Does Motorola Need an Less Expensive, WiFi Only Xoom?

[milominderbinde]

Last week's tablet comparisons did not mention price: iPad 2 versus Honeycomb (and others).

The iPad without a data plan starts at $399. The iPad 2 is $499. The Xoom without a data plan is $799.

Apple uses their basic models to get people into their stores. Many then move up.

The Xoom bill of materials 359.92 is probably close. If they drop to 16GB and take out the 3G and 4G, the cost drops about $50. Motorola could still make good money at $499 and at least match the iPad 2 price plus the Xoom has the microSD slot.

What do you think? Does the Xoom need an less expensive, WiFi only model?

Thanks!

[EDIT] Correction. Wall Street Journal: Xoom Costs $278

 

[Lancer033]

yes, as much as i want it, $800 isn't going to happen. It's just not worth that. I don't need 3G/4G because i already pay for unlimited data and can easily teather it from my phone on the go or use wifi. To be honest, i can easily deal with a smaller hard drive if especially if it lowers the price and they get the the SD card working.

working flash, working SD card storage, hard drive - don't care about the size, 3G/4G not going to use it anyways. Give me that at or close to $500 and i'll bite.

 

[johnwfrancis]

I believe people have seen leaked Sam's club advertisements indicating a 569 (or thereabouts) wifi only Xoom. I'm too lazy to Google for confirmation.

 

[preViously]

If I do get the Xoom, I will definitely get the wifii version. I do not need to use it outside of my home really. I do not want a contract either.

I think I will wait for other companies to release their Honeycomb tablets though.

 

[dhendriksen]

I coughed up the $789 for one at Costco, but if they came out with a 16GB version for cheaper I would take mine back and exchange it. I think I want to keep the 3G/4G radio because I feel like tethering is a bit of a hassle (it kills the phones battery and ties it up so you can't make a call).

I agree that $789 is a lot, but it is a really cool device. I don't regret buying it.

 

[wynand32]

Last week's tablet comparisons did not mention price: iPad 2 versus Honeycomb (and others).

The iPad without a data plan starts at $399. The iPad 2 is $499. The Xoom without a data plan is $799.

Apple uses their basic models to get people into their stores. Many then move up.

The Xoom bill of materials 359.92 is probably close. If they drop to 16GB and take out the 3G and 4G, the cost drops about $50. Motorola could still make good money at $499 and at least match the iPad 2 price plus the Xoom has the microSD slot.

What do you think? Does the Xoom need an less expensive, WiFi only model?

Thanks!

People really misunderstand how tech products are priced. Motorola has to cover ALL of their costs when they sell a product, not just what it costs to manufacture a product + some amount of net profit. What really matters is gross margins, that is, revenues - cost of manufacturing, which is then used to cover everything else that makes up a company, such as non-manufacturing labor, R&D, engineering, facilities, legal, taxes, etc., etc. Tech companies are expensive to run, and so gross margins tend to be higher than for many other kinds of companies (e.g., grocery stores).

In fact, gross margins in the tech industry run around 65%, e.g., Intel reported 66% gross margin across their entire product line for 2010 and that was considered in line with analyst expectations. Therefore, if the bill of materials alone (not including manufacturing labor, shipping, etc.) is really $359, then Motorola's already significantly undercutting their gross margins at a sale price of $800.

Drop to a manufacturing cost of $300, and one would still expect a selling price of around $800. If Motorola sold at $499, they'd not be making enough gross margins to contribute adequately to their overall cost structure. If they did that for all of their products, they'd go bankrupt.

I'm not saying here that Motorola couldn't choose to price aggressively to grab market share, but that wouldn't be a sustainable model for them.

 

[watchout4d]

People really misunderstand how tech products are priced. Motorola has to cover ALL of their costs when they sell a product, not just what it costs to manufacture a product + some amount of net profit. What really matters is gross margins, that is, revenues - cost of manufacturing, which is then used to cover everything else that makes up a company, such as non-manufacturing labor, R&D, engineering, facilities, legal, taxes, etc., etc. Tech companies are expensive to run, and so gross margins tend to be higher than for many other kinds of companies (e.g., grocery stores).

In fact, gross margins in the tech industry run around 65%, e.g., Intel reported 66% gross margin across their entire product line for 2010 and that was considered in line with analyst expectations. Therefore, if the bill of materials alone (not including manufacturing labor, shipping, etc.) is really $359, then Motorola's already significantly undercutting their gross margins at a sale price of $800.

Drop to a price of $300, and one would still expect a selling price of around $800. If Motorola sold at $499, they'd not be making enough gross margins to contribute adequately to their overall cost structure. If they did that for all of their products, they'd go bankrupt.

I'm not saying here that Motorola couldn't choose to price aggressively to grab market share, but that wouldn't be a sustainable model for them.

It always amazes me that people want companies just to give their products away. Let's be clear. The mistake Motorla has made is to not offer multiple options that is fair to the company and the market.

 

[scorpiodsu]

Yes they need a cheaper wifi version asap. It's nothing wrong with having the 800 (or 600 or contract) 3G/4G version but that can't be your only option at launch. If anything, the Wifi version should have been first followed by the carrier locked one. You cannot bring a new product to the market as your first product of it's kind and price it a significant amount higher than the market leader's product.

New entrants usually have to price just as competitive even if that means lower profit or even loss. That's the cost of entering the market and gaining market share. Once established then you can start offering higher priced products.

 

[scorpiodsu]

Drop to a price of $300, and one would still expect a selling price of around $800. If Motorola sold at $499, they'd not be making enough gross margins to contribute adequately to their overall cost structure. If they did that for all of their products, they'd go bankrupt.

I'm not saying here that Motorola couldn't choose to price aggressively to grab market share, but that wouldn't be a sustainable model for them.

That sounds good in theory but over pricing yourself and not moving the products is just as bad if not worse than selling for lower margins. At least selling for lower margins provide market share and recognition that way you can make larger profits on future devices. But pricing too high doesn't move your products nor give you market share.

 

[wynand32]

That sounds good in theory but over pricing yourself and not moving the products is just as bad if not worse than selling for lower margins. At least selling for lower margins provide market share and recognition that way you can make larger profits on future devices. But pricing too high doesn't move your products nor give you market share.

My main point is that people seem to think if a tech product costs $300 or whatever to make, then a good price to sell it at is just a little over that. Of course, pricing decisions are more complex, but if Motorola can't sell the Xoom at a price that affords them the required margins, then they likely simply shouldn't be in the business.

In short, the $799 for the Xoom 3G/4G 32GB is a good price that's both competitive and apparently profitable. Motorola simply has no need to price it lower at this point--I'm sure they're not shooting strictly for market share here but rather wanted to be first to market with a Honeycomb tablet.

Once the 32GB wifi-only version comes out, assuming that drops their costs enough, we'll see the Xoom priced more competitively with Apple's entry-level, which as some others have noted is the real issue here. It's not that the current Xoom is too expensive, it's that there's no lower-priced entry.

 

[scorpiodsu]

My main point is that people seem to think if a tech product costs $300 or whatever to make, then a good price to sell it at is just a little over that. Of course, pricing decisions are more complex, but if Motorola can't sell the Xoom at a price that affords them the required margins, then they likely simply shouldn't be in the business.

In short, the $799 for the Xoom 3G/4G 32GB is a good price that's both competitive and apparently profitable. Motorola simply has no need to price it lower at this point--I'm sure they're not shooting strictly for market share here but rather wanted to be first to market with a Honeycomb tablet.

Once the 32GB wifi-only version comes out, assuming that drops their costs enough, we'll see the Xoom priced more competitively with Apple's entry-level, which as some others have noted is the real issue here. It's not that the current Xoom is too expensive, it's that there's no lower-priced entry.

When you say if they can't sell the Xoom at a price that affords them the required margins, that is assuming that Motorola isn't being greedy and trying to get high margins.

The point is you don't start out in the market with the highest priced version of the product. Of course every company wants to make good margins but sometimes you have to sacrifice that margin to get into the market. And pricing yourself out the market neither helps your margin or market share. How do you think Android devices sold so much in the US over the past year and a half?.... by being able to sell at lower prices than the iPhone. While the iPhone was selling at no less than 200, Android devices were undercutting the price along with doing buy 1 get 1 free. This allowed them to moved many devices and gain market share and recognition so now when they drop a device for 249 they don't have to offer buy 1 get 1 on it because they already have established themselves.

I don't care what anyone says, you don't start off that high and think because you slap a high price tag on it or because it cost you a lot make the device means it's not overpriced. It reminds of someone who tries to flip a house. Because it cost them more than they thought it would they think they can just tack on the extra cost on the selling price so they can get a bigger profit and then their house just sits on the market because it's overpriced REGARDLESS of how much they spent on it.

 

[eric6052]

Yes they definitely need a lower priced wifi only model and soon. Im in the process of getting my wife a tablet for her birthday and the price issue has pushed us to getting the iPad 2. If the $539 price at Sams club turns out to be legit we will absolutely get the Xoom but we have no need for 3g/4g.

 

[wynand32]

While the iPhone was selling at no less than 200, Android devices were undercutting the price along with doing buy 1 get 1 free. This allowed them to moved many devices and gain market share and recognition so now when they drop a device for 249 they don't have to offer buy 1 get 1 on it because they already have established themselves.

Methinks you didn't read my entire post, but regarding phone pricing, you're confusing what manufacturers sell them to carriers for and what carriers sell them to subscribers for. Carriers, of course, sell at highly discounted prices because they more than make up the difference in wireless service fees. Indeed, that's their entire business model.

Motorola and other manufacturers, though, I guarantee you sold them to carriers for prices that allowed them to enjoy industry-standard gross margins. And that's not "greed," that's just business necessity.

 

[terrain]

799 a good price for the zoom? Do you own one?

I am really liking my zoom but eight hundred dollars is too much in this market. I hope the hair over five hundred dollar wifi only turns out to be true.

 

[scorpiodsu]

Motorola and other manufacturers, though, I guarantee you sold them to carriers for prices that allowed them to enjoy industry-standard gross margins. And that's not "greed," that's just business necessity.

We can agree to disagree. Like I said it's much better to get smaller margins or far more products than to get larger margins on a lot less. Just as an example:

Say Motorola makes a $250 margin on each Xoom. And sold 150,000.

That's 37.5 million

Now let's say they lowered the price cutting their margin to $125 per device but sold twice the amount.

That's also 37.5 million.

So what I am saying is that it is better FOR A NEW ENTRANT to sell more with a lower margin per device than to sell a lot less for a higher margin because at this point in the game where the market already has a leader and a much of tablets are coming out, it's more important to have your device in more hands. That's what I am saying. And you don't have to agree with that but for any new entrant to any market, it's more ideal to still make a good margin WHILE selling a lot of devices than selling few because then you'll have a lot of devices just sitting on the shelved that you will have to have a fire sale for later on decreasing your margins (or even giving you a loss).

And again, we aren't saying that the current Xoom model is exactly overpriced, we are saying they should have come out with a cheaper model. That's a big difference. You don't start with the highest priced one. Period. You don't have to agree with that, but it's quite obvious they need to release a wifi-only, cheaper version (which should have been released first) asap.

 

[scorpiodsu]

799 a good price for the zoom? Do you own one?

I am really liking my zoom but eight hundred dollars is too much in this market. I hope the hair over five hundred dollar wifi only turns out to be true.

Exactly. Those things would have been flying off the shelf with a little better marketing AND a cheaper wifi version and then a little while later you launch the 4G version (with it already built in) at the higher price. It's just dumb to think hundreds of thousands of people are going to drop 800 bucks for something they hardly know about.

 

[deferom]

Yes. It's why I'm going iPad.

Sent from my HTC EVO 4G.

 

[horatiopositronic]

I really want Motorola to release a wifi-only version. I would love to buy a Xoom but I don't want to give Verizon my money (I deal with some of their not-wireless stuff at work, and they have such horrible customer service that I refuse to do business with them personally).

I also have a Nexus S that makes a very nice portable hotspot so getting a data plan for a tablet seems redundant.

Price isn't even my issue, but the rumors of the mid-$500 range sound good to me.

 

[SuperWario89]

i'm also hoping for a 500 dollar xoom... i dont support apple so i wont get an ipad, but i also cant justify spending 800 on a xoom when i wont have a data plan since i cant afford to pay verizon that kind of money....

as a college student, i try to save everywhere i can.. hence why i switched to sprint for my cell service.

i'm probably going to wait until summer and see what the tablet world has to offer. in all honesty, i might end up with a blackberry playbook (thats assuming that the rumors about it running android apps is true). i loved my blackberry when it came to its messaging ability, but it was so lacking in apps and in overall technology. if the playbook can run android apps, and has the same great messaging capabilities that blackberries have had for years and has a good browser and screen then i will mostly likely end up with that. also assuming they have a wifi model for around 500 or less

 

[elchulo17268@yahoo.com]

The xoom is too expensive.I like to see a wifi version for about $500.I currently own the galaxy tab and hope to get that 3.0 love soon.