Nexus 7 Not Turning Any Profit For Google


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As you probably know by now, during their keynote at the Google I/O 2012 conference yesterday Google unveiled the new Nexus 7 tablet. This 7-inch tablet (hence the name) packs a pretty impressive feature set, including a 1280x800 display, 12-core GPU, NFC, and a solid battery. To make it even more impressive, Google has priced the tablet at an extremely competitive $199. That's the same price as a Kindle Fire or a Nook Tablet.

For Google, though, the aggressive pricing strategy for the Nexus 7 comes at a cost (pardon the pun). Google's Andy Rubin told AllThingsD yesterday that Google's margins on the Nexus 7 are basically nonexistant. Google is selling the Nexus 7 through the Google Play store "essentially at cost." That means that Google is basically eating all marketing costs associated with the Nexus 7.

The question, of course, is why Google would do such a thing. The answer is content. Google's strategy is founded on the idea that, as Rubin says, customers buy tablets as a means of accessing a content ecosystem. Hence the success of the Kindle Fire and the iPad. Both Amazon and iTunes had sizable (and extremely popular) content ecosystems in place before their respective tablets hit the market. So when you buy an iPad, you're not only getting all the cool features of the iPad itself, you're also getting access to the content that Apple can deliver - apps, movies, music, and books. While Apple has managed to turn a tidy profit on the iPad, the 7-inch tablet market is a bit tighter. Consumers don't expect to pay much more than $200 for a 7-inch tablet.

So what Google has done with the Nexus 7 is take a top-of-the-line 7-inch tablet and turn it into a loss leader. It's the razors-and-blades, printers-and-ink model. Gilette makes its money on razor blades, not the razors themselves. HP makes money on ink cartridges, not printers. Similarly, Google is hoping to make its money from Google Play, rather than the Nexus 7. It's a fairly sizable gamble, especially since, as Rubin says, Google's content ecosystem is what has been keeping customers away from Android tablets.

The Nexus 7 is available for pre-order right now on Google Play, and is scheduled to ship in mid-July.