When Google announced the Nexus 7 for a mere $199, many speculated that Google might be using a similar model to the Amazon Kindle Fire. Sell with an extremely thin margin, if any, and make it up with content. This seems to be partially true. While the margin is extremely minimal for the 8GB version of the Nexus 7, the 16GB version seems to pack a nice profit for Google and ASUS.
According to a recent teardown of the Nexus 7, the hardware components are worth $184 each. This doesn’t factor in any marketing, shipping, research and development or manufacturing costs. If we use Amazon’s Kindle Fire as an example, the Kindle Fire at launch cost Amazon $185 in parts and then an additional $16 to get them into customers hands. To say the least, Google seems to be on the right track here and the $199 Nexus 7 is one heck of a deal.
So, now we know that Google has a very thin profit margin on the 8GB model, what about the 16GB model? Remember, this is the version that everyone wants. The 16GB version is for those whom haven’t bought in cloud storage or for those that plan on using their tablet for tons of games. These are going to be extremely popular, just popular as their smaller brother. I’ll tell you right now, 8GB worth of memory does not cost $50. A rough estimate puts 8GB of NAND at around $8. Google is going to make a large portion of their Nexus 7 profit off of the 16GB variant.
Don’t forget that technology prices get cheaper over time as newer, faster, smaller models make their way to consumers. For now, Google is telling the truth when they say they are selling the Nexus 7 for virtually no margin at all, selling it at cost. A few months down the road as new technology emerges an older technology gets cheaper, Google will be turning a nice profit on their new tablets.
So which one did you buy? The 8GB or the 16GB?