Google Nexus 7 – Tech.pinions

Andy Rubin And The Curious Failure Of The Nexus Tablet

On Wednesday, Andy Rubin suddenly stepped down as the head of Android. The reason for this move is obscure. The most telling statement I’ve read on this, so far, comes from Ina Fried, at AllThingsD:

It was certainly a sudden move. Rubin had been confirmed to speak at our D11 conference in May; you don’t do that when you’re easing your way out. In the time between giving wide-ranging comments on Google’s plans two weeks ago and dropping out of a speaking slot at SXSW this past weekend, something changed.

The Trouble With Tablets

I do not know what suddenly changed, but one contributing factor in the change may have been Andy Rubin’s inability to translate Google’s success with handsets into an equivalent success with tablets. This must be particularly painful to Google since studies have conclusively shown that it is tablets, not phones, that best support Google’s advertising business model.

This past summer, I predicted that the introduction of the Google Nexus tablet would eviscerate the market for all other Android tablets. After all, the Nexus tablet was made by Google itself, was sold at cost, and would be competing on the basis of the sale of content, app and advertising revenue that was not available to the likes of Samsung and other Android manufacturers.

So far, my prediction has not come to pass, as Samsung has made modest gains in tablet sales over the past six months. But my failure to accurately foresee the future may have been more due to a failure on the part of the Google Nexus tablets, than it was of my analysis.

Low Tablet Sales

Google does not reveal their Nexus tablet sales numbers which is revealing in and of itself. However, Google cannot hide entirely behind a cloak of secrecy.

Source: The Yankee Group

The Yankee Group recently surveyed consumers, asking them which brand of tablet they intended to buy. The iPad dominated the discussion but the Google Nexus tablets garnered only 1% interest from the survey participants. ONE PERCENT.

How is that even possible? Remember, this is a tablet that is being given away for COST. And it is being given away for cost by the largest, most successful advertising company in the world. One percent interest in future sales is not just bad, it’s dreadful.

And it must be all the more galling to Google that Amazon – which is using a forked version of Android and an almost identical business model – has 7% interest. To put it in colloquial terms, “that just ain’t right.”

Low Tablet Usage

Source: Chitika

And if the unreported sales numbers weren’t bad enough, the usage numbers – 1.7% for all Google Nexus Tablets combined – are equally depressing. That’s just barely better than the rapidly failing Barnes & Noble Nook. It’s less than a quarter of the usage enjoyed by all Amazon tablets. And it’s barely 2% of the usage garnered by Apple’s iPads.

Remember, Google makes no income from the sale of their tablets. If Google tablets are not used, then they are useless to Google.

Conclusion

I doubt that tablet sales were THE factor that made Google suddenly change the head of their Android program. I think that the merger with Chrome was far more significant. However, I also have no doubt that Android’s lack of progress in tablets was A factor in the change…and a significant one at that.

Battle Of The Tablet Business Models: Google Nexus 7

RECAP

We’re looking at the tablet business models of Apple, Amazon, Google, Samsung and Microsoft. Today we focus on the Google Nexus 7.

3.0 Google Nexus 7

3.1 WHERE DOES THE GOOGLE NEXUS 7 MAKE ITS MONEY?

When introducing the new Amazon tablets, Jeff Bezos said:

“We want to make money when people use our devices, not when they buy our devices.”

Interestingly, the Google Nexus 7 has the very same business model as do the new Amazon tablets. Google gives away the Nexus 7 hardware at cost and then seeks to make its money by selling content and advertising.

3.2 WHERE DOES THE GOOGLE NEXUS 7 PROVIDE VALUE?

The Google Nexus 7 has excellent hardware and it sports one the world’s premiere mobile operating systems in Android’s Jelly Bean. But where Google really brings value to their tablet customers is in the Nexus 7’s low tablet price.

Google is able to keep their tablet prices low because they don’t intend to make any (or much) money on the initial sale of their devices. They can give their customers more tablet for less because they are making it up in content and advertisement sales. Google wants to lure you into their store with their tablet and then have you buy content there.

Do the above two paragraphs sound familiar? If you read yesterday’s article on the Amazon Kindle Fire, they should because they are almost word for word the same. (Battle Of The Tablet Business Models: Amazon Kindle Fire, section 2.2.)

The Google Nexus 7 and the new Amazon tablet share the very same business model so they will naturally compete head-to-head with one another. Which one is likely to prevail over the other? Understanding their similarities and their differences should give us the answer to that question.

3.3 GOOGLE NEXUS 7 BUSINESS MODEL ADVANTAGES AND DISADVANTAGES

The Google Nexus 7 has received many fine reviews for both its hardware and its software but I think the reviewers are missing the larger picture. When I look at the Nexus 7 business model, there is little there to like. The Nexus 7 business model has all the downsides of the Amazon tablet business model and few of the upsides. Despite the almost universal praise the Nexus 7 has received from analysts and pundits, I predict that the Nexus 7 will fail to have any long lasting impact on the tablet markets other than to eliminate other Android manufacturers from contention.

The Google Nexus 7 and the Amazon Kindle Fire business models share many of the same issues:

— It’s hard to make a significant profit solely from the sale of low margin content and mobile advertising.

— Devices can only be sold in countries where content can be made available via the Google Play store. Sales of devices outside of those countries are counter-productive.

— Tablet sales must be carefully targeted at only those customers who voraciously consume (and are willing to pay for) content or who positively respond to advertising. Tablets sold to non-consumers are a waste of time, money and effort.

— Subsidized tablets draw exactly the wrong type of customer. Bargain hunters are less likely than others to consume content and respond well to advertising.

— A subsidy business model thrives on low cost hardware and long refresh cycles. However, we live in a world where Apple, Samsung and Microsoft are rapidly iterating their tablet hardware offerings and pushing the barriers of what it is technologically possible for a tablet to do. It will be difficult, if not impossible, to pursue the contradictory goals of spending as little as possible on the tablet hardware while still remaining competitive with the tablet offerings of competitors.

— A content focused, ad driven tablet will have little or no appeal to government, business or educational entities.

— Online only distribution will be difficult and other methods of distribution are sparse and immature.

(For a further discussion of the difficulties inherent in pursuing a subsidized tablet business model, please refer to section 2.3 of my earlier article: Battle Of The Tablet Business Models: Amazon Kindle Fire.)

In addition to the issues it shares with the Amazon tablets, the Nexus 7 has problems all its own:

— The business model relies upon making a profit from content sales and content sales are not Google’s core strength. When it comes to online stores, Google Play is a distant third to Amazon and Apple.

— Open business models are good for many things, but the maintenance of a store is not one of them. While closed companies like Amazon and Apple run their stores with an iron fist, Google runs its store with abandon.

— Google is not known for its customer service. Its current customers are advertisers, carriers and manufacturers, not end users. The one time Google did sell directly to consumers with the Nexus, their efforts failed. Customer support is hard, Google has little experience in it and it would be a radical shift in their business model. There’s plenty of doubt about whether they can pull it off and until they prove otherwise, they don’t get the benefit of that doubt.

Google Nexus 7 v. Amazon Kindle Fire:

A head-to-head battle between the Nexus 7 and the Kindle Fire will not end well for the Nexus 7. The Nexus 7 probably has better hardware and software (although I know that Amazon would dispute that) and it also has a very strong and loyal user base. But the subsidy game is all about content and in content, Amazon shines.

The Google Nexus 7 business model is like a coach taking a great athlete and playing them out of position – like taking a superior skater and having them play baseball instead of hockey, or taking a great baseball hitter and having them play soccer instead of baseball. Amazon is playing to their strengths. Google is playing to their weakness. In the long run, Google’s putative superiority in hardware and software will come to naught. In the battle of the business models, when Amazon and Google go head-to-head in the sale of content, Amazon will win every single time.

Content v. Apps:

I think Google pursued the wrong strategy. They have focused on the sale of content when, in my opinion, they should have focused on apps and the creation of a stronger app platform. I wrote about their abandonment of tablet optimized apps in my article entitled: “With Apps, Size Matters.”

However, it’s too late to turn back now. Google’s failure to focus on tablet apps has all but doomed their already faltering tablet efforts.

Reversing The Business Model: Open v. Closed:

With the Nexus 7, Google abandoned their open business model and adopted a closed business model instead. Now they have none of the advantages of the open model yet they’ve gained few of the advantages of the closed model. Open allowed Google to focus solely on the operating system and to license that operating system to all comers which, in turn, led to the proliferation a wide variety of low cost, inexpensive hardware options. The Google Nexus 7 has none of those advantages. It is made by one manufacturer so its production numbers are limited. It is a single form factor. All of the things that make an open business model great – cost, choice, variety, distribution, ubiquity, etc. – are lost.

And what is gained in its stead? Not much.

— The original Android concept was to get Android everywhere in order to capture eyeballs in order to sell mobile advertising. As discussed above, a subsidized model LIMITS production to only those who are willing to buy content.

— The closed Nexus 7 business model will gut the tablet efforts of the remaining Android manufacturers. How are they supposed to compete with a for-cost Google tablet when they do not share in the profits that Google garners from the sale of content or advertising?

The change from an open model to the closed Nexus 7 business model will have dramatic long-term negative consequences for Google’s tablet efforts. For the reasons described above, the Nexus 7 will not sell well enough to garner large scale content and advertising profits but it will sell well enough to eviscerate the efforts of all other Android tablet manufacturers. For Google, it’s the worst of both worlds.

Summation

The Google Nexus 7 does not represent a coherent business strategy. It represents the abandonment of strategy. While others are singing the praises of the Google Nexus 7, I am singing a dirge.

I predict that we’ll continue to hear a lot about Android tablet activations but we’ll continue to hear little about content and advertising profits, which is all that matters in a subsidized business model.

I predict that the already moribund tablet efforts of the other Android manufacturers will simply give up the ghost altogether. (Caveat: I am not counting Amazon as an Android manufacturer since their operating system is so radically forked from Google’s version of Android.)

I predict that – unless Google makes a dramatic change – the Nexus 7 will all but fade from sight.

Bold predictions, I know. But they’re dictated, not be me but, by Google’s own flawed business model.

Next

We’ve now looked at the Apple, Amazon and Google tablet business models. Tomorrow, we look at Samsung and the Galaxy Tab.

Why Apple Needs a 7 Inch Tablet

Last week, most of the tech industry was consumed with Google I/O, Google’s annual event to woo software and hardware developers to Google and consequently away from Apple and Microsoft. In addition to Google Glass-adorned daredevils jumping out of blimps and scaling down the sides of buildings, the Nexus 7 Tablet, the first full-featured, no-compromise tablet was launched at $199. What’s very clear is that the Google Nexus 7 will sell well and take business away from Apple’s $399 iPad 2. This is exactly why Apple needs a 7” tablet or else face the prospect of losing market share and profit dollars.

The Kindle Fire was released back in September 2011 to big fanfare. I was accurate in stating it would take share away from the $499 iPad 2, which was true until the iPad 3 was launched and iPad 2 reduced down to $399 back in February. The situation has changed now as the Fire is slogging away and is losing share to the iPad 2 and even to the $199 Nook Tablet and the $169 Nook Color. It makes sense, as the Fire is a stripped down tablet and the iPad 2 is not, and many consumers were willing to pay the extra $200 to have the full experience. The Fire used a smartphone operating system, had an SD display and users got a large smartphone experience. It wan’t a great experience, but it wasn’t horrible, particularly at the ground-breaking price point. The Fire also lacked access to the broad Google Play content and application environment, too, which, to some, was limiting.

The Google Nexus 7 Tablet is an entirely different animal. It comes with the top of the line NVIDIA Tegra 3 with 4-PLUS-1 processor, the latest Android Jelly Bean OS, NFC, an HD display, camera, microphone and full access to the Google Play store. After seeing Jelly Bean in action, it is a marked improvement over prior Android operating systems I have used that just didn’t quite feel right and toward which I have been so critical. The Google Nexus 7 will sell well, which is good for Google, Android, ASUS and NVIDIA, but bad for Apple, unless they act before the holidays.

Historically, Apple has been OK taking the high road on unit market share, particularly in PCs. The situation changed with the iPod, iPhone and the same is true for iPad. Apple wants market share and will do what it takes to get it, as long as it’s profitable, they can deliver a great experience, and stay true to their brand. Apple could do just this with a 7”, $299 tablet. Apple would be very profitable as well, as the most expensive piece-parts of a tablet are the display and touch-screen, which are priced somewhat linear with size. Apple may have redesigned some of the innards of the new iPad 2 as they lowered the price, but not nearly enough to offset the $100 price reduction, so a mini-iPad would be additive, not dilutive like the $399 iPad 2.

Would consumers pay $100 for the Apple brand and experience? In most traditional geographies, yes, they would, as consumers have shown the willingness to pay more than $99 more for iPods and $199 more for iPads. This is exactly what the mini-iPad would be; a large iPod. That’s not bad, that is good in the sense that the iPod is still the most popular full-featured personal media player out there.

Will Apple productize what they undoubtedly have running in their labs? I will leave that to the numerous Apple rumor sites, but one major occurrence suggests they will not, and that was one of the great proclamations from the late Steve Jobs. According to Wired, in October of 2010, Jobs apparently said the following during an earnings call: “7-inch tablets are tweeners: too big to compete with a smartphone and too small to compete with the iPad. These are among the reasons that the current crop of 7-inch tablets are going to be DOA — dead on arrival.” Does this say Apple would never do a 7” tablet? Actually it does not, as it is really a statement about non-Apple products and Jobs left Apple some wiggle room to maneuver. What I know for sure is that Apple must act in the next few months or risk tablet share degradation to the Google Nexus 7.