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The One Thing Google Must Innovate With Its Tablet: Price

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Google's tablet may be stuck between a sizzling iPad and a Kindle Fire.

Though nothing is yet certain, it's looking more and more likely that Google will reveal its own Nexus-branded Android tablet today at its I/O event: Gizmodo Australia has enough documentation to spin a convincing story, and now an FCC document seems to suggest it will indeed be co-branded with Asus, as manufacturer. Gizmodo's data even points to a price: $199 for an entry-level 8GB edition.

Whether or not that's true, those three little numbers are absolutely critical for Google.

The Nexus is pitched directly in competition with a long list of mediocre cheap Android tablets and directly at Amazon's Kindle. Amazon was very innovative in what it crammed into the Fire, and that's helped it go down pretty well in terms of U.S. sales: By gutting the Android OS and skinning it thickly with a highly optimized Amazon-centric UI, Amazon was able to fine-tune the OS's performance to marry tightly with cheap electronics inside the Fire's very simple box. It works, and the Fire's user experience is pretty impressive, albeit strangled with Amazon's UI choke-chain. By controlling the low-ish grade hardware in synergy with the software this way, Amazon is estimated to have pushed the bill of materials for the Fire to between $140 and $180, give or take, meaning it makes a very small margin on sales of the hardware, but recoups profits in selling its own services, content and via its own curated version of the Android app market.

Meanwhile Apple's innovation with the iPad was to even more tightly manage the synergy between hardware and software, and execute such a tight grip on the very finest details of the production process that it probably costs only about $306, plus $10 for manufacture, to churn each one off the production line, leaving a healthy $180-ish dollars in profit on the hardware alone. And that's with 16GB of RAM and a 9.7-inch paradigm-defining high resolution screen. Apple's ecosystem sales on top of that add even more profit, and as a result of these almost un-noticeable innovations, the iPad sells like hot cakes on fire on a hot tin roof...or some such.

So you see the sticky position Google finds itself in, somewhere between the Fire (with its low cost, impressive ecosystem and Amazon's reputation) and both the iPad 3 (with its higher cost, but almost unmatched technical performance, ecosystem, and Apple chic) and the iPad 2--still on sale, offering a full tablet experience and other Apple "extras" for $399.

Google absolutely has to do something very clever with pricing, no matter how sweet Android 4.1 looks, or how nicely designed the tablet appears. It has a couple of options:

  1. Select cheaper electronics, such as less memory, older CPUs, smaller batteries and lower performance screens in order to make a small profit on a price in the $200 to $250 range. Remember, Google doesn't quite have the same revenue-generating ecosystem as Apple or Amazon. Its innovation here would be to optimize these electronics and Android 4.1 Jelly Bean so they deliver a full tablet experience that beats the Fire, is a darn good challenger to the iPad, and is impressive enough to sway the public with a decently clever device at half the iPad's cost.
  2. Go for a price in the $250+ range, but accept a razor-thin margin in order to cram decent performing CPUs, batteries and screen tech into the Nexus. By careful choices, it could completely out-class Amazon's strictly limited Fire in terms of delivering a smooth full-on tablet, capable of running high-end games and other apps. Such a tablet could easily dominate the mid-range market by delivering an almost iPad-like slickness at a discount price. Its innovation here would be to bite the bullet, and show the world what Android can really do, hoping to make money on sales volume.
  3. Surprise the hell out of us somehow. Perhaps by accepting a loss on a Nexus that's priced insanely low, or by pricing aggressively but announcing a new and compelling service that'll both make the tablet sell like hot-cakes and also deliver profits to Google--innovating in a totally new direction, in other words.

It won't be long now before we find out what it'll be.

Update

It's now known the tablet will cost $199 for a Wi-Fi-only 8GB model, and $249 for a 16GB version. Other details about the tech specs are emerging, but we'll have to wait until the official event to see the whole picture. 

[Image: Flickr user ImagesOfMoney ]

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