Is Google Setting Itself Up To Fail With Phone?

cracked/google phone

 

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.

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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.

8 comments about "Is Google Setting Itself Up To Fail With Phone?".
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  1. Nelson Yuen from Stereotypical Mid Sized Services Corp., December 15, 2009 at 10:46 a.m.

    The phone will not cost 500.00 - IF NOTHING ELSE, Google will subsidize the phone. There is value in the mass adoption of the Android platform.

    PS. Just my two cents - a corporation is no longer just a "shareholder vehicle" from an economic standpoint. There are opportunity costs, residual values, and efficiencies scaled from long term usability. Success in Google's eyes may NOT necessarily be large, short term profit margins on the sale of Nexus One.

  2. Michael Kremin from NeoGen Digital, December 15, 2009 at 11:23 a.m.

    Rumor has it that T-Mobile may offer the Nexus One without subsidy. However, T-Mo does offer financing on non-subsidized purchases.

    Google may also offer some kind of payment plan through a partner.

    Android needs a more controlled and consistent product. With the current Android phones, there are many differences in versions, hardware, and user interfaces. Google may provide a model standard that may ease the difficulty in developing for several versions. The Nexus standard may even be adopted by other hardware partners, with other options, providing more consistency in the marketplace.

  3. Roy Fuchs from MFN, December 15, 2009 at 12:58 p.m.

    Google did not get where it is today by offering either me-too products or even first mover products that got it shot in the back.

    If the Nexus One will be a US product incorporating GSM technology, as has been reported, there will be very few carriers that can support it. That may give Google the opportunity to control their device(s) in the same way Apple controls the iPhone, but Google cannot do with Verizon.

    Android may not be gaining share as rapidly as some observers believe it should perhaps because Verizon is a utility, not a consumer products company (likewise ATT), and Apple is a far more savvy consumer products marketer than is Motorola (I still think of Motorola as the guy in the horn rim glasses and white socks with his slide rule hanging from his belt). Which ads are better, the one that uses a bright TV screen to show you what you can do during an iPhone call or the one that has a robot pushing buttons on a dark screen?

    So with Google controlling, they may be able to jump start the platform. And is it possible that Google really makes the Nexus One the razor and sells it for what amounts to a well subsidized price in order to increase the number of platforms receiving their ads and patronizing their advertisers, that finding new ways to get users to suck up chargeable bandwidth may not be its objective function?

  4. Jonathan Mirow from BroadbandVideo, Inc., December 15, 2009 at 1:11 p.m.

    Gentlemen - this ain't rocket science. The reason the Droid has not surpassed the iPhone (as I believe it will) is because Verizon users are not iMoonies. Apple released the iPhone and thousands of their slavish cult members stood in line to be overcharged for a single-app-running toy on an inferior network. That's what Apple folks like - inferior products at inflated prices (don't argue this - just pick up a flyer selling Apple laptops and Dell laptops, do a feature by feature comparison and you'll see iMoonies pay about 5-6 hundred dollars for their operating system). Now, most normal people simply wait for their contract to expire and then get the latest phone at a normal price point. As far as Google - have these guys failed at anything so far? I rest my case.

  5. Pierre Wolff from Livefyre Inc., December 15, 2009 at 3:45 p.m.

    Kindle worked for Amazon because they are obsessed w/the user. Google is not. Try getting support on any of their products. Heck, if you can find where or who you're supposed to contact then you're already way ahead of the game. Amazon is about the customer first and in this arena, Google may just make us all appreciate the mobile carriers' customer service depts which by most measures are pitiful ;)

  6. Nelson Yuen from Stereotypical Mid Sized Services Corp., December 15, 2009 at 5:04 p.m.

    COMPLETELY DISAGREE with you P. W. Google's mantra is utility for the end user. They don't even have traditional revenue models - Google does not look at bottom line profit margins, they measure the success of a product in terms of adoption rates and audience proliferation.

    PS. Roy, I totally agree with your 2nd paragraph - but that can't be the only reason. That may be the main reason (which is why I implied the hidden value in my first post) but it's not just that.

  7. Jonathan Mirow from BroadbandVideo, Inc., December 15, 2009 at 5:46 p.m.

    I also DISAGREE w/PW. Especially about carrier's customer service. What carrier are you using? I use Verizon - I can call tech support any time and get a real person who knows what they're talking about AND speaks english (bonus). This is NOT the case w/Verizon Rhapsody (the music service) who outsources everything to India. I spent 10 minutes trying to explain the difference between "formatting a memory device" and the "format of a file". Rasheed never got it. I am the ultimate critical tech services consumer (I expect things to work the way they've been advertised) and I'm a happy Verizon camper. I use the Android operating system and it does things that make my 15 year old iPod addict want one. Seriously, try the voice activated Google search on the Droid - fast, accurate, amazing. Blackberry should hang their head in shame over the Storm (1&2).

  8. Amin Haq from Media Flint, December 16, 2009 at 2:06 a.m.

    If Google introduces the phone on an ad-subsidized model, and provides financial incentives (as does Microsoft) to searchers to use the phone to procure goods/services, Android may be able to compete with the iPhone.

    I wouldn't underestimate Apple, but it would be wonderful to see intense competition spurring American innovation yet again.

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