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So many questions. Google says they are selling Nexus 7 at cost. So what is the revenue model? If the idea is to follow Amazon's Kindle Fire (where revenue fr

So many questions. Google says they are selling Nexus 7 at cost. So what is the revenue model? If the idea is to follow Amazon's Kindle Fire (where revenue from content sold in future, justifies the at-cost pricing of the device), is it not a huge risk? Google Play is not established as a revenue generator yet. What about the content itself? Does Google have agreement in place with content owners? Even if Google has agreements, in reality that won't cover all geographies. What happens in those geographies where Google can sell apps and other stuff but not media content? Won't the tablet be sold there or will it be priced higher? Also, how does Asus make money or are they just a contract manufacturer?

agravier 14y ago
The revenue is more users. Users are the air inside the Google zeppelin. Long-term users against a tablet "at cost"? A great deal for Google!
- raganesh 14y ago
  That is definitely a very valid argument in case of Search/Advertising. And to a certain extent, in case of Android, too. But is that a good enough reason to sell hardware at cost? Why not give it away for free, then? That will attract a lot more users. I guess my point is, when you are selling hardware, maybe you need to have a tangible revenue stream rather than just potential ad revenue.
  - agravier 14y ago
    I guess it's an economic calculation. Moreover, it would be foolish to assume that consumers are rational agents: I expect that the perceived value and user's attachment to a free tablet would be much lower (again, another study would find the "sweet price". Maybe they found it?).
    - raganesh 14y ago
      I'm sure there is a reason; Google doesn't seem to be selling all hardware at cost. Nexus Q at $299 suggests so. Just trying to understand what economic reasoning led Google to decide to sell Nexus 7 at cost. I don't get it from where I stand.
      - jusben1369 14y ago
        This is the single biggest difference between Google and Apple. Apple designs very elegant software (and hardware) so that they can sell hardware at a high premium. Google views all monetization through search optimization. Search, Maps etc. Now maybe there will be commerce streams (Play, Wallet?) too soon which makes having a direct relationship very key. So somewhere Google has a stat that says "A regular user is worth $22 a year to us" or something (more sophisticated) but like that. If those users buy an Apple device it's less and less clear they'll have a path to Google services now. If they can acquire that consumer "for free" (sell them a device that hooks them into the platform at a wash) then it's a good deal. If they gave it away for free then it would take x number of years to break even on that person. So that $200 or whatever does matter. And Google has a very good idea about what an Android/Google services tablet user is worth to them.
raganesh 14y ago
Farhad Manjoo at Slate Technology also asks almost all of the above questions: http://www.slate.com/articles/technology/technology/2012/06/google_nexus_7_tablet_steve_jobs_was_wrong_smaller_tablets_aren_t_completely_worthless_.html http://www.slate.com/articles/technology/technology/2012/06/... (don't be misled by the title) To quote: "But there’s one big problem with Google’s small tablet: It lacks a business model. As Amazon did with its Fire, Google is selling the Nexus 7 at cost. Amazon could afford to do so because the Fire is a gateway to its online store. After you get the Fire, you’ll buy a lot of books and movies from Amazon, and you might even become a subscriber to Prime, Amazon’s highly profitable subscription service. But Google, unlike Amazon, doesn’t sell physical stuff, so it can’t justify the low price of the Nexus 7 on the expectation of huge e-commerce sales. Sure, the search company does sell media—you can buy books, music, and subscribe to magazines from the Nexus, but the selection is thin compared with what’s available in Amazon or Apple’s media stores. If you get a Nexus 7, you’re better off relying on other sources for media. For books, install the Kindle app and buy from Amazon. For movies, use the Netflix app. For music, use Spotify. Well, what about advertising? Google makes most of its money from ads, and boosting advertising revenue is the central goal behind Android. The more Android devices Google sells, the more people use its services, and thus, the more people see its ads. So if Google sells a lot of Nexus 7s, couldn’t it make a lot more money from ads? Not really. Google makes only about $4 per year in ad revenue from every Android device, according to an analysis by Asymco’s Horace Dediu. So if Google sells 10 million Nexus 7s—far more than anyone expects—it would make $40 million a year from the device. For a company that made nearly $12 billion in profits last year, that’s nothing to crow about. (What’s more, two-thirds of Google’s mobile advertising revenue comes through Apple devices. If people choose the Nexus 7 over the iPad, Google might not be making any more money than it would have anyway.) Google’s real goal with the Nexus 7 can’t be to make money. Instead, the tablet is a marketing device. Google wants to hop on the tablet train before it’s too late. It’s been two years since the iPad was released, and so far no one has managed to create a plausible alternative. The Nexus 7 is an effort to get people to believe that Android tablets aren’t terrible. It’s good enough to be usable for most people, and just cheap enough to get a lot of folks to give it a try. And if you get the Nexus 7 and find that it isn’t so bad, maybe one day you’ll be willing to give other, not-so-cheap Android tablets a try. It’s a circuitous plan, and it could well fail. In the meantime, though, you might as well enjoy Google’s pretty good, cheap tablet."

agravier 14y ago

The revenue is more users. Users are the air inside the Google zeppelin. Long-term users against a tablet "at cost"? A great deal for Google!

raganesh 14y ago
That is definitely a very valid argument in case of Search/Advertising. And to a certain extent, in case of Android, too. But is that a good enough reason to sell hardware at cost? Why not give it away for free, then? That will attract a lot more users. I guess my point is, when you are selling hardware, maybe you need to have a tangible revenue stream rather than just potential ad revenue.
- agravier 14y ago
  I guess it's an economic calculation. Moreover, it would be foolish to assume that consumers are rational agents: I expect that the perceived value and user's attachment to a free tablet would be much lower (again, another study would find the "sweet price". Maybe they found it?).
  - raganesh 14y ago
    I'm sure there is a reason; Google doesn't seem to be selling all hardware at cost. Nexus Q at $299 suggests so. Just trying to understand what economic reasoning led Google to decide to sell Nexus 7 at cost. I don't get it from where I stand.
    - jusben1369 14y ago
      This is the single biggest difference between Google and Apple. Apple designs very elegant software (and hardware) so that they can sell hardware at a high premium. Google views all monetization through search optimization. Search, Maps etc. Now maybe there will be commerce streams (Play, Wallet?) too soon which makes having a direct relationship very key. So somewhere Google has a stat that says "A regular user is worth $22 a year to us" or something (more sophisticated) but like that. If those users buy an Apple device it's less and less clear they'll have a path to Google services now. If they can acquire that consumer "for free" (sell them a device that hooks them into the platform at a wash) then it's a good deal. If they gave it away for free then it would take x number of years to break even on that person. So that $200 or whatever does matter. And Google has a very good idea about what an Android/Google services tablet user is worth to them.

raganesh 14y ago

Farhad Manjoo at Slate Technology also asks almost all of the above questions: http://www.slate.com/articles/technology/technology/2012/06/google_nexus_7_tablet_steve_jobs_was_wrong_smaller_tablets_aren_t_completely_worthless_.html http://www.slate.com/articles/technology/technology/2012/06/... (don't be misled by the title) To quote: "But there’s one big problem with Google’s small tablet: It lacks a business model. As Amazon did with its Fire, Google is selling the Nexus 7 at cost. Amazon could afford to do so because the Fire is a gateway to its online store. After you get the Fire, you’ll buy a lot of books and movies from Amazon, and you might even become a subscriber to Prime, Amazon’s highly profitable subscription service. But Google, unlike Amazon, doesn’t sell physical stuff, so it can’t justify the low price of the Nexus 7 on the expectation of huge e-commerce sales. Sure, the search company does sell media—you can buy books, music, and subscribe to magazines from the Nexus, but the selection is thin compared with what’s available in Amazon or Apple’s media stores. If you get a Nexus 7, you’re better off relying on other sources for media. For books, install the Kindle app and buy from Amazon. For movies, use the Netflix app. For music, use Spotify. Well, what about advertising? Google makes most of its money from ads, and boosting advertising revenue is the central goal behind Android. The more Android devices Google sells, the more people use its services, and thus, the more people see its ads. So if Google sells a lot of Nexus 7s, couldn’t it make a lot more money from ads? Not really. Google makes only about $4 per year in ad revenue from every Android device, according to an analysis by Asymco’s Horace Dediu. So if Google sells 10 million Nexus 7s—far more than anyone expects—it would make $40 million a year from the device. For a company that made nearly $12 billion in profits last year, that’s nothing to crow about. (What’s more, two-thirds of Google’s mobile advertising revenue comes through Apple devices. If people choose the Nexus 7 over the iPad, Google might not be making any more money than it would have anyway.) Google’s real goal with the Nexus 7 can’t be to make money. Instead, the tablet is a marketing device. Google wants to hop on the tablet train before it’s too late. It’s been two years since the iPad was released, and so far no one has managed to create a plausible alternative. The Nexus 7 is an effort to get people to believe that Android tablets aren’t terrible. It’s good enough to be usable for most people, and just cheap enough to get a lot of folks to give it a try. And if you get the Nexus 7 and find that it isn’t so bad, maybe one day you’ll be willing to give other, not-so-cheap Android tablets a try. It’s a circuitous plan, and it could well fail. In the meantime, though, you might as well enjoy Google’s pretty good, cheap tablet."