But then there's the matter of practicality. The Kindle Fire and Nexus 7 today are $200 for a 7-inch device. At that price, Amazonand Google can't be making real money on the hardware. (In an interview with ATD's Ina Fried, Google's Andy Rubin said they're selling the Nexus 7 at cost). Amazon has made it clear that the Fire's purpose is to drive media sales and loyalty, not to make money on hardware.
I find it hard to imagine Apple would want to get into that kind of game. Apple makes money selling devices. That's its main thing. Aside from the occasional hobby, it doesn't use hardware to sell media or software or services. Apple certainly would have little incentive to undercut its own margins (and profitability) by selling an iOS device for cheap, just to compete with rivals who aren't making money anyway.
So does this mean Apple will leave the mini-tablet category to others? I'm not so sure.
Let's ponder: What kind of touch device could Apple build for $200 or $250? We don't have to guess. Right now Apple's got the iPod Touch with a 3.5-inch screen at $200, and the iPad 2 with a 9.7-inch screen at $400. The current iPod Touch design is almost two years old. It's conceivable that Apple could build a $200 5-inch iPod Touch, or a $250-$300 7-inch iPod Touch.
And really, isn't that what we're talking about here? I've spent some time with the Kindle Fire and a little with the Nexus 7, and I've got to say: they don't feel like full-fledged tablets to me. They actually feel more like big iPod Touches than small iPads.
Considering the fact that Apple has been steering iPod buyers toward the Touch for years now (it's more than half of all iPod units), and considering the iPad price strategy seems to be following the iPhone (charge $100 less for last year's model), it might make most sense for Apple to address the mini-tablet market by leaving the iPad out of it.
Perhaps the iPod will do the job.