I remember early 2010 before the iPad turned into something more than a longstanding rumor. A lot of people were interested to see what Apple could do to jumpstart a tablet PC industry that to date had only drawn interest from a handful of tech enthusiasts. Sleek design, intuitive features and mass market appeal went a long way, but what blew away a lot of people was the $499 price point.

Of course, there are more expensive iPads. The top end model with 64GB of storage and a 3G antenna costs $829, on par with the projected sale price of the new Motorola Xoom, but if you ask someone how much an iPad costs, most would say “$500”.

What about the New Guys?

With that in mind, can new devices compete with Apple when their starting price points are so much higher? A lot of the excitement surrounding the Xoom was tempered when we found out it would ship at $799 with a WiFi only model available for $600. The Galaxy Tab only gets under that magic $500 price point with a contract through a mobile carrier.

And it’s not as if Apple takes a hit on profits. I believe Apple likely makes the same amount of profit on their devices, regardless of a $500 price point, as Motorola, Samsung, RIM, HP and LG are likely to make with their new tablets. The difference is in the economics of scale. Apple produces significantly more devices when they launch a new product – they have a worldwide brand they can mobilize to sell those products. And now that Apple has taken such a commanding lead in the early tablet market, they can afford to keep their price points low going forward.

The cost of components are such that, unless a manufacturer plans well in advance, shoring up stockpiles of key components (especially those screen materials), they cannot afford to compete on certain levels. Apple’s moves in January to invest $3.9 billion in long term contracts for certain components show what a company with so much cash and an existing market so large can afford to do in shoring up its competitive advantage.

Remaining Profitable

The cost of components is always shifting and so too will profit margins for these companies. I’m hopeful that pricing will not harm companies that aim for innovation in the tablet market. Companies like Motorola and Samsung need to make a profit to stay in business. They cannot afford to cut their margins too thin just to compete with lower priced devices.

And as consumers, we need to remain supportive of higher priced devices with advanced technologies, especially if we ever want their prices to drop. Because unless they develop a stronger following, these other companies will never have the leverage needed to make the same investments as Apple.

How much should a tablet cost? I feel that functionality dictates a lot of the cost. An entertainment focused device like the iPad or Galaxy Tab should cost what a reasonable consumer can afford to pay – $500 seems to be the magic number. But, larger, more powerful tablets can and should be able to sell for slightly higher price points. What that number ends up being remains to be seen, but as long as consumer interest is there, hopefully it will remain low enough to be affordable. And for those companies that can afford it, WiFi only models and smaller screen sizes will be effective ways to provide a reduced cost lineup for entry level tablet users.

The other day, rumors of Microsoft addressing the growing tablet market were circulated, discussing a major announcement at the upcoming CES in January. Presumably at the Microsoft Keynote, Ballmer will showcase some of what we’ve already seen from a recent New York Times article about Samsung’s newest Windows 7 tablet. There are, of course, rumors that Ballmer may throw a curveball our way with an unveiling of Windows 8 functionality on tablets, especially with the expected Apple announcement of the iPad 2 probably coming sometime in January or early February.

With all that said, I find the news from Microsoft interesting, but not necessarily as encouraging as I would have liked. Don’t get me wrong. I love my Windows on tablets and have for many more years than most consumers were aware tablets existed. However, right now the tablet industry is growing rapidly and while hardware is a big reason, the software interfaces of iOS and Android are what make these devices so accessible to their users.

So, when details leaked that Samsung’s newest device, the Gloria, will have a touch-centric portrait interface and a traditional Windows landscape interface, I wasn’t sure what to think. The idea of convertibility in business tablets isn’t new by a long shot. The TegaV2 did it in another way, with dual-boot Android/Windows while other devices like the Inspiron Duo converts from netbook to tablet PC on the fly.

And then there is RIM which has been making hefty claims recently about how their tablet will “redefine what a tablet should do”. I can’t see them producing anything that completely revolutionizes the approach that Apple seems to have forced so many other developers to take, but while consumer tablets are starting to look very much alike, there is still a very wide open field for the business market – arguably the much harder group to placate.

And that brings me back to Microsoft, because frankly, this is a company with the largest business user install base in the world on traditional computers. But, they’ve fallen behind in all things mobile and it’s partially because of a lack of innovation. They continuously play catchup, as can be seen in their recent Windows Phone 7 launch which doesn’t seem to be doing as well as they had hoped (despite a slick interface and solid reviews). Right now, a company that pretty much had the tablet OS space to themselves for the last 8 years has been marginalized as most new tablets are sporting Android or some other non-Windows interface.

Yet, Windows 7, while decent on a tablet, is not designed for tablet use alone, and powerful software tools like Microsoft Office still cannot stand alone on a tablet without some upgrades like InkGestures or Thinix – great tools but necessary add-ons for full tablet functionality.

I don’t know what Microsoft will show to us in three weeks, but I’m hoping it’s something new and exciting. They really need to blow people away with something that allows for the kind business use that many tablet owners have been waiting for or they’re looking at yet another market that they cannot quite catchup to.