This week Motorola silently dropped the price of their Xoom tablets by $100 in the US. In Australia it only just became available at JB HiFi this month for the somewhat pricey $684, although this is still price competitive with an iPad 2 at $677.  Their tablet has sold 250,000 in the first quarter of the year (includes both the 3G and Wi-Fi only versions) which compared to the iPads sales figures of 4.69 Million in the same period of time, 0.25 of a Million isn’t exactly spectacular.

If the iPad is proving anything it is that it is the product in town to beat. The problem is how to beat it on price and features and still make a profit. I have no doubt that Motorola are passing on the benefits of manufacturing and component cost savings now that the Xoom has been in production for half a year or so. The problem seems to be that the Xoom is not a compelling enough alternative to the iPad 2, which is thinner, lighter and faster (hard to measure but this comes down more to the operating system than the raw speed of the processor) with many, many more apps written for it (currently 230 for Honeycomb, and over 100,000 for the iPad). To start selling more Xooms will take much bigger price cuts than Motorola have given so far. Make the Xoom a clear $100 or $150 cheaper than the iPad 2 16Gb model and people will take notice. Then again it’s unlikely that Motorola will make any money from it if it does that, at least for the next twelve months before the component prices drop. By which time the iPad 3 or maybe even 4 will be released, pushing the goal posts and value proposition even further away.

It can’t be long before a lot of the tablet manufacturers start to question why they’re in this game at all.