The new gadget Google's Nexus7by: Brian Corrigan

taken from: The Australian Financial Review

It is tempting to see Google and Microsoft unveiling branded tablets as the start of a dramatic shift in the mobile gadget market.

Yet in reality these new gadgets are unlikely to sell in large numbers and, what’s more, neither technology giant will be too worried because they have other motivations.

Instead of moving aggressively into the computer hardware business, it is more likely they are trying to set a benchmark for other companies using their software to compete against Apple’s wildly popular iPad.

More than two years after it was first launched Apple’s tablet still has a vice-like grip on the market and has yet to be challenged by a serious rival, much to the frustration of Google, Microsoft and other gadget makers.

Google last week used its annual I/O developers’ conference to show off the Nexus 7, a tablet running the latest version of its Android operating system. Built by Taiwanese gadget maker Asus, the design and aggressive pricing drew generally favourable comments from market watchers but that’s not to say they expect it to be a commercial success.

Foad Fadaghi, a research director with technology analyst company Telsyte, says a starting price tag of $249 means consumers will be less worried about getting the most out of the Nexus 7 than they would be when spending more than twice as much on the iPad or another tablet. However, he suggests its lack of 3G connectivity is likely to deter some potential buyers who like to use their devices on the move.

“People want to be able to use them on public transport, especially smaller media consumption devices like this one,” he says. “It’s understandable [to leave 3G out] at this price but it’s an important part of useability.”

Another problem for the Nexus 7 is likely to be its 7-inch screen because consumers and content producers alike have both shown a clear preference for tablets with bigger screens. Apple’s iPad, for example, has a 9.7-inch screen.

At the other end of the scale, increasingly large screens on the latest generation of smartphones are also threatening the viability of smaller tablets.

The HTC One X and Samsung Galaxy SIII, for example, both have screens that measure almost 5 inches so consumers who buy them are unlikely to see much benefit in a slightly bigger tablet.

The only 7-inch model to have enjoyed some success to date has been Amazon’s Kindle Fire, although research firm IDC has estimated that sales of 4.8 million during the final quarter of 2011 fell to just 700,000 in the first three months of this year. It is normal for gadget sales to dip after the Christmas quarter but there is almost certainly more to such a dramatic dip.

“Amazon’s Kindle Fire was not a full blown tablet so it had limitations for people who wanted to use it for more than content consumption,” Gartner’s head of consumer devices Carolina Milanesi says. “That’s what people started to realize. The Nexus 7 has full tablet capability, although there is still a focus around content.”

While she describes the Nexus 7 as a good-looking device, Milanesi says Google needs to encourage developers to create dedicated apps. She felt this was a glaring omission at last week’s developers’ conference. “There wasn’t a lot of talk about apps at the event because it was all about content,” Milanesi says.

“If I was a developer, I didn’t feel a lot of love coming my way.”

Google has previously used the Nexus brand for smartphones but none of these handsets have been big sellers. Instead, they have set a benchmark for other gadget makers using the Android platform.

“As a long-term proposition it’s questionable how successful [the Nexus 7] will be,” Fadaghi says. “It showcases Android as a strong tablet platform but as a commercial proposition I doubt it will be a highly successful product that makes a lot of profit for Google.”

Milanesi notes that its limited distribution (the Nexus 7 will only be available through Google’s website or its Play Store app market) makes it highly unlikely that the device will be a big seller. She says Google is making a point to other gadget makers looking to challenge Apple’s market dominance.

“There’s a clear message to other gadget makers that this is the price you need to get to if you want to compete with the iPad,” she says. “The problem that its hardware partners will have is that they can’t afford to sell products at this price.”

Google’s launch came just a week after its great rival Microsoft unveiled its own range of tablets. Known as Surface, there are two versions – one running Windows 8 and using a full-powered Intel processor, the other running the cut-down Windows RT operating system and a less powerful processor more commonly found in mobile phones.

Milanesi describes Surface as a “branding exercise” for Microsoft, aimed, more than anything else, at convincing the world that the software giant is still relevant in a post-PC era. Like Google’s launch, it is a calculated risk that could alienate the companies that have previously built devices to run its software.

“Microsoft is hedging its bets. It knows that partners won’t be happy about it entering the tablet space but is confident they don’t really have an alternative,” Milanesi says. “Other gadget makers need to follow up with new designs and price points so that the ecosystem grows quickly and developers buy into it.”

Unlike the Nexus 7, which will be delivered to consumers from mid July, Microsoft provided no pricing or availability details at its launch. This is not the first time that the company has promoted products that are not yet ready for sale and that has led some to be sceptical.

Australian developer Outware Mobile builds apps for corporate and government customers. Co-founder Danny Gorog dismissed the Microsoft Surface as “vapour ware”.

He noted that Microsoft chief executive Steve Ballmer used the Consumer Electronics Show in Las Vegas two years ago to show off a range of “slate” computers just before the original iPad was launched. Those slates never made it to market.

“This is typical Microsoft vapour ware and they are phenomenally good at doing this,” he says. “You never see an Apple presentation where you don’t know when a product will be available or how much it costs.”

If and when Microsoft does provide concrete launch details, pricing will almost certainly be one of the biggest differences between its tablets and the Google device. The Nexus 7 is one of the cheapest around while the Surface is expected to have a premium price tag that pits it squarely against the iPad. Microsoft will be hoping to sell the concept to corporate technology departments that already know and trust its products.

“They know enterprise [corporate] customers will want Windows because they are used to Microsoft, but they also need to make sure that consumers within those businesses don’t keep bringing iPads to work,” Milanesi says.

“Windows 8 offerings have not been sleek or sexy enough. Others need to follow up with alternative devices and price points so that the ecosystem gets bigger and developers buy into it.”

Fadaghi says the launch of branded tablets could be seen as an admission by Google and Microsoft that they need a new approach. Apple has long made the hardware and software of its devices, which he says delivers a better outcome for customers.

Yet although there is room for both gadgets in the market, partly because one is aimed primarily at business and the other at consumers, Fadaghi believes they will struggle to compete with the elephant in the room.

“They can co-exist but they are both behind the eight ball when it comes to competing with the iPad,” he says. “The biggest challenge will be competing against that, not necessarily against each other.”

The Australian Financial Review

Filed under: AppleGoogle Nexusipadkindletablets

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