Why the Google Nexus 7 is More Expensive than an iPad Mini

Posted on October 25, 2012

Here’s the thing, we all know that both Amazon and Google are using the razor-blade model to sell their tablets, but according to a piece by John Kirk, it sounds like this model will not be sustainable.

Apple doesn’t need to lower its pricing to deliver “the tablet death blow” to its competitors. Apple’s competitors are doing a fine job of starving themselves of profits as it is.

When your competition is giving razors to men with beards and hoping to make their profits on the sale of blades, you don’t attack them – you ignore them.

John Kirk

Amazon released their Q3 results today, and although they don’t break out information on the Kindle’s value performance, the whole Amazon group reported a loss.

So what would happen if Amazon and Google sold their tablets with the same for profit business model as Apple? Let’s take Google’s Nexus 7 tablet as an example. We know that roughly it’s sold at cost. In the standard electronics model we would add a profit margin for the manufacturer (Google) and for the retailer (e.g. Best Buy).

As Google is not a manufacturer of consumer electronics, let’s look at Samsung as a proxy. Its profit margins are 12.9%, so let’s take this as a rough proxy for a potential Google margin.

Now, in retail margins can vary, and they can vary a lot. Any particular item can go from having a typical margin of between 10% and 30%, so let’s imagine a margin of 20%.

Taking the 16GB Nexus 7, which would be equivalent to a 16GB iPad mini, let’s run the numbers:

US Cost Price: $249
With Manufacturer’s Margin: $281.12
With Retail Margin: $337.35

iPad Mini Retail Price: $329

Difference: $8.35

So there you have it, the Google Nexus 7 tablet is more expensive than the iPad mini for a less ‘valuable’ tablet.