Since it was unveiled at the Consumer Electronics Show last January, the Motorola (NYSE: MOT) Xoom tablet has been hailed as the strongest challenge yet to Apple's (Nasdaq: AAPL) iPad.
However, it faces two possible obstacles to widespread acceptance: Its price, and its lack of a WiFi-only version.
Motorola Xoom
The Xoom has both 3G and WiFi capabilities, and it's offered at a price of US$800 without a carrier contract. It can be had for $600 if the buyer signs a two-year contract with Verizon Wireless for data services.
Apple, on the other hand, offers iPads with or without 3G capabilities. Prices for the latter range from $500 to $700, and for the former from $630 to $830.
So for buyers who want a WiFi-only model and don't want to incur the cost of 3G communications, the advantage is to Apple, at least for now. But more on that later.
The Unbearable Lightness of Lacking WiFi-Only Models
What about consumers who only want a tablet with WiFi and don't care to rack up charges for cellular data use? What proportion of tablet buyers want the WiFi feature only?
"About a third of iPad buyers got the 3G model, but only about one third of them turned 3G on," Rob Enderle, principal analyst at the Enderle Group, told TechNewsWorld. "They bought the 3G capability as insurance since you can't add it later."
Only about 10 percent of iPad buyers turn on the 3G service, Enderle said, adding that purchasers of the Samsung Galaxy Tablet were in line with this trend.
In other words, quite a few people buy the iPad only for its WiFi capabilities. Customers who desire the same thing from Xoom would have to choose between paying a monthly bill for something they don't really want or paying top dollar for hardware they don't need -- the embedded cellular data chip.
So what's Motorola going to do about this?
"We have not yet announced a WiFi-only Motorola Xoom for the U.S. market, but did announce that they would be coming to the Europe market in Q2," Motorola Mobility spokesperson Kira Golin told TechNewsWorld. She declined to discuss whether or not a WiFi-only version of the Xoom will be offered in the United States.
The 3G or Not to 3G?
On the other hand, perhaps a SKU with WiFi-only is overrated as a consumer draw.
"ABI Research estimates that only one in three U.S. homes have WiFi home networking," Jeff Orr, a senior practice director at ABI Research told TechNewsWorld. "This limits the opportunity for media tablets that rely upon WiFi or require a mobile broadband modem for basic connectivity to the Internet."
However, the majority of media tablets sold in 2010 only had WiFi support, although a few vendors, including Samsung, offered only models with 3G connectivity, Orr pointed out.
"Given the introduction of tens of new products in 2011, most manufacturers will differentiate by price, and value-add features that increase costs such as 3G, 4G, GPS and rugged enclosures, will be the first to go," Orr predicted. "In January, Samsung announced plans to introduce a WiFi-only version of its Galaxy Tab tablet, while even more companies are coming to market with only WiFi support."
That's the exact opposite of what Strategy Analytics Associate Director Martin Bradley sees.
"Our expectation is that the trend will be towards increasing adoption of cellular-capable devices, and consumer demand for wide-area usage will naturally increase," Bradley told TechNewsWorld. "We believe around 50 percent of users in developed markets are content with WiFi-only devices, but the trend is downwards."
MOT in the WiFi User's Eye
Perhaps Motorola's decision relates to its marketing strategy. After all, the Xoom, as it's now designed, gives buyers the choice whether or not to use cellular data. If consumers are buying iPads with both 3G and WiFi capabilities to ensure they won't lose out on 3G, why shouldn't Motorola offer its Xoom to support both connectivity protocols?
"Motorola may be targeting an audience that expects mobility and isn't primarily using the tablet in and around the home," ABI Research's Orr speculated. "A mobile Internet tablet, designed to augment current usage habits for both laptops and smartphones, will include features and services tailored for on-the-go applications."
It's likely that Motorola is targeting mobile professionals and that a WiFi-only media tablet does not match this strategy, Orr pointed out. "The 3G-enabled Xoom is intended to address a specific market opportunity for prosumers and business professionals who want an Android-based tablet for applications that replace currently performing functions on a smartphone and/or a laptop today," he elaborated.
Money Talks -- but Listen Closely
The Xoom's price could prove to be a major issue for consumers. At $800 it's only $30 cheaper than the top-of-the-line 64GB iPad, which offers both 3G and WiFi.
"The Xoom's pricing is clearly at the high end of the range of current devices," Strategy Analytics' Bradley pointed out. "It's positioned as a market leader in the new wave of Android devices and runs the latest Android Honeycomb operating system."
"It's hard to price above Apple successfully, given folks think of them as a premium brand," Enderle said.
"Where are the $200 Android tablets everyone was talking about?" asked Andrew Eisner, director of community and content at Retrevo.
However, the high cost of the Motorola Xoom may be based more on perception than on reality.
The Xoom is more capable than the current iPad, Enderle contended. "With an Nvidia (Nasdaq: NVDA) Tegra2 dual-core processor and being upgradable to 4G LTE in a couple of months via a software patch, it has a much faster processor," he elaborated. "It's closer to what we think the iPad 2 will be."
On the other hand, the iPad 2 is expected to be announced March 2, and we'll then see whether Apple will price that device competitively with the Xoom.
Until then, it's not clear whether Motorola's holding off on offering a WiFi-only Xoom tablet in the United States is a canny marketing move -- or quite the opposite.
