Google is going to be offering their own tablet soon, including DigiTimes which said, "As Google reportedly may launch an own-brand tablet PC to compete against Apple's iPad, sources from Google's upstream supply chain believe that Google, instead of Apple, may actually be targeting Amazon's 7-inch Kindle Fire as its major competitor."
The Amazon Kindle Fire had torrid sales for the Christmas holiday season, certainly earning its "Fire" moniker. You can't go wrong with a $199 tablet device that surfs the web, runs apps, and consumes entertainment content using Amazon Prime, which features a Netflix-like streaming service in addition to Amazon's other paid digital content - e-books, music, etc. Amazon gambled consumers would consume paid content to recoup their losses and it has paid off handsomely.
This purported Nexus tablet will come with a 7" display, run Android's latest Ice Cream Sandwich and will be priced under $199 to undercut even the mighty Amazon Kindle Fire. What is Google thinking? They're thinking the same thing Amazon is thinking - take a loss on the hardware and subsidize the cost of the tablet by selling digital content, such as movies, books, and music. The Kindle Fire costs $250 to manufacture, so it's roughly a $50 loss for Amazon. Amazon could take an even deeper loss if they wanted to, since Amazon Prime users could easily spend $50 in apps, music, and movies the first day they buy the device.
That's why I think Google should just give away their "rumored" Nexus tablet for free and subsidize it with content. They've got the cash to do it and could instantly build up the largest tablet userbase overnight. Of course, Google's foray into digital content has been bumpy. Their music offering, Google Music hasn't exactly taken off. I know one person that has tried it and wasn't much of a fan. So if Google were to offer free tablets, they'd have to revamp their digital entertainment content.
Right now, the kings of digital media are Netflix and Amazon, with HBO a smaller player in their own right. Amazon Prime is in 'prime' position to undercut everybody, including Netflix. Amazon has already inked deals with Hollywood for content. so Amazon is really ramping up their digital media content to complement their popular online store which sells traditional entertainment media such as CDs, DVDs, Blurays, and books - not to mention tools, kitchen appliances, lawnmowers, software - you name it!
Google on the other hand is a search engine with some other useful properties that aren't nearly as profitable, such as Google Voice, Gmail, and Google+. Sure, their Android operating system is kicking butt and giving them a revenue stream, but Google currently can't compete with Amazon with all the deals Amazon has with suppliers, Hollywood studios, etc.
Sure, Google can ink similar deals. In fact, Google has already set aside $100 million to bankroll their video entertainment business, but is it enough? But is it enough? I say no. One big reason is Amazon could offer special deals. For instance, "Buy this Bluray from Amazon for $24.99 and we'll throw in a free Amazon Prime streaming version of this movie, so you don't have to wait for your Bluray to arrive!" How is Google going to compete with that?