Over the past few days, I've been thinking about this question in more depth. After reading a lot of the responses from other posters, it's pretty clear that there's no one, good reason that perfectly explains why Android tablets aren't doing as well as some might have expected. On the other hand, I don't think that it's death by a million paper cuts either, and that there are a few key points that can be explored.
Setting Expectations
Before we can even ask if Android manufacturers are failing, we have to define what it means to be successful. If we were to look at the tablet market pre-iPad, we would probably classify Android tablets as wildly successful as Microsoft didn't ship terribly many tablets. I don't know what the sales figures are, but I wouldn't be surprised if the original Transformer sold more in the short time it's been out than Windows tablets have since they debuted around a decade ago.
I think that the definition of success comes from Android's position in the mobile phone market, where it's grown to around 60%. For some reason, many people made the assumption that the same would be seen in the tablet market without really stopping to consider the differences between the two markets and why that assumption might not hold.
First, the market for mobile phones is vastly larger than the tablet market and probably always will be and the way that consumers buy phones is significantly different than they way that they by tablets, at least at the current time. In the US where most phones are sold at a subsidized rate, Android has experienced a significant advantage in that you could get a $0 Android phone with a contract, where as that has only recently become true for the iPhone. Even in countries where the phone isn't subsidized, Android phones can still be had for a lower price.
Given the numerous studies that have shown that iOS users tend to consume more data and account for more web usage, it would seem that many Android users are buying a smartphone simply because it doesn't cost more than a dumb phone, but aren't really interested in the smart features. My mom recently picked up a Droid 2 when her old dumb phone stopped working, not because she really needed the capabilities of the phone, but simply because it didn't cost any more than a replacement dumb phone and the sales representative at Verizon talked her into getting it.
This type of purchasing habit isn't the same for tablets. The vast majority of consumers may not have actual need for a tablet, whereas most consumers can easily understand why they need, not merely want, to have a mobile phone. In this way, I feel as though the sales of Android phones are somewhat inflated and that this has unfairly adjusted expectations of sales.
It's the Software Silly
After watching part of the iPad 3 (or whatever it's called) the other day, Tim Cook made some interesting comparisons between Android and iOS apps. I don't know if he cherry picked examples, and I personally don't use any of the apps that he used as examples so my own experience was limited, but the differences between the two were immense. In his own words, the Android applications simply looked like scaled versions of a phone application, which they very well may have been. The iPad applications, on the other hand, appeared to be specifically designed to take use of the additional screen space. Even looking at the pictures side by side, it's easy to tell that the iOS user experience is vastly superior.
There are also underlying differences between the two platforms. Apple had a yearlong head start in the tablet space. The first Android tablets ran 2.x and were essentially just a larger phone interface. Google was quick to respond with Honeycomb, but admitted that it was somewhat of a rushed job and were reluctant to release to source. This may have been the right move, if only to keep companies from rushing subpar products to get in on the tablet craze that would only hurt the Android brand in the long run. Only recently has ICS been released, and even then the number of devices that it's shipping on is rather limited.
There's also the matter of an ecosystem. Fraser Speirs, an educator who implemented a pilot program to test the use of tablets in schools,
made a recent blog post that covers this, any many other issues with Android. His main points are that the kinds of apps that he wants are only available on iOS and that market fragmentation between versions of Android has made it difficult for developers to take advantage of the latest APIs. Another point is that many of the devices are EoL in terms of updates and supports in under a year, making it difficult to invest in them and creating a feedback loop where developers need to write for older APIs in order to target a larger consumer base. This problem is further magnified by the Kindle Fire and the Nook, which run older versions of Android, but are far and away the most popular tablets.
Stuck in the Middle
Another problem that Android manufacturers are facing is that they are being squeezed from both ends. The software ecosystem of Android currently does not provide as much value to many consumers as iOS does, such that even if their tablets have better specs on paper, it doesn't necessarily translate to a better user experience. This means that most cannot compete on price parity with Apple. Apple's supply chain is also vastly superior to any other manufacturer, meaning that even if both were to release identical hardware and software, Apple would still enjoy a cost advantage. These things drive the price of Android tablets down and reduce the profits of the manufacturers.
API fragmentation isn't the only impact from the introduction of the Kindle Fire and Nook. These devices have targeted the low end and are generally sold at cost because both Amazon and B&N have a business model that allows them to subsidize the hardware and generate profit through the sales of apps, books, music, and other media. This naturally removes the ability of other manufactures to compete in the slim margin section of the market. As Amazon and B&N decide to move beyond the realm of 7" tablets, companies may soon find that it's not possible to compete in the 10" tablet space either as Amazon and B&N begin to offer competing products that other companies cannot compete with on price alone.
This eventually places the third party manufacturers into an uncomfortable position where they are unable to compete at the lowest end on price because they are incapable of generating value after the sale of the product and cannot compete at the high end as they are also incapable of adding significant value to the OS or ecosystem of the product that they sell. This leaves them fighting over a small pool of customers that isn't incredibly price conscious and will buy from Amazon or B&N and those who don't want to buy at the high end. There are an even smaller group of customers who are interested in the high end, but uninterested in iOS that could be valuable, but no one really knows how big this market segment is at the moment and there might not be enough customers in it to sustain multiple competitors targeting those consumers.
Another problem is that some previous Android devices have not experienced good sell through. This results in a lot of unsold stock that is eventually deeply discounted and sold for either no profit or at a loss. This eventually limits the number of consumers in the market for a new tablet as they've just bought last years model, which results in more unsold stock that needs to be sold at a discount. In an effort to cash in on the tablet craze, several manufacturers moved to get products into the market, leading to a flood of available choices. Unfortunately, when the supply vastly outweighs the demand, the price will erode rather quickly. From a consumer perspective this is great, but it's not good for the manufacturers.
Moving Beyond Content Creation
This almost overlaps with the idea of software, but I feel that it deserves its own special case, simply because of how mind-blowingly important it is. Probably the biggest knock I've heard against tablets and why a lot of consumers are avoiding them is that they're "only good for content consumption." While that's true to a limited degree, it's becoming less true, at least for iOS.
With the latest iPad announcement, Apple also released iPhoto, which looked incredibly impressive. This means that the iPad has the entire iLife and iWork suite of applications available on it. Does Android even have anything close or nearly as polished as these options that are available from Apple? Apple doesn't seem content to have something that's merely useful for viewing email, browsing the web, or consuming media. They've developed a large number of apps that can be used to allow for the creation of content. There's also a number of third parties that have seen the potential for content creation on tablets, and most of them have focused mainly on iOS development. AutoDesk announced a new product at the recent Apple event and companies like the Omni Group have been making content creation tools for the iPad from the beginning.
Right now it feels as though Apple is the only company to have the vision and bold attitude to believe that a tablet can be good for more than just content consumption. They're certainly good for that, but they can be so much more. This in turn feeds back into the notion that Apple is creating more value in iOS than Android can offer. After watching the iPhoto demonstration I'm convinced that it will make basic photo editing something that almost anyone can accomplish, even if they've never done it before. The simplicity of the way that they've done things really surprised me. In some regards, iOS is making content creation vastly more accessible to people who would otherwise not be interested.
The Power of Vertical Integration
Currently Apple has a greater degree of vertical integration than any other technology company. The usual explanation is that they develop both the hardware and the software, but it goes a little further than that. With iOS, Apple has even started designing some of the hardware components that go into their devices, most notably the SoC at the heart of every iOS device. In the other direction, they're also designing a lot of the applications that will run on top of the OS software that they've designed. This allows a lot of collaborative effort to go into the design of future products. The guys developing something like iPhoto can talk to the OS developers about adding new APIs and in turn the OS developers can talk with the SoC developers about adding dedicated hardware to the SoC to greatly speed up certain operations and reduce power consumption. This can also flow in the opposite direction where the hardware team can tell the OS and app development teams what improvements are coming long in advance which can let development for new and improved versions of the software to start in advance. The teams at Apple knew far in advance that a retina display was coming and could plan accordingly.
If we look at Android, we see the opposite picture. One company (Google) develops the OS (Which is later bastardized by the third party manufacturers adding another set of problems.), whereas other companies design the hardware products (ASUS, Motorola), which are made from components mostly created by other third party manufacturers (TI, Qualcomm, Samsung), and outside of the Google apps, major applications are made by other parties. Of the companies making Android tablets, the only one that's even close to Apple is Samsung who does design and manufacture many of the components that go into their products.
Apple could further integrate by outright buying manufacturers and designing and producing their own components, and perhaps that's the next step for them, but they would need a much larger market in order to make that financially feasible and that does present its own set of downsides. The main takeaway is that Apple is capable of designing a much more cohesive product. Once again this makes it easier for them to develop really polished products and add value to the platform.
Conclusion and Summary
It's hard to say whether or not Android manufacturers are failing, and I believe the lens that's been used to judge their success if flawed. The tablet market is vastly different from the mobile phone market and I don't think a direct comparison between the two is apt. In this regard the entire premise of the question is flawed and further debate is entirely moot.
Of course moving beyond that, Apple has several other advantages that they can use to their benefit. Their vertical integration allows them to create a more cohesive product with less development effort and lag. They're also enjoying a healthy ecosystem which creates a positive feedback loop. It may not be too late for Android to catch up, but it gets harder every day. One can look at Windows Phone of a good example of how it can be immensely difficult to get into the game once the time frame has passed.
Apple's philosophy towards tablets will also help them moving forward. It seems that tablets were an afterthought for Google and to them it's just another space for them to move products. Apple seems more interested in creating a platform that enables more than just content consumption, whereas Google appears content to leave that up to third parties.
I think that these are the reasons that Android manufacturers are struggling, and with Amazon and B&N getting involved in the market and already grabbing a huge part of it, it's possible that Android by itself will become a niche within the market. The tablet market itself is still really new, so it's impossible to tell how it will shake out in the long term.
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