Why the Google Nexus 7 Tablet is a Poorly Aimed Shot at Rivals

By MoneyMorning.com.au

While impressive in many ways, the Google Inc. Nexus 7 tablet unveiled will struggle in a market already teeming with offerings from other tech titans.

Key competitors include tablet market leader Apple Inc. (Nasdaq: AAPL), Samsung Electronics Co. (PINK: SSNLF), Amazon.com (Nasdaq: AMZN) and as of last week, Microsoft Corp. (Nasdaq: MSFT).

The 7-inch Nexus 7 certainly has a lot going for it, primarily its 1,280 x 800 pixel high-definition screen, a powerful quad-core NVIDIA Corp. (Nasdaq: NVDA) Tegra 3 processor and a reasonable price tag. It will run a new upgrade to Android called Jelly Bean.

Apparently the Google tablet, actually built by Asustek Computer (PINK: AKCPF) and co-branded with Google, is intended to re-energize a moribund Android tablet market that has failed to dent the dominance of the iPad.

“The tablet market is a major challenge for Google at this point,” Clayton Moran, an analyst at Benchmark Co. told Bloomberg News. “They need to have a competitive product with the iPad.”

Another goal for the Nexus 7 is to show other Android tablet makers how Google thinks it should be done. Analysts suspected similar reasoning behind the Microsoft Surface tablet unveiled last week.

Finally, Google said it wanted to use the tablet to push users toward its services like YouTube and promote sales of its apps through its Google Play store. With the Nexus 7 priced so low, Google will need to sell such extras to make any money.

It’s ambitious, but a flop could end up doing more harm than good to the Android platform.

The central problem for the Nexus 7 is not that it’s a poor product, but that it doesn’t have an obvious niche in today’s crowded tablet market. The Google tablet faces established competition from top to bottom – and especially at the bottom.

The Tablet Breakdown

The Apple iPad: According to research firm IDC, Apple’s tablet controlled 70% of the worldwide market in the first quarter of 2012. The tight integration of the hardware and software – both made by Apple – and vast app ecosystem has made the iPad the king of the tablets. Its starting price is well above the Nexus 7, but then the iPad screen is significantly larger at 9.7 inches. As usual, Apple owns the top end of the market. Given the Nexus 7′s smaller size and the iPad’s advantages, it’s unlikely Google ever intended its tablet as an iPad killer.

The Microsoft Surface: Although the Windows 8-powered Surface faces its own uphill battle against the iPad, it does present another high-end choice to tablet shoppers. Like the iPad, the larger form-factor and (expected) higher price of the Surface make it an unlikely direct competitor to the Nexus 7.

Other Android Tablets: With its impressive specs, Google’s Nexus 7 beats pretty much every other 7-inch Android tablet out there. If those devices were all Google had to worry about, it might have a success on its hands. But one 7-inch Android tablet in particular stands in the way…

That tablet would be The Amazon Kindle Fire. Looking at the Kindle Fire, it’s clear that this is really the product Google had in its crosshairs. Like the Nexus 7, the Fire is a color, 7-inch tablet. It runs an Amazon-modified version of Android.

And like the Nexus 7, the Fire is priced too low for Amazon to make much (if any) profit on the hardware. But the Kindle Fire is a loss leader intended to spur sales of Amazon goods, especially digital content like music, books and movies.

When the Fire sold like hotcakes during the 2011 holiday season, Google surely noticed.

“Google has to be more than a little frustrated that the first mainstream hit Android tablet is the Kindle Fire,” Tom Mainelli, an analyst at IDC, told Computerworld.

Google now appears to be trying to mimic Amazon’s model with the Nexus 7, but it faces several obstacles.

Nexus Versus Kindle

For one thing, Amazon is expected to release a Kindle Fire 2 at the end of July. The word from DigiTimes, a Taiwan newspaper that covers the electronics industry, is that the Kindle Fire 2 will have a 1,280 by 800 pixel high-definition screen and a front-facing camera, putting it on par with at least some of the Nexus 7 features.

But the Kindle Fire 2 may pack a weapon potentially more lethal to Google’s tablet – a much lower price.

The new Fire will look mighty appealing to price-conscious shoppers at the lower end of the tablet market. That could mean a lot of Nexus 7 models collecting dust on store shelves this holiday season.

Finally, as a loss leader the Nexus 7 is unlikely to make anywhere near what the Kindle Fire does. Amazon has a major edge when it comes to digital content.

“If Google is looking to take a bite out of Amazon’s share, it will find that it’s competing against a much more well-developed entertainment orientated platform with huge, well-organized catalogues of books and media content,” Salman Chaudhry, an analyst at research company Context, told The Guardian.

David Zeiler
Associate Editor, Money Morning

Publisher’s Note: This article originally appeared in Money Morning (USA)

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Why the Google Nexus 7 Tablet is a Poorly Aimed Shot at Rivals