You can tell that while Apple is putting a competitive product in the market, they're only dipping their feet in. This new version has no retina display and an A5 chip. If they were sure it'd be successful, they'd have packed with solid hardware.
Maybe it's supposed to be cost effective
The Nexus tablets are only being sold at their low price because Google is selling them at a loss. They make money back through software endeavors. The same thing has been happening with many contemporary gaming consoles. With the insane amount of traffic and business the Apple App Store gets, I wouldn't doubt that if they wanted to, they could make a top tier product and do the same thing. That's not part of the Apple business model though.
You're thinking the Kindles. Googs make fuck all from software. Opensource and freeware don't get you far.They're ad revenue based, hence the shift to 'cloud' and 'free' internet, that's how they make dollars. The reason(s) Google does anything is(are) "ADS".