• by Mark Walsh  @markfwal, May 14, 2010

Google today announced plans to stop selling the Nexus One direct, conceding defeat in its ambitious effort to offer its own smartphone directly online. In a blog post, Andy Rubin, head of the company's Android division, said Google will switch to selling the phone through existing retail channels and will stop selling handsets online completely once the Nexus One is more widely available in stores.

More than just selling smartphones, Google had hoped to disrupt the carrier-dominated cell phone business in the U.S. by opening its own Web storefront to offer the Android-powered Nexus One directly to consumers and without requiring a companion service contract. But the phone's unsubsidized price tag of $529, early customer service woes, and the lack of heavy marketing push, among other factors, conspired to keep sales low.

More recently, Verizon Wireless and Sprint backed out of plans to support the Nexus One, further dampening prospects for the Google phone to gain traction.

"While the global adoption of the Android platform has exceeded our expectations, the Web store has not," stated Rubin. "It's remained a niche channel for early adopters, but it's clear that many customers like a hands-on experience before buying a phone, and they also want a wide range of service plans to chose from."

Google will now shift to working with wireless partners to sell the Nexus One through traditional retail outlets and shut down its own Web store. The company's foray into online retailing launched with much fanfare in January as Google's self-described "superphone" drew strong early reviews and favorable comparisons to the iPhone. But Google's inexperience in selling stuff online became evident early in its failure to provide customer phone support for the device.

But the hefty price of the no-contract phone, combined with newness of the direct sales model, simply did not hold widespread appeal to consumers accustomed to buying smartphones at heavily subsidized prices from the major U.S. carriers in return for getting two-year contracts. Google had sold just 135,000 by mid-March, according to mobile analytics firm Flurry, and Goldman Sachs the same month slashed its sales estimates for the phone from 3.5 million to 1 million by year's end.

The pullback by Verizon and Sprint in the last month were likely the final nails in the coffin for the Nexus One experiment, highlighting carrier ambivalence about partnering with Google to sell its handset against their own contract phones. Only T-Mobile offered a subsidized Nexus One for $179 for existing customers with a two-year contract.

In his post, Rubin noted, however, that many of the technical innovations of the Nexus One had made their way into other Android phones such as the HTC Evo from Sprint and the Verizon Droid Incredible.

Indeed, Google can still take comfort in the growing market share of Android, which in the first quarter surpassed that of the iPhone. Android had 28% share of smartphones sold in the U.S. during the quarter compared to 21% for the iPhone, according to data released by NPD Group this week. All of the four major U.S. carriers now offer Android-based devices.

Google's announcement about the Nexus One came only a day after it was reported that Erick Tseng, one of the project's leaders, had left the company to join Facebook as its head of mobile products.