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When Google (NASDAQ:GOOG) introduced its Nexus 7 tablet (less than three months ago), it represented a big step forward for the tablet market as a whole. While Amazon.com (NASDAQ:AMZN) almost single-handedly created the market for sub-$200 tablets last year, the best you could say about the original Kindle Fire was that it worked and was really cheap. By contrast, when the Nexus 7 was introduced, it received very good reviews. Of course, most observers agree that the Nexus 7 is not quite at the level of Apple's (NASDAQ:AAPL) iPad, but reviewers did think it was far superior to the (original) Kindle Fire.

However, in the fast moving tech world, each major product launch is soon followed by another (seemingly bigger) one. For the Nexus 7, this was the recent Kindle Fire refresh. In a clear shot at the Nexus 7, Amazon's press release details all the ways that its new 7" Kindle Fire HD is "the world's most-advanced 7" tablet". TheStreet's Rocco Pendola extols the virtues of the new Kindle Fire lineup's feature set. CNET is more diplomatic, saying that the choice between a Nexus 7 and a Kindle Fire HD comes down to your preferred app ecosystem. Nonetheless, the new Kindle Fire lineup has clearly taken the lead in mind-share (although Apple will certainly change that on Wednesday!).

Meanwhile, analysts on the Street are already looking forward to future Google tablets. Patrick Wang at Evercore recently downgraded Nvidia (NASDAQ:NVDA) shares, in part because he expects Google to release a Nexus 10 tablet next month with chips from Samsung (OTC:SSNLF). Presumably, he expects the Nexus 10 tablet to cannibalize sales from its smaller cousin.

However, the fact of the matter is that the Nexus 7 is not dead yet. Google is a very resourceful company with over $40 billion of cash and investments on its balance sheet, and very little debt. As this very informative post shows, supplier data points towards a 1-1.5 million monthly build rate for the Nexus 7. That suggests 2012 expected sales of 6-8 million units, which is somewhat higher than the total sales of the first generation Kindle Fire. Google will likely sell close to 3 million units in Q3 alone, and Q4 is almost certain to be seasonally higher. If it turns out that the Kindle Fire (or a future iPad Mini) puts a dent in that sales trajectory, Google could easily drop the price by $40-$50 in order to keep people within the pure Android ecosystem.

In fact, Amazon's decision to use Microsoft's (NASDAQ:MSFT) Bing to power search on the Kindle Fires might just provide the extra impetus for Google to drop prices. Ultimately, Google doesn't care about selling the Nexus 7, as the tablet is expected to break-even for the company. However, the Nexus 7 is directly hooked into Google search and the Google Play store (and the full Android app ecosystem). With the Kindle Fire pushing Amazon's app ecosystem and e-commerce platform, and now also using Bing as the default search engine, Google stands to lose a lot of search and app store revenue to Amazon if customers pick the Fire over the Nexus 7. In a doomsday scenario, some Kindle Fire users might become accustomed to the Bing interface and switch to Bing for searches on their desktops/laptops (leading to even larger losses of ad revenue for Google). I don't expect Google to let this happen.

Furthermore, Google is staying one step ahead of Amazon in terms of product roll-out. While Amazon will ship the new Kindle Fires at the end of this week, the Nexus 7 has been available for almost two months (although supply was very constrained for the first month or so). It's true that the new Kindle Fires (unlike the first generation model) will be sold in non-U.S. markets, with a roll-out to the biggest EU countries expected in late October. However, the Nexus 7 was already available in the U.K. (as well as Canada and Australia) in July, and has recently gone on sale in France, Germany, and Spain as well. Taiwan is next up, with release expected later this month, and many Google followers expect a roll-out to other Asian markets in the near future. With the market starved for good tablets at reasonable price points, I would expect the Nexus 7's earlier availability to give it a significant advantage vis-a-vis the Kindle Fire lineup (particularly because Google has much better international brand equity than Amazon).

In short, I think Google is the clear favorite in the global race for second place behind the iPad. (If Samsung releases a $199 tablet, it could be a serious competitor, too.) Amazon has put in a good effort with its Kindle Fire product lineup, but I think Google has plenty of bullets left to fend off the assault. Google is not likely to roll over and let Amazon steal the Nexus 7's spotlight and market share. I expect the company to fight hard to win in the tablet space with the Nexus 7, and given Google's substantial resources, I see no major barriers to success. Eventually (i.e. next year) there will be a successor to the Nexus 7. But it's not dead yet!

Disclosure: I am long NVDA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am also short AMZN.

Source: Google's Nexus 7: It's Not Dead Yet