portals are wholly-owned subsidiaries of Yahoo! corporation and act relatively independently of the parent company.

In this model, Yahoo! essentially becomes an incubator for people who want to become the Yahoo! of [insert country here]. Yahoo! owns the whole company but by going local, can be more in tune with local business traditions, which may be different from those of the United States.

As a result, overseas Yahoos sometimes have strategies that differ from the main site but are a better fit for the country they are in. For example, Yahoo! Europe entered into distribution deals with large media companies whereas it wasn’t traditionally something Yahoo! US did and got into the access game long before its US counterpart did.

As time went by, the US operation have started to take a look at what its European counterpart is doing and sometimes adapted similar strategies.

Another advantage in this approach is that, by having local executives, your company is not seen as an American invader (and in Europe in particular, American domination is a big issue).

Buy It!

Back when it was riding high, Amazon did something very smart: it started using its overpriced stock to acquire companies. In doing so, Amazon ended up picking up a German online retailer. This approach can be seen as a good way to quickly enter a market if you’ve got the money.

However, this is a strategy that is very difficult to accomplish. First you have to have the cash or stock to make the acquisition. But that’s the easy part. The tough part comes in the integration of back-end systems and the switch in brand name. If you want to become a dominant player globally, having a strong brand is essential but what do you do when you have several.

In the case of Amazon, they went out and completely changed the name from the get-go, creating some controversy in the process. Over time, this proved to be the right strategy but had they picked up a more established player, it might have been difficult for them to do so.

The other issue they have had is in integrating the back-ends. In the final analysis, they decided to drop the integration altogether and completely switch to Amazon’s back-end, but not after having spent many months trying to make the two systems talk to each others. Once again, this is something they managed to do without causing too much trouble for the customer but it shows that you need more money than just the price of acquisition in order to take that approach.

An interesting case to follow now is the acquisition of Lycos by Terra Networks. At the current time, few customer facing changes have been made but it will be interesting to track as both companies are trying to merge their operations.

Which brings me back to Boo.com’s revival. Fashionmall bought the brand name and is now trying to relaunch Boo under a new model. Will they succeed? I really don’t know but I’d like to wish them the best as they attempt it. What is interesting in this attempt is the fact that Boo may or may not be a tarnished name. What I mean is that Boo is a well known name but many people know it because of the headline-grabbing failure of the previous iteration.

Interestingly enough, however, there were still enough visitors to the site this summer, after it had closed, for it to rank in the Media Metrix ratings. It will be interesting to see if Boo can survive as a brand and whether the original ad campaign built enough goodwill for it to succeed.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Boo’s Rebirth. You can follow him on twitter here or receive his weekly newsletter by subscribing here.

For years people have claimed that “content is king.” If so, there are many things that go into the king’s proper care. Since 1992, I’ve been working on profitable online content models, and, while a few failed, eventually struck gold with iWORLD (now internet.com) in 1996. In the process, I’ve learned what works and what doesn’t. Here they are for your use.

Hire Zealots

The first rule — and hardest –is building a great staff. People who believe in what you’re doing make for the best workers.
If people believe in the basic idea, they’ll work harder to make sure that it succeeds. This is why zealots make for the best workers. They want the thing to succeed above anything else, even if it means putting in 20 hours days from time to time.

Create a Good Environment

On a content site, intellectual capital is the most important thing, so your most valuable asset is people (no, this isn’t just an empty phrase). As a result, you need to create a fun working environment. Allow flexible hours and atmosphere– as long as the work gets done!
When it comes down to it, the office should be a place workers don’t really want to quit. Foster creativity and try to encourage making the office a more pleasant place to work in. The more pleasant it is, the longer your employees will stay. The longer they stay, the more they’ll get used to the company. The more they get used to the company, the least they’ll want to leave.

Watch the Bottom Line

Many content sites fail because they spend too much money. This is a business. Find the lowest costs everywhere and instill this discipline in everyone working with you. A few dollars saved here and there add up to a lot.
However, do not be a pinch penny when it comes to your employees. Make sure that those who go above and beyond the call of duty get rewarded for it. While the wild parties thrown by companies on Silicon Alley and Silicon Valley only last one night, the bonuses you put in employees pockets get more recognition (and usually end up costing you less).

Automate

As part of your fiscal consciousness, always try to automate. This will allow you to use your staff to its fullest instead of forcing them to do repetitive menial tasks.

Nowadays, with tools like Active Server Pages, Cold Fusion, PHP or Story Server, you can easily create web interfaces that allow you to dynamically generate your pages from the web itself. Instead of trying to create every single page by hand, make sure you templatize.

Quality AND Quantity

People scoffed when Alan Meckler said we had acquired more sites than anyone in the world. We had the last laugh. Smart consolidation of content created higher traffic that we could spread across our other properties. For every site we acquired we would look at two things: the value of the content as an add-on to our offerings and the traffic numbers. Often, after acquisition the original creator created content for us while we sold advertising as part of a network package.

Interestingly, this strategy seems to have become more popular nowadays, with everyone wanting to become a portal. While we didn’t call it “portal,” Internet.com really became the first vertical portal about the net on the net.

Grassroots Marketing is Important

Many people were surprised at how much time we spent in newsgroups, on mailing lists and on talking to people who linked to our sites. This allowed us to develop a strong presence on the Internet at a very low cost. We treated every partner, from large corporations to one-man operations, in the same way and in turn got a lot of loyalty.

Partner, Partner, Partner

Money follows from traffic, and the way to get traffic is through partnering. We considered anything that would bring even a single extra user as beneficial. However, don’t spend too much time on contracts minutiae: they’ll lengthen the partnership process and you’ll miss certain opportunities.

Be There First or Don’t Jump

By the time the two largest players have been established in one arena, there is little room for anyone else. Know your field inside out and jump on new opportunities. Some may fail, but jumping in early means you won’t miss out on potentially huge rewards. If an area fails (a six-month reevaluation cycle works), pull out.

Community Matters

Creating newsgroups and email lists related to your site get readers to come back again and again. Develop a sense of community around your site and you will see your traffic constantly increasing.

Trust YOUR Instincts

Lists like this are great but don’t tell the whole story. Only you know how your site should be built. Don’t take anything for granted, dare defying common conceptions and change often. After all, the commercial Internet is still in its inception.

Tristan Louis is the founder and CEO of Keepskor and writes the influential tnl.net weblog, where this was initially posted under the title Succesful Web Content. You can follow him on twitter here or receive his weekly newsletter by subscribing here.