Google has the opportunity to turn the American phone mobile market on its head with the Nexus One. If it chooses to sell the phone directly to consumers at a price that’s close to cost, it would truly disrupt the current American model. When the iPhone 3GS first came out, iSuppli estimated its manufacturing cost to be about $180. So let’s say Google sold the Nexus One for $199 — that would be killer! American customers would be getting a high-end phone that’s unlocked for a bargain price. Compare that to the costs of other premium unlocked phones, which cost upwards of $500.
Why would Google do this? Well, there are a few reasons. By inflating the installed base, Google could sell more Android apps. The company gets a cut of every app sold through the Android Marketplace. More importantly, it has the opportunity to serve more mobile ads. Remember, at the end of the day Google makes the vast majority of its money selling advertising. If more people are using Android browsers and products that serve mobile ads, the more money Google will make. So in a way, it would selling the Nexus One at cost would be similar to the old razor-and-blade model. Google practically gives away the razor and will make way more money selling the blades.
Having said that (Curb Your Enthusiasm!), there are several reasons why Google will probably not follow this model.
1) Unlocked Phones Fail in America — Nokia and Sony Ericcson have been selling their best phones unlocked in America for years. For the most part, people haven’t been buying them, which is a stark contrast to their success in Asia and Europe. For whatever reason, Americans would rather buy their phones at a discount and pay more for service over a two-year contract. Nokia is the global leader in mobile phones and Sony is one of the world’s largest consumer electronics companies. If neither of them could make a splash in the American market then Google — which has no experience in direct electronics sale — doesn’t stand much of a chance.
2) It Would Piss Off its Partners — Selling the Nexus One straight to consumers would piss off Google’s various hardware and carrier partners. HTC, Motorola, and Samsung are just a few of the companies that have invested a lot of resources in Google Android. Sprint, T-Mobile, and Verizon are carrying Android products, with AT&T rumored to follow in early 2010. Angering one of those huge companies would be a bad idea. Getting all of them upset with you would be financial suicide.
3) There’s Too Much to Lose — Even though Google makes most of its money on ads and increasing Android’s installed base would be extremely beneficial, the math doesn’t seem to add up. Sure, it stands to make a ton of money on mobile ads and Android applications, but at what cost? Is it worth the huge risk of trying to be the first unlocked smartphone that’s a mass success in America? That’s arguable. Is it worth pissing off heavy hitters like Verizon, HTC, and Samsung? Probably not. But when you add those two factors together, it seems like financial suicide.
I’d love for Google to follow the razor-and-blade model with the Nexus One, but I don’t see it happening. Tech journalists are debating whether or not the company will even sell the phone directly, let alone attempt to drastically change the market. As a tech enthusiast and blogger, it would be terribly interesting to watch. As a consumer, I think the American market can use a kick in the ass like this one. From Google’s perspective, I don’t think it makes sense…but maybe the geniuses at the company have found a way that makes it work. It’s worth dreaming about, hey?
[Photo by Engadget Mobile]
Against your second argument;
Wouldn't a Google phone need to have service from one of the major carriers? Google doesn't have it's own voice/data network, right? So, yeah, the major telecom companies may be pissed that Google's product is undercutting their own, but at the end of the day, they (telecom companies) only care about signing you up for the service that they are selling… or am I missing something in this argument? The telecommunication industry and it's inner workings are really not my area of expertise.
-M
@R-Pad
What if they sold it direct and with contracts? Would that satisfy both groups?
If carriers are going to charge a higher rate if you already own the phone, then it eliminates the incentive to subsidize the handset. Personally i'd rather have a handset of my choosing and take it to a carrier of my choosing.
@Smartguy One of T-Mobile's new plans is perfect from bringing unlocked phones to its service. It seems like the plan was made for something like this. Hmmmmm.
@Sandrock323 That seems like more trouble than its worth. A better idea would be if Google sold it unlocked and at cost, while mobile providers offered it free with a contract.
@Iceman Yes, obviously a mobile carrier is required, but a contract is not. That's the rub. A user could bring the Nexus one to any GSM carrier in America, but doesn't necessarily have to commit for two years.
@Ray
Yeah, but I really wish TMobile would expand network coverage instead of just adding speed right now. Currently they cover only a portion of the Parish I live in and cover none of the Parish where I am in school at. I think they might have 3G service at work. They are just too spotty for me. Shame too.
Quick question for anyone:
If you port your number over, do you have to sign a contract then?
@Smartguy I don't think so. I'm actually waiting on Google Voice to add number porting so that I don't have to worry about that again.
@R-Pad
That's what I was thinking. Free with a contract or relatively cheap unlocked. They could keep the service provides happy and challenge the unlocked phone market. Most Americans are going to go for the free phone anyway.
@ Item #2
I had no idea about Nokia and Sony selling unlocked phones, that's my reason for not buying one and I am sure the reason lots of people don't. I just have always bought my phones at the cellular store.
OOPS!
I meant
@ Item #1
@SlickyFats They've always been available, whether online or through specialty retailers. You won't find an unlocked phone in any of the "big four's" stores.
in my opinion, point #1 on why they won't do this I would partially blame on credit cards. They have affected buying trends ever since they were introduced earlier in the 1900's. People are used to the idea of paying less up front money and paying more in interest to be able to get whatever they want right now, no matter what the end cost will be. We as Americans are very in the moment oriented, and we don't like our purchasing models to be messed with, because it would mean that we have to save up for something that we want every once in a while instead of making impulse purchases with the bulk of the cost coming to us at a later point in time.
(and that is why America is the best nation in the world- [thank you for smoking])
I [;an on buying this
@bsukenyan Was that a typo or did they really have credit cards in 1904. I honestly don't know.
@rpad. Sorry I wasn't meaning to imply that it was that early in the 1900's, I'm not positive if the exact time, but I think it was actually shortly after WW2. Or maybe I could be completely off, I wouldn't be surprised, lol.
@bsukenyan Don't be sorry. I was just curious. Your point is totally valid though. The "credit card culture" is a big reason why Americans accept the way phones are sold by the four major carriers.