$199 BlackBerry PlayBook is Not Sustainable

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For the past week or so the BlackBerry PlayBook has been selling extremely well at the discounted price of $199. This low price is helping the PlayBook get into the hands of more people, and making the user base not only bigger, but also more diverse. Trying to help a friend buy one, has left me unable to find a 16GB version for sale anywhere online. As a developer this is all candy and rainbows as it means that there are more potential customers to sell apps to. For RIM however, continuing to sell the PlayBook at $199 is not sustainable.

There is no doubt that the bill of materials for the BlackBerry PlayBook is higher then its $199 sale price. Additionally once you consider distribution costs, and some profit for the retailers RIM is losing a significant amount of money on each tablet that is sold. While the idea of positioning a product as a loss leader is not uncommon, there isn’t too much upside for RIM in this case.

To begin with it positions the PlayBook as the equivalent of the Kindle Fire, or the Nook tablet. However, beyond screen size, these devices do not have much in common. The PlayBook has far higher quality hardware, and an easier to use UI. By pricing it at the same costs as these tablets it signals to consumers that the cost of tablets should be based on their screen size. Amazon has kept their bill of materials down by not including cameras, Bluetooth, Bezel controls, and hardware buttons and can break even at a lower price then RIM because of this.

The goal of a loss leader is to make the difference up in other revenue, but there is little chance of RIM doing so with the PlayBook. While RIM does take a 30% cut on all apps that are sold, after you account for credit card fees and the hosting and bandwidth costs of actually providing the store, RIM is not making much money from AppWorld. They are also not getting any revenue from the wireless carriers for the PlayBook. For RIM’s phones they are paid per subscriber for providing BIS/BES services, but because the PlayBook is Wi-Fi only they do not collect any revenue for this. (Is this why the PlayBook still doesn’t support BIS email?)

The only benefit that I can see is that it increases, the number of users on BBX, and therefore increases the benefit to developers on the platform. Hopefully to the point of attracting more and more developers by the launch of BBX phones next year. While there is benefit to RIM in launching their BBX phones with an ecosystem already in place, at some point a company needs their products to generate profits.

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