What is Google Nexus 7's Business Model? | Hacker News Reader

What is Google Nexus 7's Business Model?

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15 pointsraganesh10 comments

I cringed a bit when the article mentioned that physical goods built the business case for Amazon selling the Fire at cost. I find it very difficult to believe that Amazon was banking on Fire customers purchasing significantly more physical goods; by that same logic, Amazon should get into the laptop business - do you see that happening?

More realistically, Amazon quickly realized that the tablet is largely a consumption device for high margin content. The lack of a keyboard and touch, along with other design differences, makes the tablet relevant for consumption. Also, Amazon wouldn't have built a closed app and content store system if they thought that physical goods would be the bulk of the business case.

The Fire is part of Amazon's push to ensure that as virtual content sales explode, they get the bulk of the pie.

This is exactly why Google has built the Nexus 7 - to get on the bandwagon for virtual content. If they sell a lot of Nexus 7s - they will definitely be upping their content portfolio on Play.

Google's Nexus line so far has been to set a standard for their partners to follow, in terms of price, features, and more importantly, to show the partners how they mess up Android with their bad customizations.

I believe Nexus 7 is intentionally designed to be too small to leave room for Android tablet partners to innovate. In all likelihood, it will be yet another successful failure by Google - by provoking partners and rivals to sufficiently respond to the Nexus 7, in terms of price and freedom (as opposed to the Kindle) so much that it makes Nexus 7 irrelevant.

It's going to be really tough to compete on price without slashing specs/quality. That's the part that confuses me here. At $250 or $299 it would have served the same purpose with the third party alternatives hitting closer to the $199 price point. If we look at the Android SmartPhone market only Samsung is really having a good time with it right now and that's in a market with carrier subsidies distorting the market and increasing margins. I can't understand why any OEMs would want to stay in this business now. They'd be better off building high margin accessories for Google's 0 margin devices instead of trying to compete against them.

The Android tablet ecosystem was stuck in a chicken/egg problem where nobody would develop for it until there was a market, and they'd be no market until there are tablet apps. A successful Nexus tablet increases the value of the entire ecosystem.

Also keep in mind that there -is- a margin for ASUS. Google's reference devices have always been a split where the OEM gets the hardware profit and Google controls the entire experience. The Nexus 7 follows the exact same model all of their previous efforts have.

Google's tablet business model is actually superior to Amazon's. Google has better ad. monetization than Amazon, and just as good a theoretical monetization of digital media (movies, music, and books).

Amazon has sustainable advantages in a shitty business (retailing/warehousing/shipping physical goods) but when it comes to digital media, it's just bits, a commodity. It is much easier for Google to sell digital content than it is for Amazon to monetize web browsing and email, which is what most people do with tablets.

Amazon is in a much superior position than Google in this competition. They didn't gain significance because of better tablet product or ad monetization; they are significant because of all the credit card information in their database before they entered the digital content delivery business. The friction from buying content on Kindle Fire is minimal, which is a deterministic advantage Amazon and Apple have over every other digital content provider in the mobile device market.

That is an excellent point. A track record of good customer service also means Amazon has an advantage over Google.

Note that it’s being sold through the play store (collecting the users card details) and comes with free credit for the store.

Exactly, "collecting", not "having".

Time will tell. I suspect that the digital media market is not large enough to provide meaningful subsidies at this stage, especially since a huge portion of tablet time is spent on the web and in email. When customers want to buy a movie, they'll probably use whatever ships on the device they have already purchased. The better device wins--people aren't going to choose a tablet based on customer service or even content selection; witness Amazon's failure in the music market.

If this is true, than Google has the stronger position, as they can afford deeper subsidies on the device through advertising. I don't know what Google pays to be the default search engine on the Fire or the iPhone, but it is significant.

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