Wall Street analysts view last weekend's news that Google expects to launch its Google phone -- most likely during the first half of 2010 -- as a significant, but expected weapon in the competitive battle for the wireless consumer, especially in the U.S. The unconfirmed name: Nexus One.
Tweets on Twitter from Google employees, and a post on the company's mobile blog, set off the media firestorm during the weekend that had analysts rethinking strategy and stock prices.
Since pricing details are not yet available, Bernstein analyst Jeffrey Lindsay points out that unless Google is prepared to subsidize the devices, it will retail at the typical smartphone price -- about $500, the price a Droid costs if bought from a retailer such as Best Buy. "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," he writes.
Lindsay believes that although Google had avoided expensive competitive moves, such as buying spectrum or signing carrier deals, the phenomenal success of Apple's iPhone and the Apple Store has pulled the Mountain View, Calif. company into the wireless fight.
Calling the decision a "risky step to jumpstart Android," Lindsay points out that the existing phone running Android has failed to adequately compete with Apple's iPhone.
Apple's exclusive deal with AT&T to support the iPhone reportedly expires in June 2010. Lindsay believes Google anticipates a Verizon-based iPhone that would challenge its Android initiatives, especially the recently released Droid phone on Verizon's network.
In a research note published Monday, J.P. Morgan analyst Imran Khan writes that Google is trying to drive paid-click growth. The search engine's aggregated paid clicks growth rate declined from 52% year-on-year in the first quarter of 2007, to 14% in the third quarter of 2009.
Khan notes that mobile search advertising should raise the average price per click. Google will have access to better consumer information to target ads, but it's a tough market to compete with established players that have spent years building expertise. Even established brands fell short. Palm -- which once owned the smartphone market -- rested on its laurels, only to try to make a comeback with the Palm Pre. The handset maker continues to struggle
Broadpoint AmTech analyst Ben Schachter isn't expecting a traditional smartphone. "It will be a mobile device that challenges today's business models, notions of data versus voice, and how consumers should pay for mobile services," he writes in a research note published Monday.
But there are four risks Schachter brings to light: margin pressure, competition with its Android partners, possible failure, and losing focus.
Analysts have doubts that Google can move into businesses that require support for hardware.
Google's mobile chief, Andy Rubin, the founder of Android, has hardware experience. He also previously cofounded and ran Danger, the creator of the Sidekick device, and did some earlier work on WebTV, according to Schachter. And while Google has not brought a piece of hardware to market, Amazon and its Kindle provide some evidence that it can be done successfully.