"Sources believe that Google will launch the own-brand tablet PC in March-April, featuring a 7-inch panel and Android 4.0 with a price less than US$199 to compete against Amazon."
A 7-inch "pure Google experience" tablet would indeed compete with the already successful Kindle Fire.
As MG Siegler astutely noted, at the $199 price point, Amazon is making little to no money from the Fire.
If Google were to match the Fire price point with an Ice Cream Sandwich (ICS) tablet, Google would also likely take a bath on any profits from the tablet outside of search advertising, which wouldn't amount to much unless Google moved Fire-type unit numbers.
But Schmidt said the tablet was of the "highest quality." When I read the words "highest quality," I think of Apple's iPad, not the Kindle Fire.
That, to me, means a tablet more akin to the Samsung Galaxy Tab family, from the fine Tab 7.0 Plus to the Tab 10.1, or the new Motorola Droid Xyboard slates, only it will run ICS, not the stuttering Honeycomb build.
Now there is a legion of diehard fans that will nitpick about form and function, arguing that the iPad 2 is a physically superior device and that iOS 5 is superior to any Honeycomb or even ICS. That gets incredibly subjective.
Let's say Google succeeds and builds the best 10-inch tablet money can buy. It would surely have to sell it for around $250 to make a run at the amazing iPad.
I quote that figure because I expect Apple to discount the iPad 2 to $249 to $299 when it launches the iPad 3 this year.
Google knows this, which is why it needs a fantastic, cheap Nexus tablet to keep the gulf between Android tablets and the iPad from widening even more. Think the Samsung Galaxy Nexus of tablets.
My concern for Google is this: It can build the prettiest Android tablet the universe has ever seen, but the fact is, there aren't enough applications for Android tablets.
There are over 120,000 iPad apps, versus a couple hundred Honeycomb apps, which is embarrassing. Greg Sterling characterizes the situation well on Marketing Land.
Google has simply not cultivated interest for Android tablet app development. I'm not sure why, but it's costing them mindshare and, most importantly, market share.
People won't buy the tablets en masse if there isn't enough content to use on them, which means people won't be seeing Google ads on those machines. That's bad business.