Different companies make money using different means. That isn’t going to be a startling revelation for many of you, but let’s recap how Google, Microsoft, and Apple put food on the table. Starting with Apple, they simply sell you physical goods. You buy an iPad, you give them money. You buy your sister an iPod, you give them money. They spend a lot of that money on advertising, buying components, and building Apple Stores. Next up is Microsoft, who sells bits. Want to build a Windows PC? You give them money. Need to deploy the latest version of Office on the computers at work? You give them money. And finally Google, who because of Android is associated as a platform company, but the reality is they’re in advertising.
Every time you do a Google search and you see those silly blue links at the top of the site, Google makes money. Google makes so much money in fact that they can afford to give away things for free. Things like email, calendaring, basic office productivity tools, and even a complete mobile operating system. Now Google is taking things to the next level by choosing to break-even on hardware.
Whereas Apple makes money when you buy an iPad from them, Google is selling the Nexus 7 at a price that’s just barely enough to pay for what it cost to make it. This is, hands down, the best way to compete with Apple. Hardware vendors can’t fight Apple because they’ll never be able to match Apple’s logistical prowess, but if you’re a company that’s already profitable in another business, then why not sell hardware at cost to trip up your competitor?
Now there’s only one question we can’t stop thinking about: What type of margins is ASUS going to see on the Nexus 7? They’re the company who makes the damn thing, and you know Google probably forced them to accept some insane terms.