By: Zach Epstein
Google on Wednesday unveiled the latest version of its Android operating system and along with it, the company’s first own-brand tablet. Dubbed the “Nexus 7,” Google’s tablet is a direct response to the difficulty Android vendors have had thus far in competing with the wildly popular Apple’s iPad. The Kindle Fire burst onto the scene when it launched last year, but sales have seemingly fizzled since then and the buzz surrounding other Android slates has been tepid at best. If there’s one device that has the potential to change this, however, it’s Google’s new Nexus 7.
The Nexus 7 looks like an outstanding offering from several angles. A quad-core 7-inch tablet running the latest version of Google’s mobile operating system for just $199? Sign me up. But as sure as I am that this budget-priced tablet will find an audience — perhaps a sizable audience — Google just did its vendor partners a massive disservice by making it even harder to add value to future Android tablet offerings.
Google’s tablet is a fantastic-looking tablet. It features a quad-core processor, Android 4.1 Jelly Bean and a more sturdy build than many are used to seeing on an Android device. It also sports an unbeatable price tag. At $199, Google has matched the lowest price we’ve seen for an Android tablet from a top-tier vendor, and Amazon has been the only company able to pull it off thanks to the money it makes selling other Amazon services on the Kindle Fire.
Yes, Google’s margin is likely so thin that it will barely make any money at all selling its tablets at this price, and other vendors may find it impossible to cut prices this much and remain profitable — adding their own apps, services and other value-adds costs money that simply won’t be recovered at margins this thin. So why is Google launching the Nexus 7 if it likely won’t make any real money on sales?
For Google, this is a land grab.
Google is an advertising company first and foremost. Its products and services exist, at least in large part, to serve its clients’ ads to users. This is how Google makes the bulk of its money. Just like Facebook — whichGoogle is so desperately trying to emulate with Google+ — the more users Google reels in, the more money it makes.
The company loves to tout daily Android device activation numbers because at its core, it is an advertiser’s metric. This is the audience. Google confirmed on Wednesday that it now activates a staggering 1 million Android devices each day. 1 million! That number is positively remarkable. And the craziest part? It’s still growing.
Google is trying to spread things out a bit with the Nexus 7, adding a Kindle Fire-like model that makes the company’s various content services a central focus of the device. However successful or unsuccessful these efforts may end up being, they will always play second fiddle to Google’s core money-maker, which is advertising. This is Google’s mission.
Is Apple’s mission any more noble? Of course not.
Apple is a business — a ridiculously successful business — and its goal is to make products for as little as possible and sell them for as much as possible. Try as it might, Apple doesn’t make a significant portion of its revenue by selling ads, so the company has to make money the old fashioned way. Like other product vendors, it does this by taking advantage of cheap labor costs in China and Brazil, and then selling its wares at enormous markups. It also offers an expansive range of content through iTunes, which Google is now doing its best to match with Google Play.
Why does Apple make so much more money than its competitors? Simple: it’s better at playing the game. Late co-founder and CEO Steve Jobs surrounded himself with brilliant minds and collectively, they design gorgeous products powered by user-friendly software. Then, Apple spends $1 billion a year marketing them. Add in a remarkably simple user experience that makes it all too easy to buy music, movies and other content, and you have a recipe for success.
So, Google brought a knife to a gunfight. The hardware isn’t as sleek, the software isn’t as user friendly and the content market isn’t as established. It won’t beat the iPad, but it’s not supposed to. The goal isn’t to win the battle and steal iPad users from Apple, it is to undercut the iPad and grab as many new tablet buyers as possible in this emerging market. The goal is also to force other Android vendors to do the same.
Guns might win wars but knives are cheap and everyone uses them. By creating a low-cost tablet and forcing other vendors to do the same, Google is creating a scenario that gives Android its best chance of spreading in the ever-growing tablet market. There is no terribly compelling argument that might convince the mass market to choose the Nexus 7 over the iPad, and there is no innovative differentiation that might genuinely pique the mass market’s interest. Instead, there is a solid Android tablet, a comprehensive ecosystem and a rock bottom price tag.
Whether or not this model is sustainable remains to be seen — remember, Samsung is the only major global Android vendor making money right now — but in the near term it will likely help put Google’s services, and ads, in front of as many eyeballs as possible. And that’s the name of the game.