The Kindle Fire sold like crazy because of its $200 price point, it opened the market to 7" tablets.
The Google Nexus keeps with that $200 price point, people were willing to buy it.
The new Kindle Fire HD 7" is a beast of a tablet at $200.
The Nook 7" HD tablet is $200.
And honestly, if I'm going to use a tablet I want a 10" tablet, my sister has a Kindle and some of the icons seem a little small for me and surfing the net really isn't that hot that small, it seems like a minor upgrade from my smartphone.
But...
If you want a simple tablet just for reading, you can't beet the Nook Simple touch starts at $99 ($120 for a backlit model) with e-ink, my cousin has one and it really looks like you're reading out of a paper book. Apple is going to be pushing the iPad 7" mainly as an e-reader, but really, unless they knock e-ink out of the park and reduce the glare you can save $200 and get a better product (again, in comparison as a reader).
What Apple should be trying to do is push the iPad 7" as a "cheaper alternative to those that want more than an iPod touch but don't want to shell out for the full sized iPad."