(1) Collect Underpants, (2) ?, (3) Profit

Josh Topolsky, in two tweets:

Long and short is this: if HP had sold the TouchPad for even $199, it would have flown off the shelves.

Yes they would have burned a ton of cash at first, but they would have ended up with users. HP could afford it.

It makes total sense to me that the TouchPad is suddenly selling briskly, now that its price has been cut to $99 as HP sells off existing stock. And I agree that it would have proven popular if it had debuted at $199 retail. But I’ll bet they’d have lost $200 or so on each one at that price. And the more popular it had proven, the more they would have lost. Five million TouchPads at a $200 loss each is a billion-dollar bath. As of WWDC, back in June, Apple claimed to have sold 25 million iPads to date.

Sure, HP “could afford it”. (Or at least, they could have afforded it before they decided to spend over $10 billion acquiring Autonomy.) But how is that good business? What’s the eventual upside? Double the price of the TouchPad a year from now? That wouldn’t fly. Selling TouchPads at a steep loss wouldn’t just burn a ton of cash “at first”. It would burn a ton of cash continuously, every time one was sold.

Tweets lack depth, of course, so maybe what Topolsky is suggesting is that HP should have sold TouchPads at a steep loss when they debuted — but only as a limited time promotion. I.e., they could have made it clear that these were $499 devices but that you get one, right off the bat — say, for the first week or two — for $199. That might have actually made sense. Still, though, even if they’d sold 500,000 of them it might have cost $100 million. That’s a lot of money to spend on a promotion.

Sustainable businesses are built on profit.

Saturday, 20 August 2011

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