The problem is with the pricing. As someone else mentioned, they wanted to take the fight to the Kindle Fire and hence started at $200. I get that.

However, I still think that Google could have taken control, and released it's own hardware (although the Nexus 7 is an Asus tablet first shown at CES ... mostly) with some profit($249 as the starting price) built into the equation, and still sold boatloads.