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Google's (NASDAQ: GOOGL ) Nexus 7 has been an unqualified success. After seeing Amazon.com (NASDAQ: AMZN ) bank on its $199 Kindle Fire in 2011, the search giant jumped right in at the same price point with the Nexus 7 last summer. The Nexus 7 helped manufacturer ASUS outship Amazon in the first quarter, even after Amazon responded with second-generation Kindle Fire HD models.
Even Apple (NASDAQ: AAPL ) has now entered the small-sized tablet market with the iPad Mini, acknowledging the growing consumer preference toward smaller form factors (and lower price points). Google I/O is now in the rearview mirror, and many investors were expecting Big G to unveil a second-generation Nexus 7 at the developer conference, to no avail.
DIGITIMES now reports that Google is about to move up with the next Nexus 7, pricing the device at $229 for a 16 GB model. That modest price increase would distance the device from entry-level models and put it more in the mid-range ($199 to $249), while Apple sits at the high end with $329.
The low-end tablet market continues to head lower, after Amazon reduced the price of its first-generation Kindle Fire to just $159 and Hewlett-Packard now sells its Slate 7 for $170. ASUS also targets the sub-$159 market with its own branded tablets, along with other OEMs like Acer.
By most measures, the current Nexus 7 trumps the Kindle Fire HD. Both devices have similar hardware but the Nexus 7 runs a full-featured stock Android with a much larger app ecosystem. In that sense, Google may be able to convey a higher value proposition than Amazon, especially since the Kindle Fire doesn't include popular Google services like Maps.
Over the next six months, investors can expect Google, Amazon, and Apple to all update their small-sized tablet offerings. Pricing slightly higher would help ASUS preserve margins, while Amazon will assuredly maintain its characteristic loss-leader strategy. Apple may be able to pack in a Retina Display in the upcoming iPad Minis, cementing its status as the premium device.
The real question now: Where will Microsoft price when it shrinks its Surface?
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