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Comment by corin_ | Hacker News Reader

While selling at a loss to make profit on software doesn't look feasible in this market, here's an alternative suggestion, though I'm not sure if this is feasible either - just more likely than the first option.

Sell loads at a loss, I mean really loads. Announce that the platform isn't dead after all. Use the fact that so many people have the devices to bring in app developers, make it a more desirable platform. Then, when their future devices sell for a profit, people will actually want them.

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This has been forwarded before and I agree with detractors to this kind of thinking.

First, HP is a big company that has much better ways to turn money into more money than making something people are unwilling to buy at a reasonable price.

Second, growing the webOS ecosystem in this way founds it on false principles. Everything that seems to work when you're selling for a loss, might not work at all when you're selling for a profit. Just imagine if HP started off selling a $99 TouchPad, blowing out the doors, piling up billions in debt, and then found out everyone wanted an iPad when the price went up to $500. Oops.

The best modern example of this I think is Groupon. Groupon has been growing like crazy by taking a huge loss. For every dollar it takes, two dollars go out the door in the form of advertising and client acquisition.

Groupon is already of questionable value to some businesses. When the time comes for Groupon to fix its profitability the value proposition may be lost entirely.

I might note that Microsoft lost money on every XBox initially. But gaming was a different business.

A business where they can extract enormous licensing fees from content sold at a much higher price point.

You are quite right. iPad apps have a much lower price point. Apple could have extracted significantly more rent if they hadn't allowed free apps.

But I doubt that the ecosystem would be anywhere near as large if the had, so doing that could have ended up making them a lot less money.

Exactly. The sort of people that are buying a Touchpad right now aren't the same type that will buy a $500 device and spend several hundred more on apps.

Heck, I'd like to buy a Touchpad at $99, but only because I'm interested in getting Android to run on it, which is probably the last thing HP wants.

I was going to disagree but then I worked out the numbers and it doesn't fly.

Suppose they invested $1b more. At a loss of $150 / device that would let them put ~6 million devices into the ecosystem, not counting phones. 6m devices would get it off to a start but it is still not enough to get it within an order of magnitude of the iPad and probably won't even get you ahead of the plethora of Android makers who will most likely sell more than that combined.

If you can't pole vault at least into a solid second place then you've essentially made no strategic gain at all - you're just in a slightly better third place.

The model could work like the console market. Sony and Microsoft both initially sold their core hardware at a loss with the hope of making up the difference in game license fees and big margins on peripherals.

However, it'd be a pretty tall order to get $200+ dollars per person out the HP App Store especially when Apple has pushed the expected price down to $1 for most apps. Also, with a device price so low I'd have to think you're already targeting the cheapskate market to begin with, so there is no reason to think these particular customers would be willing to buy tons of apps.

Clearly you'd prefer to be Nintendo and sell the hardware for a profit while also collecting generous license fees.

Actually I bet Apple could pull that off, if they charged more overhead for iTunes (audio & video). $199 iPad with included Apple TV -- might work.

If their market share ever dips dangerously low it could be a good option.

Being able to sell a $500 product for $200 says nothing about whether anyone would buy version 2 or 3 when the price goes back up to $500.

Costs will decrease in the meantime.

Unlikely, unless you keep the same spec. If you want to remain competitive with Apple and Android, you're in a spec. race and now you've raised expectations, you need to match them.

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