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Google's dreams of electric sheep

Google hopes that a magic retail price will help it steal market share from the iPad

For the past two years, the iPad has ruled the tablet PC roost. Competing tech brands were quick to jump on the bandwagon, yet none could offer a product as good for the same money. The cheap-and-cheerfuls pitched below £200 have been universally dreadful.

That status quo of iPad defining the tablet space is about to change, though, with Google determined to claw its way to some market share - not to mention mindshare - of this key category. And it now has the means to do so. See also: Google Nexus 7 vs iPad comparison review.

In case you missed the memo, the Google Nexus 7 is the spearhead for this campaign. It’s a relatively low-cost handheld tablet that launched in July, selling from just £159 in the UK.

We’ve seen tablets around or even below this price before, but found that low-grade components, sloppy build quality and incompetent software design have rendered them, at best, a distant second choice; at worst, fodder to prop doors ajar.

Google has spotted the void and, with the help of a compliant Asus, filled it with a working example of what a 7in-screen tablet running Android software can do.

The manufacturing costs have been subsidised to hit that magic retail price, an option not previously available to the likes of HP, RIM, Huawei and countless other brands that have tried to compete in this space to actually make money. That’s not an issue for Google - a company that gives away free stuff in order to expand the number of people it can peddle to its customers, the advertisers.

Hardware analyst iSuppli pulled apart the Nexus 7 to gauge its true cost, ringing up a bill of materials with manufacturing costs of £101. That may sound significantly short of the £159 retail price, but it doesn’t include the share of distribution costs, marketing, taxes, even patent royalties payable to other companies.

Since Android is alleged to infringe on many patented technologies  and, in the case of Microsoft, has settled by paying royalties for every Android device sold - a proportion of the hardware’s cost passed to the customer is made up of licensing costs.

Several analysts have done the maths and calculated that Microsoft makes more money from Google Android in IP tax than it does from selling its own Windows Phone handsets. It’s hard to decide whether that’s a reflection on just how many Android devices are hitting the market, or how few Windows phones are sold.

Now Google is following the Amazon model, which built its subsidised Kindle Fire as a vehicle to sell books and media - a loss-leader to open a new revenue stream as users subsequently spend money on digital content to load on to the device. Google is using its deep pockets to bankroll the Nexus project. Its goal will be to recover its investment through a snowballing product portfolio of consumers that’s converted into ad sales income.

The strategy is a marketing masterstroke that will put a working tablet into the hands of people previously stalled at the £329 entry cost. And it will inflate the brand as consumer champion as we flock to the unmissable bargain.

Read our Google Nexus 7 review to see how well the Nexus 7 works as a tablet, but keep in mind that the cost to the device buyer may be more than just the cash you hand over at the point of sale.

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