I wonder if Google was brilliant or lucky pricing the Nexus 7 at $199. They created this dilemma for Apple. They can't have the Mini cannabalize the more profitable iPad (the % of which must increase measurably by every $20 price differential) so they can't get close to $199. Amazon and Google smell blood in the water. iOS and the ecosystem is clearly superior to its Android brethren right now. However, a 65% premium for a device many acknowledge is a web surfer/facebook/email checker feels too rich. These guys will get a solid toehold in the market and in 2 - 3 years from now there will be an S III equivalent to the larger iPad's.
Apple made itself vulnerable to this sort of attack by basing building so much of their recent advertising campaigns upon display specifications - i.e. retina.
By focusing on something which is easily (and perhaps misleadinly) reduced to numbers, pixels, they have opened the way to the sort of simple value proposition Amazon's page suggests.
Edit: Wait, you say the 8GB $199 is close to $250 after shipping, but the 16GB is $275 including shipping? Which is it? Either shipping is close to $50 or $25 exactly. Seems like you are trying to stretch the facts to justify your purchase.
I did notice that as of today 10/29 Nexus 7 prices/configurations have been updated, so it is now 16GB for $199 or the new 32GB for $249. The 8GB model is discontinued.
In any event, the $199 price struck me as highly misleading at the time.
And note that I paid $26.44 shipping + tax on a $249 base price, so somehow my shipping was significantly cheaper than yours.
What I can verify is that I paid $275.44 for a "$249" 16GB Nexus 7 whereas a Kindle Fire HD would actually be $199.
It's amazing that a complete computer with screen and a multitouch interface sells for $275 or $199. $200 is how much a couple people can easily spend in one day at Disneyworld, or the price of a night at a decent hotel and a couple restaurant meals.
During the Keynotes when Steve Jobs would show off the computers they'd run their Photoshop or really large Excel file tests to show just powerful their chips were. If I remember right, all of those tests were highly selective. For most regular computing tasks, I felt like PC's were faster.
In marketing, if you're in second place it doesn't hurt many times to attack first place. In the consumers minds, you're putting yourself on similar footing to the first place contender and then getting to highlight specific differences that make whatever case you want.
It many not be elegant but Amazon's promotions and Samsung's recent phone ads do illustrate differences between the products. They may not be the most important differences to a lot of people but the burden is on Apple to show that, not on competitors to follow a vague sense of fairness.
I don't particularly take offense at the Amazon ad. When it comes down to it, people will only care about the Kindle for the price. It's already shown to be slow and Amazon has some weird data collection/spying things that have popped up with Silk (although most people will not care about this). Apple will never beat anyone on price and they don't care about this.
If you care about how things are made, the quality of the OS, etc (the usual thing's Apple sells products on), then the extra $100+ for the market leader won't be an issue. Again, Apple knows this and they consistently state that they're not interested in the bottom of the barrel. And anyways, Apple can't win in the low price points, Android has that market wrapped up.
So, I think it's good that Amazon has this. They've taken a page outta Apple's play book. And if anything, all this pressure might force Apple to drop to $299. They've reduced prices before, but somehow, at this point in time with their dominance, I doubt they will. They have enough cash in the bank to allow the Mini to flop if it has to...
For example, the iPhone 5 was launched as the world's thinnest smartphone, but it wasn't true. Ask any owner or reviewer of the Fujitsu Arrow.
Speaking of aggressive runner-ups, it will be interesting to see how Samsung behaves in the future. Right now, they are still at the "Mac vs PC" stage.[1][2] And they're highly effective too - they've pushed the Note form factor from ridicule into the mainstream. Are they too big already to launch another comparative ad campaign?
[1] http://www.youtube.com/watch?v=nf5-Prx19ZM, [2] http://www.droid-life.com/2012/09/17/this-full-page-galaxy-s...
Take the iPhone4 launch. A new phone with a slightly higher resolution screen, but significantly smaller than the existing competition. Their framing, with retina branding, switched the existing conversation from screen size, not to resolution even (where apple had a minor lead, that would be soon overtaken) to PPI! There was almost no discussion of PPI before this. Apple competitors were now framed as 'worse' if they included a screen with the same resolution but bigger! Insane!
Now fast-forward to 2012, and we have a new iPad marketed as 35% bigger screen (again they have found a metric that maximises the difference, which would normally be framed as the 7" vs 7.9"), no mention of resolution.
Apple would never even show a competitor on their site, because they are the market leader.. but see Mac vs PC for what happens when they are not.