Love it or hate it, the $499 entry level iPad is much cheaper than anyone expected. Tablet PC makers which were hoping to ride the wave of enthusiasm Apple was bound to kick up, are now being forced to step back and really question if they have what it takes to compete. Unnamed sources from within Asus and MSI claim they were counting on an iPad that would debut at $1,000 or more, making room for a more powerful and open device for $200-$300 less. Now that the new price to beat is less than half of what they expected, they will need to determine how they will differentiate if they can't win on price.
Apple made a lot of questionable decisions in the design of its new tablet, but its difficult to argue with their business intuition. They clearly understand that in order to create and hold on to early adopters, they will need to lock as many people as possible into the iTunes application ecosystem, even if that means sacrificing their usual fat margins to do it. They are willing to risk making a small profit on the entry level device with the hope that they might convince you to upgrade to a more expensive model when you reach the store, and if all else fails, make up any lost revenue when you come back for accessories or hit up the iTunes store.
The iPad has some pretty serious limitations, sure, but can a $500 tablet PC running Windows 7 really take on Apple?