Google May Actually Be Selling the Nexus 7 at a Loss Instead of Breaking Even

[dgstorm]

After the Google Nexus 7 tablet was launched, Andy Rubin shared that Google was simply breaking even on the product, but he may have been down-playing things a bit. According to the tech teardown site, TechInsights, Google may actually be selling the product at a net loss. According to their assessment, the parts for the device alone come to roughly $184 dollars. This does not take into account any marketing, packaging, support or distribution costs associated with the device. Additionally, Google is offering the $25 dollar Google Play voucher for a limited time with the device. No matter how you add these up, it seems to lead to the conclusion that Google is eating more than just the initial cost of the device.

Of course, it's important to note that the pricing for these parts was based upon TechInsights knowledge of current market value for them and may not be reflective of the final pricing that Google was able to negotiate on these parts. Still, it's hard to see how the Nexus 7 could be anything but a loss for Google, right now. If true, that's a serious commitment to the Android ecosystem, and shows that Google is banking on Android's future.

Source: NexusTablets.net via Engadget

 

[johnomaz]

I wouldn't doubt it either. Google's main source of revenue are ads. I have no doubt they make up the loss on each tablet pretty quickly let alone the continued revenue.

 

[tjk629]

I read somewhere that Google is only loosing money on the 8GB model, and not the 16GB one. I think it was Android Central.

 

[2THEXTRM]

Google understands they cannot rely solely on android equipment manufacturers to perpetuate their android OS. More skin in the game even if it requires a net loss for products shows they believe android will survive and flourish.

I appreciate this business model and do not want my electronic lifestyle investments to become the new Laser Disc or HD DVD failure. I have to back a winner eventually!

Sent from my Rooted ICS'd VTAB1008 using DroidForums

 

[Briankbl]

What some people forget is that when a company mass produces an item, usually deals are struck with chip makers and the like so the client will get discounts on bulk orders or through a contract agreement.

Sent from my Galaxy Nexus running Jelly Belly v2.2!

 

[justin82]

Trust me google is making money on this tablet. Maybe not on hardware side but on ads and so on

Sent from my DROID BIONIC using Tapatalk 2

 

[welsalex]

It's economics. Plain and simple. Company invests money inorder to make money. Consumer pays money for needs and makes money working for another company. Supply and demand, marketing and capitalism. It's brutal and crazy yet it works!!

 

[FoxKat]

Also, the Google Play voucher for $25 isn't costing Google $25. That's $25 in RETAIL purchases, profit being a part of that $25. The actual cost of that voucher may actually be nothing if they've negotiated a percentage of business from the App Developers to be used as "promotional comps". It's very common in the world of marketing to have your customer retail product manufacturers actually supporting the marketing by providing a portion of product as comps.

Then of course, there's the spill-over purchases once people get the "bug" about the pay apps, movies, music, books, etc. So the future purchases actually pay for any cost of the up-front comps.

Finally, "loss-leaders" are very effective ways to boost profitability. Just look at the Cellular phone model. It's been like forever that cellular carriers have been subsidizing the cost of the phones, and in most cases there is a "free phone" offer for several various models. The phones cost very little in terms of wholesale cost, they lock you in for a long-term contract, then make their profits off the monthly service fees.

Another example is Inkjet Printers. They're giving them away with purchase of computers, but price the ink cartridges...THERE'S the PROFIT!

Yet another example is home monitoring alarm systems...they give the system away, even if only a basic one, but the monthly service (monitoring fee), is the revenue stream that justifies giving the equipment away. Heck, you can't use their equipment with someone else's monitoring service, so you're almost assuredly a captive audience, virtually guaranteeing profit.

 

[JoshuaTucker]

I wouldn't be surprised at all that Google is selling Nexus 7s at a loss. Like the OP said, they are banking on their future. But I'm sure that they more then make up their money on software. I remember when the Xbox 360 came out (I think it was the 360), MS was selling them at a loss... pretty sure they made their money back through all the games that have been sold

So same idea here I would imagine.

 

[nikecar]

If 500,000 people buy it, then that is 500,000 that have the ability to go to the Play store and buy things.

Say 300,000 of those already have an Android phone or other tablet and will just download their current apps. Chances are you will still buy something else.

Of the other 200,000 people who never had an android phone or tablet, that is all new revenue.

of course all this is hypothetical. but as we see with Xbox and Kindle, which were both sold at loss, you make up for it later on in 3rd party apps and other things.