The Google Phone: Risks, rewards and wild cards

The Google Phone: Risks, rewards and wild cards

Summary: The fabled Google Phone made an appearance over the weekend and it's another iPhone killer, grand experiment for the search giant or a way to rewrite the wireless pecking order. Here's a look at the risks, rewards and wild cards.

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The fabled Google Phone made an appearance over the weekend and it's another iPhone killer, grand experiment for the search giant or a way to rewrite the wireless pecking order. Here's a look at the risks, rewards and wild card associated with Google's phone, dubbed Nexus One.

First, a little background (Techmeme). Google on Saturday said on its mobile blog that is handing out a snazzy phone loaded with an uncompromised version of its Android operating system. The move was all about Google eating is own Android dogfood. The device combines "innovative hardware from a partner with software that runs on Android to experiment with new mobile features and capabilities."

It didn't take long for pictures of this Google phone to hit Twitter. The Wall Street Journal then followed up with a few more tidbits. Among them:

  • Google's Nexus One will up the ante vs. Apple;
  • HTC will make the device;
  • The device won't be tethered to any carrier and Google will sell it online;
  • Google wanted to control the hardware, software and user experience completely.

So what is Google up to with Nexus One? The answers are a little fuzzy, but here's a crack at Google's calculus behind launching a phone that could alienate partners, drive wireless innovation and alter the competitive landscape among other things.

Also: Google to launch unlocked Nexus One Android smartphone in 2010; disrupt mobile industry · All Android content · Android email alerts

The risks:

Carriers and handset makers. The biggest risk for Google and its Nexus One effort is that it could alienate partners. Google is now aligned with Verizon Wireless to take on AT&T and the iPhone. Motorola, the manufacturer behind the Droid, is also a key partner in forming an Android army to attempt to topple Apple's iPhone. One partner that looks tighter than ever with Google---HTC. The wild card: How will wireless partners react to Google selling a phone on its own, offering carrier choice and potentially trumping features on its other Android phones?

The price. You can't talk about carrier risk and Google's plan to sell an unlocked phone without mentioning price. Unlocked devices---if Sony Ericsson and Nokia are any indicator---are pricey. Like $500 to $600 pricey. Without a two-year contract and subsidies from carriers, smartphones are expensive. Too expensive for most of us to be carting the latest greatest device around. Google's Nexus One may be priced out of the game right away without a subsidy. The wild card: Will the average bear pay up just to have Google control the hardware-software experience?

The profit hit. Barclays Capital analyst Douglas Anmuth wrote in a research note: "We believe this issue is important to investors because potential phone subsidies could impact Google's overall cost structure. We believe the industry subsidy per device is typically $200-$300 and is usually paid by the carriers." The wild card: Would Google pay the subsidy that carriers usually pay for market share?

The unlocked phone approach. Riding shotgun with the pricing discussion is the fact that Americans just aren't used to buying unlocked phones. Google, with its brand and market heft, will need to alter behavior with the Nexus One. The wild card: Is this Google phone good enough to change behavior?

Bernstein analyst Jeffrey Lindsay noted in a research report:

We think the strategy is risky because all previous attempts to sell directly to the consumer in the U.S. have thus far have been an abject failure. Specifically we note the low appetite of American consumers for an unsubsidized phone, and the huge acceleration in iPhone sales when Apple lowered the (subsidized) retail price of the iPhone from $399 to $199 suggesting that Americans still seem to have an insatiable appetite for handset subsidies.

What if Nexus One flops? Few are even entertaining the thought that price and lack of truly whiz-bang features could result in a flop. Google is looking at Nexus One as a grand experiment, but it's worth at least mentioning the flop factor. The wild card: Expectations are already probably too high.

The rewards

Google could accelerate Android adoption. Google could head off the iPhone at the pass. Yes, Google could annoy partners but it has six months to deliver a body blow to Apple. If Apple took the iPhone to Verizon its market clout would double. "Google is also undoubtedly aware that Apple's exclusive arrangement with AT&T expires in June 2010 and that an iPhone on Verizon's 3G network would strengthen Apple's first mover advantage, giving it formidable market power," said Lindsay. The wild card: Could consumers really resist an iPhone on Verizon?

Google can put forward its vision of smartphones and Android without compromises. Google doesn't have to worry about wireless carriers and their approach to apps like Google Voice. Google can make the hardware and software experience seamless. With Nexus One, Google controls its destiny in the smartphone race. Sure, Google may annoy partners, but Nexus One is quite an experiment. The wild card: Will carriers accept Google's Android vision if Nexus One takes off?

The splintering may end. Google would slow the splintering of Android. "We think Google's motivation is to create a "pure" Android phone giving a display of strength that will eliminate further splintering of the Android code base that has been frustrating app developers to date," said Lindsay. The wild card: Android is open sourced and Google can't completely control the operating system.

The international play. Google may face tough sledding trying to convince Americans to buy an unlocked device, but the international reception will be far easier. While Nexus One may be an experiment in the U.S., it could be a beachhead abroad. The wild card: Will global customers fall for Nexus One?

Google can manage pricing. Yes, unlocked phones are expensive, but Google could sell the Nexus One at a loss. Why? Google can make up the difference on advertising. Instead of signing on to a two-year contract with a carrier you're basically swapping your data to be delighted. The wild card: Would Google take a hefty loss to get consumers to buy Nexus One?

Nexus One becomes exhibit A in Google's lobbying efforts to rewrite the wireless industry. Google has been trying to break carriers' chokehold on services, contracts and what devices are sold to consumers. With Nexus One, Google will be able to show the Federal Communications Commission what it envisions for the wireless industry. If the Google phone helps convince the FCC to open up cell networks and unused TV spectrum to mobile players the effort will be worth it. The wild card: Can Google's lobbying efforts compete with the entrenched players?

The conclusion

Overall, Google's Nexus One effort makes sense. Sure, there are risks, but the potential upside is there. Meanwhile, Google has already lined up a bevy of partners for Android. Those Android plans will proceed no matter what Google does with Nexus One. In other words, partners may be annoyed about Google selling an unlocked phone, but they are already locked in with the search giant. Add it up and Google may have little choice if it wants to dent the iPhone's momentum before it comes to Verizon.

Topics: Android, Google, Mobility, Telcos

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162 comments
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  • Google, the new Microsoft

    Google appears to want to be, and is working towards becoming, the new Microsoft. It wants into all aspects of computer-based technology and to control the computer-based tech world, much like the long held MS philosophy and agenda.

    Google has extended it's search empire into web-based mail, online applications, a browser, an OS and now wants into the next big technology trend... the smart phone as platform.

    IMO, it's ego and ambitions appear to be too large and far reaching and it does no one any good to have one company in control of so much, whether it's Google, Microsoft or Apple (even being a fan of the latter).

    How long before the DOJ comes after Google as it did with Microsoft, and perhaps rightfully so.
    MacCanuck
    • Although it seems that way

      Although it seems that way and history repeats itself, we do not know for certain that the DOJ has anything yet to go against Google.

      Being big is not inherently bad. Being big and using that to bully competition out of the market, that's what's bad, that's what MS got prosecuted for.

      I hope Google doesn't fall into the same behaviour but after reading Google's CEO's comments about privacy, maybe there are some other things to be worried about.
      rarsa
      • Privacy Concerns

        Please don't forget that there is NOTHING private on the Internet. The Internet is a public space, and using it outside of an SSL connection is like hanging yourself on the street corner for everyone to see.

        So, expectations are the problem here, not privacy. Besides, what type of Google searching are you doing that would require privacy anyway? HMMmmm....
        Narg
        • Privacy Concerns

          That's the point, none of your or google's business IMO
          sy34010
          • Then why...

            Then why are you on the internet where your ISP
            tracks your every move? Why (if you do) do you
            use a cell phone where your carrier knows where
            you are at all times with a dozen or so meters,
            knows who you're talking to and for how long
            and may even keep a log of your text messages?

            There's no such thing as privacy in todays
            world - Google just gives you a lot of stuff
            for letting them see what they could already
            see anyway.
            p0figster
        • dangerous thinking

          "Besides, what type of Google searching are you doing that would require privacy anyway?"

          It's this kind of thinking that is most dangerous to everyone's privacy and freedoms. It is along the same lines as "if you have nothing to hide, why not let the police search your house sans warrant."

          It isn't about whether anyone has anything to hide. It's about general expectations. Sure, you have a lower expectation of privacy on the internet, but does that include a company like Google grabbing a snapshot of everything you do and storing it in a database somewhere?
          bigsibling
          • Or "Dangerous FAILURE to Think"

            For you are right: such 'thinking' leads to disastrous conclusions. And the 'thinking' is so sloppy, so irrational, so ignorant, it does not deserve the title 'thinking' at all.
            mejohnsn
        • If you aren't doing anything wrong

          ... then you have nothing to worry about??

          Hmm... That sort of sheepishness makes me
          very nervous.

          But I agree with your basic premise. I assume that everything I do online can
          be obtained by others legally or illegally and that I am relying on the lack of
          interest in me personally to minimize the damages -- I'm just not that
          interesting or important.

          There are ways to improve security and provide privacy that go far beyond SSL
          but they require additional, widely implemented protocols. And most people
          aren't sufficiently aware or concerned enough to create the demand for such
          measures.
          zdnet-gregc
        • Epistemologically bankrupt - read some books! - NT

          NT
          raycote
          • Stick to Words you Understand!

            The connection between privacy issues, Internet uses, Searches and Epistemology is SO tenuous, you must not know what the word really means.

            So stick to using words you really understand.

            The branch of philosophy far more relevant than epistemology is "political theory": the behavior of both individuals and groups of individuals in the political context of the society they live in.

            Now what political theory has to say about this is:

            1) there are genuine privacy concerns

            2) these concerns are often overstated

            3) less often they are understated

            4) alas, the issues are rarely understood

            5) conspiracy theorists LOVE overstating the issues

            6) ignorant pessimists love to claim the battle for privacy is already totally lost.
            ...
            mejohnsn
          • Ignorant pessimists?

            Is it ignorant to acknowledge that my ISP logs
            my every move on the internet? They may not
            inspect that log, they may not do anything with
            it other than have it and store it, but that
            doesn't change the fact that they have it and
            all privacy on the internet is lost.

            Is it ignorant to acknowledge that my cell
            phone carrier has access to my phones GPS
            signal or at least can triangulate my position
            anytime they want - even going as far as to
            turn my phone on remotely if the battery is in?

            And it's not pessimism, it's realism. These
            things are true, not blown out of perspective.
            I admit that my cell phone company doesn't
            likely keep tabs on my whereabouts, but they
            could, if they wanted to. Hence - the battle
            for privacy IS lost if you use a cell phone or
            the internet.
            p0figster
    • One huge difference

      I have yet to be asked to give Google a dime. MS wants its pound of flesh regularly.
      Economister
      • Google doesn't want your dimes

        Google's and Microsoft's business models are exactly the same and the fact that thus far Google hasn't sold you anything directly means that they don't like money.
        tikigawd
        • What is your point? (nt)

          nt
          Economister
          • All companies want money

            That's why they're in business.
            Implying that Google is more noble than Microsoft because "MS wants its pound of flesh regularly" is asinine.
            Google gets their money from advertising, and I'm pretty sure you've filled part of their coffers with your money indirectly, just like I presume you have filled Microsoft's directly.
            tikigawd
          • That's his point

            I pay Google indirectly, Microsoft directly.
            He doesn't think he hasn't provided Google with
            compensation, it's just the compensation is
            much less intrusive than the compensation
            Microsoft demands.

            Microsoft takes it's 'pound of flesh' from my
            paycheck, Google takes it's 'pound of flesh'
            from ... my internet experience? looking at
            text ads unobtrusively placed on the side of
            the screen? They still haven't taken any of my
            paycheck.
            p0figster
          • Are you suggesting...

            Are you suggesting that as long as you don't see an invoice, you don't mind paying extra for stuff?

            If Windows sells for $400 and you "have" to replace it every 3 years, the cost is about 37c/day.

            How much extra are you paying per day to cover the cost of goods and services that are advertised on/by Google?

            Are you suggesting that if MS "gave" Windows away but recouped the money via a 37c/day electricity tax (for example) that MS would be held in the same esteem as Google?

            lehnerus2000
            lehnerus2000
        • Business models are very different

          Microsoft developes and sells software for PCs, Servers and mobile phones. It makes it's money from original sales and upgrades.

          Google is an internet advertising company. They also develop software but it is open source and they give it away. They use their software to attract more users to their search service, thru which they sell ads.

          In terms of philosophy, they are very different. MS develops complex applications which attempts to stuff as much functionality as they can (like a Swiss Knife). Google makes their apps much simpler.
          prof123
          • I was being sarcastic (nt)

            nt
            tikigawd
      • Whether Google asks for money

        or not isn't the basis for my concern (though it does mirror some of MS's give-it-away-for-free tactics).

        I just don't like the idea of any one company having too much control in any particular market, whether it be General Foods controlling food from farm to your table, Honda controlling your mode of transportation or Google (or MS) controlling your computer and Internet experience from one end to the other.

        Like MS, Google seems to want it all and given your point that Google has yet to cost you a dime, isn't giving things away for free (IExplorer) and using one "tool" to invade and take over other markets what got MS into anti-trust trouble in the first place?

        Google gives goods and services away for free (and ties together products) as much or more than MS has/is and look where it got MS re DOJ scrutiny.

        Bottom line from my point of view... competition from varied vendors, good... too much power and clout in too few (or single) hands, bad.

        IMO, Google is approaching the "bad".
        MacCanuck