Google's Nexus 7 tablet move could be costly

Computerworld - A $199 Nexus 7 tablet from Google would raise the stakes for Amazon's Kindle Fire and Barnes & Noble's Nook tablet, which sell at a similar price and screen size.

But since the 7-in. touchscreen device is reportedly a quad-core tablet with other costly hardware, the Nexus 7 might also in some ways compete with the popular Apple iPad or perhaps the Microsoft Surface tablets unveiled last week. The iPad starts at $499; pricing for the Surface has not yet been announced.

To offer high-end features at a low cost with the Nexus 7, Google seems to be acknowledging that the Android strategy of having third-party companies make tablets hasn't worked. And that means Google must take aggressive pricing steps to make up the difference.

"If Google wants to jump-start the Android tablet market, which has been weak to date, then a low-priced, high-quality device could do that," said Jack Gold, an analyst at J. Gold Associates. "Google certainly has an incentive to make the Android tablet a competitive product in the market, and maybe driven more by wanting to capture a bigger share of the pie, than by supporting its OEMs (Original Equipment Makers)."

Google could be subsidizing the Nexus 7 to the tune of hundreds of dollars per tablet, some analysts said. Even so, "getting revenues is the name of the game for Google, and right now the OEMs are driving very little revenue to them on Android-based tablets," Gold said.

The big payback to Google from selling a $199 tablet would come from the sales of apps and the ads that Google sells for its search tool, analysts noted. "Considering that the tablet ecosystem war is getting heated now with Microsoft having a bigger role, Google might feel the need for a more aggressive [pricing] strategy," said Carolina Milanesi, an analyst at Gartner.

She said that 40 million iPad sales in 2011 at a cost of $499 or more show there's room for Android sales, especially at lower prices. "You would think that 40 million would not seem impossible for the combination of all the vendors supporting Android," she said.

IDC said iPads accounted for 59% of tablet sales globally in 2011. Among Android tablets, Samsung had 6.3% of the market, and Asus took 2.5%. Amazon had 6.9% of the market with its Android variant and Barnes & Noble had 4.9%.

"Google has to be more than a little frustrated that the first mainstream hit Android tablet is the Kindle Fire," said Tom Mainelli, an analyst at IDC. "Google is desperate to get some market traction for Android tablets and the Google ecosystem that supports them."