The most appealing aspect of Google’s Nexus 7 tablet is its pricing. At $199, many in the industry have been wondering just how much Google is paying to build and as an extension how wide a profit margin does it provide. A new teardown by IHS iSuppli attempted to put a price on each component found within the N7, and the result was a slate that cost $151.75 per unit for the 8GB model. Add in overhead for marketing and distribution and it’s fair to say that Google is indeed breaking even at best, if not taking a loss when it comes to the $200 price point.
However, Google’s ace is the 16GB model, which is priced at $249 but only costs about $7.50 extra to produce. The added cost is directly associated with the device’s larger memory module. The result is pure profit at that point, according to IHS iSuppli’s report. Interestingly, the Nexus 7 only costs about $18 more to manufacture than Amazon’s Kindle Fire, with added cost coming in the form of a camera sensor, Tegra 3 processor, and higher resolution display.
But Google’s goal with the Nexus 7, as is Amazon’s with the Kindle Fire, was never to churn out profit on the hardware alone. The low-cost slates look to bring in additional revenues via the sale of content through Google Play and Amazon’s suite of services, respectively. So far the strategy has worked well for Amazon, but the jury is still out on Google’s experiment.