Xoom Struggling, iPad 2 Nearly Sold Out

As the cliche goes: you don't get second chance to make a first impression. And that appears to be true for the already beleagured Motorola Xoom. Hailed as the "iPad Killer" it's proving to be anything but with sales that are reported to be "weak" according to some financial analyst.

The Motorola Xoom received mixed but generally favorable reviews when it was released in late February. But consumers generally aren't buying the device. This is in part because of the anticipated arrival of the iPad 2, which is now either sold out or almost sold out of its initial supply. But equally inhibiting consumers is Xoom's $799 price tag. (There have also been reports that Honeycomb is buggy.)

Despite the fact that the Xoom has been called "bloated" and "obese" next to the thinner iPad 2, it's the pricing decision that has hampered initial sales of Motorola's first generation tablet. Much has been written about Apple's economies of scale and retail distribution advantages in keeping prices down. However it was pure hubris on Motorola's part to introduce the device at a price point $300 higher than the WiFi version of the iPad.

While a comparably equipped iPad is closer to the Xoom's price, it doesn't matter. There's one Xoom and it costs $800. You can get an iPad 2 for $500. The marketing and psychological impact of that gap is quite significant. (You can get Xoom for $599 with a 2 year contract from Verizon; however the majority of iPad sales were the WiFi only device.) 

The higher Xoom price might be OK if the Xoom were truly and obviously a superior product. The opposite is true however. The Xoom's battery life is shorter and inconsistent according to various reviewers who've been testing the device. In addition new performance benchmark tests just released, the iPad 2 outperformed Xoom across the board. Cumulatively this is all bad news for Motorola. 

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When Xoom's pricing was first announced earlier this year I wrote:

The $800 pricetag is a strategic blunder by Motorola. The cheapest WiFi version of the iPad (with iPad 2 coming in March or April) is $499. The high price is likely to dampen sales, especially when the iPad is "the brand" and Motorola is the upstart/insurgent.

The Galaxy Tab was priced initially at $600, which was also too high. A better out-of-the-gate price for Xoom would have been $599 or maybe $699. At $799 people are going to think twice and with an iPad right there . . . opt for the iPad. 

In order to salvage Xoom 1.0 Motorola will need to cut the price by $200 (for the unlocked version), which would mean little or even no margin on the device. Alternatively Motorola might focus on the 7" tablet category, which is still open to competition because Apple doesn't have a product there (yet). 

Notwithstanding some early sexy commercials and claims by Motorola, it was almost always clear that Android tablets would compete on price and Xoom has failed to defy that prediction. Now Motorola must lower Xoom's price or pin its hopes on the next tablet. 

See related: Interest in iPad 2 far outstrips interest in rival tablets