Apple creates the iPhone 5 for $200 and sells it for $700. Google, on the other hand, makes zero or little profit on its Nexus devices (Nexus 4, Nexus 7, and Nexus 10).
Some people do not understand Google's philosophy, citing the fact that Google ads are found on Apple phones as well. The best way to understand Google's plan is to imagine what the world would look like if Googlr never invented Android and Apple controlled the entire smartphone market. Apple would make its iPhones for $200 and because they can they will charge $2000 for it to maximise profits. Because the price is so high, they will not sell much phones but because there profit margin on each phone will be so high, Apple is happy. Google makes money off advertising. If smartphones were all $2000 thanks to lack of competition as a result of monopoly, hardly anyone will use smartphones and therefore not many people would look at Google's ads and Google would not make much money. By creating Android, giving it away for free, and producing high-quality and cheap Nexus and Chromebook devices, Google is able to put pressure on Apple to bring its prices down and get the iPhone into more people's hands. Apple is content with selling fewer phones buy making high profit margins on each, explaining why Apple takes in 80% of smart phones profits even though 80% of smartphones run on Android.
The plan is working, and Apple is giving in. Apple will soon release a cheap plastic iPhone in an attempt to compete with Android at the lower end. Regardless of whether the cheap iPhone increases sales of Apple devices and steals market share from Android, it does not matter since Google ads are on Apple devices. A cheap iPhone will only dilute the Apple brand and transition Apple from a boutique low-volume high-margin company into a commodity mass-manufacturing, high-volume low-margin company. In other words, Apple will become Samsung.