When Google (NASDAQ:GOOGL) introduced its Nexus 7 tablet, it was an overnight hit, selling about 1 million units per month for several months following the launch. The tablet was fast and inexpensive.
It also came loaded with the stock version of Android, which many people saw as a relief, particularly as custom user interfaces like Samsung's (NASDAQOTH: SSNLF) TouchWiz have received mixed reviews. Compared to the much more limited Amazon Kindle Fire platform, which doesn't allow access to all of the Google Play applications, this was a breath of fresh air for many users.
That being said, Google went ahead and refreshed the older Nexus 7 with a brand new one, featuring a Qualcomm (NASDAQ:QCOM) Snapdragon 600, 2GB of RAM -- up from 1GB in the older device -- a 1920x1200 screen, and enhanced connectivity. All of this for just $29 more than the asking price of the original Nexus 7.
This device is still selling quite well -- even three months following its release, it's still the eighth-best-selling tablet on Amazon. But Digitimes reports that the tablet is not selling as well as its predecessor. What gives?
The competition has heated up significantly
Think about the state of the tablet market back in the summer of 2012. There was no iPad Mini, there were no Windows 8/8.1 tablets, and Samsung's Galaxy Tab 7 lineup wasn't exactly inspiring. The hordes of 7-inch Android tablets from many of the other tablet vendors hadn't really rolled out in force.
Today, thanks to what the Nexus 7 example unleashed, there is no shortage of solid tablet designs in 7-8 inches. The 2013 Nexus 7 is certainly a great design, but there are just so many other great choices available today, too. Tablets from Samsung, Amazon, ASUS, Acer, Lenovo, and countless other white-box OEMs can do the job just fine.
However, that's not the only factor.
Price, price, price!
When the Nexus 7 came out at $199, it was a veritable steal, particularly compared to the rather expensive Apple iPad. However, Google now has two forces working against it.
First, the competition in this market has gotten so fierce that fairly good Android tablets can be had for as little as $99. These won't match the quality/specifications of the 2013 Nexus 7, but considering that price is one of the key drivers of tablet adoption, it's not a surprise that lower-priced tablets with fewer features are capturing the vast majority of the unit growth.
However, Google also priced the Nexus 7 $29 higher. While this doesn't seem like a particularly deal-breaking increase, for emerging markets and cost-conscious consumers looking to add a secondary or tertiary device to their computing stables, that $29 could actually be a deal breaker.
It's OK, though
As far as Google is concerned, Nexus 7 sales are largely immaterial; as along as devices with Android are being sold, price really doesn't matter to Google. With each device, Google hooks users into its ecosystem, builds its brand, and wins as users are likely to use Google Chrome and various other Google services and applications.
This isn't as favorable to Google's hardware partner ASUS, which, unlike Google, actually depends on hardware sales to turn a profit, although ASUS itself has a very diverse product lineup in tablets, phones, and other computing devices.
Foolish bottom line
Is it surprising that the new Nexus 7 isn't faring as well as its predecessor? Not so much. Intense competition and a higher price mean that sales are necessarily going to be weaker. The high tablet growth is happening in the lower end of the market.
Google doesn't really mind, though. These tablets are sold at cost and are primarily used to bait more people into the Google ecosystem. If Google loses a sale to another Android partner, what does it matter? Google still wins.