June 27 (Bloomberg) -- Google Inc. stepped up its challenge to Apple Inc. and Amazon.com Inc. in the $78.7 billion tablet market by unveiling a handheld computer called Nexus 7 that features a 7-inch screen and carries a $199 price tag.
The tablet will feature the latest version of the Android operating system, called Jelly Bean, the company said at its Google I/O developers conference today in San Francisco. Google also showed a spherical $299 home-entertainment device called Nexus Q, which lets users stream music and video.
Google is on the hunt for ways to fuel sales of tablets, a market that may almost double this year to 118.9 million units, according to Gartner Inc. Though Google has used Android to take the lead in smartphones, tablets based on the software have amassed less than half the share of Apple’s iPad -- and it will soon confront added pressure from Microsoft, which unveiled its own tablet last week.
“The tablet market is a major challenge for Google at this point,” said Clayton Moran, a Delray Beach, Florida-based analyst at Benchmark Co. “They need to have a competitive product with the iPad.”
Shares of Google, based in Mountain View, California, gained less than 1 percent to $569.30 at the close in New York. The stock has fallen 12 percent this year.
The Nexus 7 tablet, to be available in July, is being made in partnership with Taiwan’s Asustek Computer Inc. It has a front-facing camera and runs on a Tegra 3 processor from Nvidia Corp., Google said today.
Google Play, the company’s marketplace for Android applications and games, will add tools that make it easier for Nexus 7 users to download movies, TV shows and books, the company said.
The worldwide tablet market is estimated to reach $78.7 billion this year, up from $44.9 billion in 2011, according to research firm DisplaySearch.
Android tablets are already available from companies such as Samsung Electronics Co., HTC Corp. and Motorola Mobility Holdings Inc., which Google acquired last month for $12.5 billion. Amazon.com’s 7-inch-display Kindle Fire tablet also runs on Google’s operating system.
Still, Google -- the world’s largest Internet-search company -- is working to capitalize on its own brand name. It also seeks to woo consumers with a slimmer device that features the latest software yet carries a lower price than the larger iPad, the newest versions of which start at $499.
“When you look at the tablet market, you have iPad -- and others,” said Rhoda Alexander, an analyst at industry researcher IHS iSuppli. “Everybody is trying to figure out how to compete against the iPad. And I just see it as just one more experiment going down that road.”
This will be the first tablet to get Google’s Nexus designation. Google has worked with manufacturers such as Samsung in the past for Nexus smartphones to highlight the best features of Android software.
Gartner expects the iPad to remain the global tablet leader through at least 2016, even as it loses some market share. The iPad will account for an estimated 46 percent of shipments in 2016, down from a projected 61 percent this year. Android may have 37 percent by 2016, a gain from 32 percent.
Microsoft, which had zero percent of the tablet market last year, is expected to nab 12 percent by 2016. That number may increase, because the Gartner report was issued before Microsoft unveiled its Windows-based Surface tablet, which is likely to be released by the end of the year.
Sales of Android-based tablets have been held back by a lack of developers for the platform. Apple’s App Store has more than 650,000 downloadable applications that include games, news and travel tools for the iPhone and iPad. Though Google Play has more than 600,000 for Android devices, Apple’s success with the iPad has given it a greater lead in apps designed specifically for tablets, said Carolina Milanesi, an analyst at Gartner.
“At the moment, we don’t see the ecosystem being strong enough to compete,” Milanesi said. “There’s just not enough apps that give you a rich experience on the tablet as you have at the moment with Apple.”
Creating applications for Android can take more time because the software runs on many different devices, unlike Apple’s platform, which works only on its own phones and tablets.
Indeed, just three of the 20 most popular Android devices held individual market share of greater than 6 percent last month, according to research from Flurry, a provider of app-analytics software that tracks use of more than 100 million devices globally. Only one phone, the Samsung Galaxy S II, commands a double-digit market share among Android products.
While the tablet made with Asus may help Google with developers, there’s still the question of what the company will do with Motorola Mobility. Though Google has insisted that it will continue to treat all partners fairly, the company can now use the device maker to experiment and test what a tablet could do with Android, Benchmark’s Moran said.
“The stock market investors have realized that Motorola is a key part of their mobile strategy,” he said.
In addition to touting Android at the I/O event this week, Google is using the conference to show off other products and services. They include its social network, Google+, which was rolled out last year, along with the Chrome Web browser. The event, running at Moscone Center through June 29, typically draws thousands of developers.
For example, after the tablet’s introduction, co-Founder Sergey Brin led a demonstration of Google’s Project Glass, glasses that feature software and cameras to give the wearer quick access to information in a display above the eyes. The demonstration included skydivers wearing the glasses, which sent live video from their jump to a broadcast at the event.
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