On June 27, Google (GOOG) added a few new products to its ever expanding tech basket, including at least one that not only attacks its most bitter new rival in Apple (AAPL), but also many of its Android hardware manufacturers, including popular Android tablet makers such as Samsung and Amazon.com (AMZN). This new device may or may not resonate consumers, but if it does succeed, it may push some of its present Android OS using affiliates switch their reliance on the system, for fear their business will eventually be cannibalized by Google.
Though the tablet segment has only existed for a few years, it is already an $80 billion market, and one of the fastest growing markets, possibly set to double over the next year. Apple initiated the segment with its iPad, which is still the dominant tablet. Still, Samsung (GM:SSNLF) has become competitive with Apple on both the smartphone and tablet fronts. More recently, Amazon's Kindle Fire has become a strong competitor, offering a lower cost tablet designed more so for content consumption than any real creation.
Samsung has benefited from its utilization of Google's Android OS in both smartphones and tablets, and has also benefited from becoming a dominant supplier or parts to its retail competitors. Similarly, Amazon.com benefits from locking Fire buyers into a mobile ecosystem where the company is likely to continue to sell content for the tablet. Unlike many other hardware manufacturers, Amazon.com stands to reap continuing fees from many buyers, much like how Apple sells content through iTunes.
Google's new offering, the Nexus 7, features a 7-inch screen and the newest version of the Android OS, called Jelly Bean. The Nexus 7 will sell for $199. At this price point, it appears designed to compete directly with the Fire market. The device is designed to sell content through Google's own marketplaces, such as Google Play, and not Amazon.com or iTunes. Google also unveiled a $299 home entertainment device called Nexus Q, which lets users stream music and video, and appears to compete most directly with products like Apple's AppleTV.
Though Google has used Android to take the leading market share in smartphones, tablets based on Android software have still accounted for fewer than half the market share of Apple's iPad. This market is also expected to become more competitive in the coming quarters, especially since Microsoft (MSFT) just unveiled its own tablet, the Surface, running on a new version of Windows, and it is likely that multiple hardware manufacturers will opt to also develop Windows based tablets.
The tablet and smartphone markets are important growth areas and major challenges for Google, which could be in danger of losing not only market share within both segments, but also competitors slowly phasing out Google's revenue streams on their devices. For example, it should be expected that Microsoft's tablets would be integrated with Bing for search and maps. Similarly, Apple recently announced a series of upgrades to its iOS that largely appear designed at restricting its dependence upon Google's services for mapping and search.
This is of major concern because it not only minimizes Google's opportunities to monetize each search with ads, but could also reduce the quality of service that Google Maps provides. Google uses data from mobile searches to not only improve its mapping service, but also to provide integrated features such as real-time traffic updating.
Google recently acquired Motorola Mobility for $12.5 billion, which was formerly a user of Google's Android OS in both smartphone and tablet offerings. Compared to other Android devices, Google hopes that the newer version of the OS, Jelly Bean, the competitive price and the fact that the tablet is slimmer than most competing tablets. Except for the Fire, priced at the same rate, most more comprehensive tablets have been priced considerably higher, including a $499 price-tag for the lowest priced iPad.
This may be the first tablet to be included under Google's Nexus brand, but Google has worked with multiple manufacturers to develop prior Nexus smartphone offerings. Now that Google owns Motorola, it may soon attempt to discontinue such subcontracting, but Google did work with Asus on this current tablet, and used a Tegra 3 processor, by Nvidia (NVDA). Samsung and NVDA have been among the many processor beneficiaries within the smartphone and tablet revolution.
If anything, this move may eventually prompt many hardware makers to once again affiliate themselves with Microsoft, or to possibly attempt to offer different products, using both systems and allowing the market to prove which it prefers. Similarly, Microsoft's own move to develop a tablet may also motivate some of its more loyal hardware makers to pursue alternatives based upon Android and possibly Chrome.
At this point, it appears that Apple will maintain its tablet market dominance through the next year or two, if not considerably longer, and that Microsoft will quickly ramp up affiliates eager to push Windows based tablets on businesses that are still locked into the computer platform. Google's Nexus 7 sounds all too similar to Amazon.com's Fire, which has found an audience, but has been no iPad killer or market leader. The Nexus 7 should have a similar affect upon the market, and probably even a lesser one, given the richer current landscape and anticipated coming devices.
Given this coming competition, Apple's declared war on Android and Google's choice to compete with its own hardware makers, the Nexus 7 is unlikely to be an iPad killer, or even a Fire killer, which will arguably offer a more compelling marketplace to many would-be consumers. Additionally, consumers should expect to see updated versions of both the iPad and the Fire within the next few quarters, as well as Microsoft's Surface and other Windows-based tablets. Most consumers will likely prefer to wait for such new offerings, with several likely to come in advance of this year's holiday season.