What’s Google’s Tablet Game Plan?

The Google (NASDAQ:GOOG) tablet seems almost a certainty at this point. Tech rumor sites have the size (7-inch display), the approximate time frame (July), the expected price (under $250), the manufacturer (Asus) and even a quote from former CEO Eric Schmidt that seems to confirm Google’s tablet plans.

The time is right, too. Microsoft‘s (NASDAQ:MSFT) new Windows 8 is expected to arrive this fall, and TechRadar is pointing to some heavyweight Windows tablet launch partners, including Dell (NASDAQ:DELL), Hewlett-Packard (NYSE:HPQ) and Lenovo (PINK:LNVGY), with more manufacturers expected to come on board for 2013.

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If Google launched a tablet today at $250 (or less), its primary competition would be Amazon‘s (NASDAQ:AMZN) $199 Kindle Fire, which is estimated to have sold 4.7 million units in the fourth quarter of 2011. Samsung (PINK:SSNLF), the big player in the Android tablet market, has 7-inch models available such as the Galaxy Tab Wi-Fi, but they’re priced closer to $400. Other players include Barnes & Noble (NYSE:BKS) and Lenovo, but when it comes to compact tablets, Amazon currently dominates the field.

Google has two problems in going head to head against the Kindle Fire. The first challenge is that Amazon’s tablet very ably covers dual ground. It’s not just a multipurpose Android-powered tablet, it’s also got cred as an e-reader. Other tablets have access to reading apps (including Amazon’s own Kindle version), but having Amazon’s name on the Kindle Fire goes a long way toward establishing it as a bona fide e-reader.

The other problem is financial. Business Insider quotes Piper Jaffray’s Gene Munster in putting the loss to Amazon for every Kindle Fire sold at $50. Why would Google tackle a market where it’s liable to lose money on hardware sales? Amazon might make up that difference by selling e-books and movies, but Google’s equivalent online stores haven’t had the same success as Amazon.

Then there’s Google’s track record with selling its own gear. Remember its Nexus, the 2010 smartphone that Google branded with its name and sold directly to customers? It didn’t do so well. Priced at $529, it competed against Apple‘s (NASDAQ:AAPL) iPhone 3GS and other Android smartphones from the likes of HTC and Samsung. Business Insider called the Nexus a bomb, reporting that only 20,000 were sold in the first week. When Google announced it was dropping the phone later that year, it had lasted only seven months before being written off as a failed experiment.

To further complicate matters, there’s the elephant in the room. Apple. While former CEO Steve Jobs famously dismissed the 7-inch tablet form factor as being too small to be useful, rumors have continued to fly that Apple has been testing a mini iPad with a 7.85-inch display. With the iPad 2 currently selling for $400, you can bet Apple — if it were to release such a device — would make sure the iPad Mini would slide right into that $250 price point.

Maybe that hints at what Google’s endgame is in all this.

The number of new iPads sold on launch weekend alone was equal to one-quarter of all Android tablets sold — ever. The only place Android has been carving out a meaningful niche is in the 7-inch market. An Apple entry here could easily take control. Windows 8, which has been well received in early reviews, is a threat as well.

Considering that Google has the cash to take a loss on tablets, if necessary, its push into the market now may be a defensive move to build up the Android base before Apple has a chance to overwhelm it or new Windows 8 tablets gain traction.

Another theory is that Apple and Microsoft are distractions at best, and Google is hell-bent on killing the Kindle Fire. Why would that be? Amazon uses a customized version of Android on the Kindle Fire, its own Web browser, its own Android App Store and ties media (movies, e-books and music) to its own online store. While Amazon’s tablet does technically count as Android market share, it’s not the kind of Android market share benefits Google.

Having this curated model continue unchallenged and free to expand isn’t good for Android in general and Google specifically. An Android tablet in the Amazon model costs Google potential online ad revenue and media sales, and it shrinks the market for Android app developers.

So, even if Google’s tablet turns out to be a repeat of the Nexus One smartphone debacle, it will hardly put a dent on the company’s $44.6 billion cash pile.

As of this writing, Brad Moon did not own a position in any of the stocks named here.

Article printed from InvestorPlace Media, https://investorplace.com/2012/04/whats-googles-tablet-game-plan/.

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