PlayBook vs. iPad. Can RIM compete with a Discounted Tablet?

Some lessons are learned the hard way. When Research in Motion decided to jump into the tablet space, some saw it as a defensive move. But the Waterloo company’s eyes must have been wide looking at sales of Apple’s iPad. During 2010, Apple sold 14.8 million iPads worldwide, and have since gone on to top forty million units.

The iPad has left the competition in its wake. Competitive tablets have made a dent, but barely. The coveted device’s share of the market is still an imposing 68% heading into the holiday season.

But if there is a crack in the iPad’s armor, and that’s a big if, it may be price. This past summer, Hewlett Packard decided the iPad was too big a foe to take on. On August 18, less than fifty days after its HP TouchPad debuted, the company axed the product and cut the price to clear inventory. HP offered the 16GB TouchPad for $99 and the 32GB model for $149. The result was a frenzy that actually caused HP’s website to temporarily crash.

Tony Bradley of PC World said the HP experience was a turning point in the tablet wars. “The demise of the HP TouchPad provides a cautionary tale for the makers of iPad rivals” he said” The real lesson of the HP TouchPad, though, is what a blockbuster success it was once the price was dropped to something more reasonable, and more in line with its actual value.”

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Since the demise of the Touchpad a slew of cheaper tablets such as the Kobo Vox, The Kindle Fire and the Barnes and Noble Nook Color have begun to carve market share.

With Playbook sales lagging, (IDC reports RIM was able to secure just 4.9% of the tablet market in 2011 ) and an inventory buildup that is approximately three-quarters of a billion dollars more than it was just six months ago, RIM decided, last week to offer promotional plans that lead to retailers slashing the price of Playbook’s by $300.

The good news is that the estimated 700,000 current owners of the Blackberry tablet are about to get a lot of company. The bad news, at least for RIM and perhaps its shareholders, is that the company is doing it at fire sale price.

At the new prices BlackBerry Playbooks are becoming hard to find.

CNET’s Brooke Crothers, points out that the Playbook is currently listed as “unavailable” at most Best Buy stores in the U.S. “For example” he notes “a Best Buy in suburban Los Angeles said it had sold out of the $199 PlayBook “a couple of days ago.”

The 16GB version of the Playbook is currently sold out at WalMart in Canada. While Future Shop has limited all three Playbook models to to one per household.

The general reaction to the RIM tablet at the new price is positive. CNET today listed the BlackBerry Playbook as one of its Best 5 Black Friday Finds gushing that “Considering the Amazon Kindle Fire only offers 8GB of on-board storage, 512 MB RAM, lacks Bluetooth and cameras, the 7-inch BlackBerry PlayBook makes up for all the Fire’s hardware shortcomings without adding to the pricetag (at least for the 16GB version). For $199, you get 16GB of storage, a great looking and multitasking OS in QNX, a micro-HDMI-out, video chats with a 3-megapixel camera, and can pair your BlackBerry phone to a larger 7″ screen. ”

And Moneyville’s Mike Salzman, who was negative on The Playbook at its original price conceded that “It’s great for consuming media, surfing the web and reading ebooks – and blows away the similar-priced Kobo Vox and Amazon Fire from a hardware perspective.”

RIM insists the price cuts are temporary, but the question will, of course, be put forward. Can RIM succeed in the tablet space with a bargain priced Playbook? A look beneath the hood suggests RIM may have an engineering advantage that could allow some wiggle room.

Outside of research and development costs, the cost to produce a BlackBerry Playbook is $205. The cost for an iPad? About $280. The HP TouchPad’s Bill of Materials is $296.15 for the 16GB and and $318.15 for the 32GB. While the Amazon Kindle Fire costs $201.70 to make.

Amazon loses money on each Kindle Fire it builds, but the potential to recoup cost by selling e-books and video content is seen by many as solid business strategy.

With an original retail price of $499, Research in Motion clearly did not intend to lose money on The Playbook. But could RIM now have success recouping the approximately six dollars it loses selling 16GB Playbooks?

The company has been roundly criticized for the lack of availability of apps, both from consumers and from developers. But at the recent Blackberry Development Conference in San Francisco RIM’s new Vice President of Developer Relations, Alec Saunders, said BlackBerry App World generates more paid downloads than the Android Market, and is the world’s second most profitable app store behind Apple’s App Store. Luring developers to BlackBerry is key for RIM if they are ever going to build a content downline that can compete with the likes of Apple and Amazon. With more Playbooks in the hands of consumers, regardless of the price they paid for the device, that task will be easier to accomplish, however unwittingly the business model was arrived at.

Analysts will no doubt be waiting on the Black Friday PlayBook sales numbers that should easily surpass the number of existing users.

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