It’s generally a rule of thumb for a company to produce a product that could be profitable but if you are already one of the wealthiest and most respected in the industry, that metric isn’t always required. Case in point is Google’s upcoming Nexus 7 tablet, a device that the search giant is putting out primarily to compete with Amazon’s Kindle Fire and the Barnes & Noble Nook Tablet. The $199 price tag will certainly make it competitive but is Google going to make enough profit from each sale to be worth their while?
Research firm UBM TechInsights believes it is costing Google $184 to manufacture each Nexus 7, leaving a sparse $15 profit margin at the end of the day. In contrast, it is believed that Amazon makes $46 per Kindle Fire sold while Apple generates a profit of around $170 per iPad, so why would Google even bother with such a low margin product?
There are a couple of compelling reasons, actually. First, if consumers shopping in this price range are buying the Nexus 7, that means money isn’t being sent directly to their competitors for their tablets. It could be as simple as that, but CNET also points out that Google is probably hoping to generate additional revenue streams based on tablet use. The majority of this revenue is likely to come from advertising, the publication says.
Google is expected to launch the Nexus 7 tablet within a couple of weeks. Be sure to check out our hands-on review later this evening for a full evaluation.