Wednesday, January 13, 2010

What is Google's Strategy with the Nexus One?

So the Nexus One is probably the highest-end smartphone on the market right now. Google has branded it a "superphone". That's a bit much, but it is a nice device. Supposedly they've sold ~20,000 units in the first week, and there are issues with customer support and glitchy 3G service.

Ultimately, though, what was Google's strategy here? They risk alienating manufacturer partners like Motorola by directly competing with them. I've seen in several places on the web that the strategy behind the Nexus One was to attempt to change the entire smartphone market, and make it more like the television or PC market.

Right now, when you buy a personal computer, you don't buy it from your internet provider. You buy it from a retail outlet, then you go looking for internet service. You don't buy your television from your cable or satellite provider. You buy the TV, then go looking for cable or satellite service. But with smartphones, you're pretty much locked in to buying your phone from your carrier, since the price difference with and without a contract is usually on the order of $300 for most phones.

I bought my Droid off-contract for $529 and I'm going month-to-month with Verizon...mostly because I want the freedom to be able to switch phones and carriers if a device that I want is only available through another carrier. The vast majority of consumers are not going to pay the $300 difference to have the freedom to be off-contract.

Right now, you can apparently use the Nexus One on AT&T's network, but 3G is not supported. Again, most consumers are not going to pay $500 for a phone and whatever the monthly service is for AT&T for subpremium network speeds.

For all intents and purposes, the Nexus One is a T-Mobile phone. It is supposed to be available in the Spring on Verizon, at which point it will be a T-Mobile and a Verizon phone. This is not a game changer. I'm not even sure how it begins to shake up the smartphone business model.

To really shake up the smartphone ecosystem, Google would have needed to release a smartphone that ran on more than two major carriers, supported at least 3G connectivity, and could be purchased off-plan for far less than $500. As far as making it compatible with many carriers, the technology and infrastructure simply may not be sufficient for doing that. As for the price, Google probably needed to sell the Nexus One at an extreme discount, comparable to the contract price, say $200-300, and eat the difference as a loss leader. Google makes money off ads, and if they lost several million dollars up front to basically pay for Android adopters, it would probably be worth it.

As it is, I don't see the Nexus One changing the way business is done in the smartphone market. The device itself is a nice upgrade, and a welcome addition to the newest generation of Android devices. But the business model will not change anything without cooperation and standardization among carriers (not going to happen anytime soon), and not without a heavily discounted off-contract price tag.

I do wish it well. I'm just not sure the strategy behind it is all that sound.

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