I cringed a bit when the article mentioned that physical goods built the business case for Amazon selling the Fire at cost. I find it very difficult to believe that Amazon was banking on Fire customers purchasing significantly more physical goods; by that same logic, Amazon should get into the laptop business - do you see that happening?<p>More realistically, Amazon quickly realized that the tablet is largely a consumption device for high margin content. The lack of a keyboard and touch, along with other design differences, makes the tablet relevant for consumption. Also, Amazon wouldn't have built a closed app and content store system if they thought that physical goods would be the bulk of the business case.<p>The Fire is part of Amazon's push to ensure that as virtual content sales explode, they get the bulk of the pie.<p>This is exactly why Google has built the Nexus 7 - to get on the bandwagon for virtual content. If they sell a lot of Nexus 7s - they will definitely be upping their content portfolio on Play.
Google's Nexus line so far has been to set a standard for their partners to follow, in terms of price, features, and more importantly, to show the partners how they mess up Android with their bad customizations.<p>I believe Nexus 7 is intentionally designed to be too small to leave room for Android tablet partners to innovate. In all likelihood, it will be yet another successful failure by Google - by provoking partners and rivals to sufficiently respond to the Nexus 7, in terms of price and freedom (as opposed to the Kindle) so much that it makes Nexus 7 irrelevant.
Google's tablet business model is actually superior to
Amazon's. Google has better ad. monetization than Amazon, and just as good a theoretical monetization of digital media (movies, music, and books).<p>Amazon has sustainable advantages in a shitty business (retailing/warehousing/shipping physical goods) but when it comes to digital media, it's just bits, a commodity. It is much easier for Google to sell digital content than it is for Amazon to monetize web browsing and email, which is what most people do with tablets.