Apple along with it's iPad (and iPad 2) have taken the tech industry by storm in the tablet market, and competitors have been pricing their devices higher than Apple. Apple is known as a premium brand, and it makes little sense for Motorola and other tablet makers to charge more. The Motorola Xoom has been on sale for 4 months now, and has just dropped the price to $499 for the Wi-Fi only model (and it includes a free case).
The Motorola Xoom has doubles the on-board memory of the baseline iPad 2 to 32GB and has a slightly larger 10.1" display. Resolution of 1280 x 800, and includes a microSD slot for further expansion. It essentially matches the iPad 2 on battery life, and includes a more customizable operating system along with an upgrade for compatibility with the Verizon 4G LTE network.
It is unclear how many Motorola Xoom's have been sold, but this price drop seems like bad news so far...