Commentary

Google's Gamble

Alleged Google phone

Google can't be accused of a lack of ambition. Not content with launching its own mobile operating system and buying a leading mobile ad network, the search giant is reportedly poised to start selling its own branded handset next year.

Like Apple, whom Google wants to challenge more directly in the fast-growing smartphone market, it's not satisfied with just providing the software -- it wants its own piece of hardware (with a little help from Taiwanese manufacturer HTC) and more control over the mobile ecosystem.

While in the past Google has denied any desire to build and market its own phone, the iPhone has made it abundantly clear that in the mobile world the device itself can make all the difference in delivering the Web, applications and advertising. In other words, all the areas where Google wants to extend its desktop dominion to the Web.

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But Google is going even a step farther than Apple in turning its back on the major carriers with plans to release an unlocked phone, allowing users to choose a wireless provider separately from the device, as is common in Europe and other parts of the world. But it would represent a big change in the U.S., where consumers are accustomed to getting subsidized phones from service providers.

If reports are accurate that Google is going it alone, then it's a huge gamble. One immediate question is whether the phone would sell at full price or be subsidized. If the former, the price tag could run upwards of $500--causing sticker shock in most U.S. wireless customers. "Phones under this model appeal only to the most well-heeled geek chic crowd, and Google would be looking for mass market success," noted Charles Golvin, a wireless analyst at Forrester Research in a blog post Sunday.

Nokia has already tried selling high-end devices here directly and gotten nowhere. When it comes to smartphones, Nokia isn't a company Google should be looking to model itself after.

But Golvin pointed out that if Google intends to subsidize phones with ad dollars, it would take a lot to make up the $70 to $80 a month high-end phone subscribers typically pay in service fees. (Presumably, Google hopes keep more of its ad revenues by cutting out carriers and manufacturers.)

At the same time, it would obviously risk alienating wireless operators and handset makers including Verizon Wireless, Sprint, T-Mobile and Samsung that it's partnered with to date on other Android phones. Google apparently believes it can shake up the market with a device more tightly integrating its Web services and offering it directly.

At the end of the day, this will not be a phone in the traditional or 'smartphone' sense," wrote Ben Schachter, an analyst at Broadpoint.AmTech in a research note Monday. "We think it wll be a mobile device that tries to challenge current business models, notions of data versus voice, and how consumers should pay for mobile services."

It seems Google wants to have it both ways, launching its own dominant device while also striving to have as many other handsets as possible running Android to boost its ad-based businesses. Whether it can pull off that trick will depend a lot on whether the phone is really a leap ahead of existing Android devices.

And if Google is successful with its own smartphone, does that mean a Google version of the iPod, a Google tablet or a Google e-reader is on the way eventually? Given the company's drive to conquer the mobile landscape, it wouldn't be surprising.

1 comment about "Google's Gamble".
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  1. Nelson Yuen from Stereotypical Mid Sized Services Corp., December 14, 2009 at 3:11 p.m.

    Say what you want about Google, but keep this in mind - THEY ARE REALLY EFFICIENT at identifying value where traditional business processes turn a blind eye.

    Making a BOLD PREDICTION - Nexus won't cost over 300.00. There's a very good chance that it might be priced well under 200.00.

    Google WILL NOT be trying to conquer the e-reader or music player market. Google is all about efficiency - and they don't do business with traditional fiscal models. My guess is that Google will valuate the widespread USE of the handset - condensing inefficient external devices into a simple integrated (can do) device.

    No I'm not an evangelist, but for a company that builds businesses around user adoption over bottom lines, I think the behemoth is more focused on getting the public to ADOPT a technology vs selling a product.

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