As Steve Jobs ably pointed out, pundits had predicted that Apple’s iPad would sell from anywhere between $700 and $999. Apple, though, shocked everyone when they priced the base model at just $499 in an attempt to get into as many hands as possible. Apple’s surprise pricing structure not only caught the public off-guard, but is also forcing Tablet PC manufacturers like Asus and Micro-Star to adjust the prices of their own products accordingly.
The vendors originally planned to offer prices pegged at 20-30% lower than the Apple iPad, while they generally expected the device to cost as much as US$1,000. The US$499 entry-level price has caught vendors by surprise and means they will now need to adjust their price scales even lower to attract consumers, the sources pointed out.
However, starting a price war at below US$499 raises concerns that any profitably will be driven out of the nascent tablet PC market, before it even has a chance to take off. Vendors are currently evaluating their strategies hoping to avoid price competition, the sources noted.
You have to wonder when margins will get so low that the entire “sell on volume” business model will be called into question.