What's killing Motorola Xoom - pricing, iPad 2 or Samsung Galaxy Tab 10.1?

Motorola's Xoom was crowned the undisputed king of tablets at CES 2011 but little did Motorola realize that the spotlight would last only a month.

Since its launch the tablet landscape has changed dramatically with the turning point being iPad 2. Apple launched its thinner, faster and lighter iPad 2, in early March which took its rivals by surprise.

Business Insider reported that Deutsche Bank has estimated that Motorola has sold about 100,000 pieces of Xoom so far. Apple sold 300,000 iPads on the very first day it was made available.

Here are some reasons why Xoom has failed to take-off:

Pricing:

Xoom's dismal performance has been attributed to its high price point. The Wi-Fi only 32 GB Xoom costs $599 which is equivalent to Apple's 32 GB Wi-Fi only iPad 2. However, iPad 2 Wi-Fi only with 16GB costs $499 thus giving customers a cheaper entry point. Xoom 3G tablet with 32GB costs $800 and $600 with two-year contract while a similar offering from Apple costs $729 and a 16GB iPad with Wi-Fi + 3G costs $629. Apple provides multiple price points and its most expensive model is priced at $829 with 64GB internal memory.

Forrester Research in its blog entry Motorola Xoom: Cool Product, Fatally Flawed Pricing Strategy states that a survey shows that consumers expect to pay only $257 for a tablet as of January 2011, down from $504 in June 2010. While the cost of production of tablets is pretty high, customers expect them to be cheaper. By this standard Apple has an upper hand as its cheapest iPad is $499.

Economies of Scale

Reuters reported that analysts predict that Apple will sell close to 1 million units of its sequel to iPad, the iPad 2, during its debut weekend. The original iPad reached the one-million mark in 28 days. DigiTimes reported that Apple sold over 2.4-2.6 million units of iPad 2 in March.

The scale at which Apple is selling allows Apple to reap the benefits of economies of scale which would enable it to further bring down its price. This is a feat that Motorola will not be able to achieve if the sales figure of 100,000 is true. Thus, Xoom pricing will not go down drastically.

Design:

It's not just in the realm of pricing that Xoom suffers but in a matter of two months its form factor seems obsolete in comparison to iPad 2. The iPad 2 weighs 1.3 pounds and is 0.34 inch thick while Motorola Xoom weighs 1.6 pounds and is 0.50-inch thick. Xoom was launched with killer specifications like a faster Tegra 2 dual-core processor, a 5MP front-facing and rear-facing 2MP camera and a 10.1-inch 1280x800 pixel display. However, Apple matched all these features in its iPad 2 and at a lesser price with a lighter and thinner frame.

It's not just Apple which has bettered Xoom's design but Xoom faces competition from within the Android fold. Samsung recently released two new 10.1-inch and 8.9-inch tablets. The Samsung Galaxy Tab 10.1-inch is merely 0.33-inch thick and weighs about 1.31 pounds. It is thinner than the iPad 2 and runs on Android 3.0. Thus, customers can wait to buy this Android beauty which would further affect Xoom's sales. PC Magazine reported that the Galaxy Tab 10.1 is priced at $499 for 16GB model and $599 for 32 GB version. Samsung's pricing is comparable to iPad 2 which further gives an incentive to customers to wait.

Retail experience

Apple offers a significant retail experience through its Apple Stores. CNET reported that customers are treated to racks full of iPads with live demonstration of apps on iPads in Apple stores. Richard Shim, an analyst at market researcher DisplaySearch, in an interview with CNET said: There were no applications that showed off what the Xoom could do, when he visited a Best Buy in San Francisco. Thus, Xoom does not get the visibilty it needs in stores like Best Buy.

Forrester Research also highlighted that customers are willing to accept a higher price from Apple and not from Motorola because customers perceive that the in-store support and service that Apple offers in its retail stores are built into the price. It has the Genius Bar in its store which supports customers with free and paid services. But, Apple offers a built-in support system which other tablet makers don't provide. Apple offers training, demonstration and after-sales services, all in one place for which a user is willing to pay more.

Future expectation of other Android tablets:

Lastly, Xoom faces competition from other launches due in the coming months. HTC, LG, Samsung, RIM, HP and Sony have a line-up of tablets that are due this year. Apple iPad 2 runs the tried and tested iOS 4.3 OS while Android 3.0 or Honeycomb is still gaining traction. Thus, users are not quick to switch to Android 3.0 and are waiting for newer launches as the later tablets can better the performance.

However, the slice of market that Xoom aiming for is rather small. Forrester Research has forecast that 24.1 million tablets will be sold in U.S. in 2011 out of which 20 million will be iPads. Thus, Xoom is fighting for the 4 million slice and by that standard 100,000 units sold is still a good start.