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How the £89 HP Touchpad Has Helped Amazon's Tablet Strategy

Like the explosion of a supernova, HP's decision to slash the price of the TouchPad tablet to £89 has allowed us to witness market dynamics that wouldn't have been otherwise observable.

It shows that there is a definite market for a branded tablet that costs around £200, which is half the price of the iPad 2.

That tablet though will need to come from a trusted tier-1 brand and although there are already decent tablets on the market at that price (Hannspree Hannspad, Advent Vega), they still lack the polish and the attention to detail that's expected from the likes of HP, Sony or even Amazon.

The latter is set to debut an Android-based tablet by the end of the year and while the bill of material of such a tablet could easily reach $300, it would make financial sense to sell the tablet at cost and rake in the profits from software and services.

And it has been done before; this is how Microsoft and Sony have been running their gaming businesses for years, on the basis that games subsidise the hardware.

Sony for example has been losing money on the PS3 for four years in a row and the Japanese company is set to lose around £40 on each PlayStation Vita.

Amazon is not currently losing money on the Kindle but faced with increasing competion from the iPad and rival Android tablets, it will have to take tough decisions in the long term.