Nexus One Could Torpedo Google Android Strategy

Persistent rumors have Google scheduling an event for Tuesday to launch its new Nexus One mobile phone. Engadget was even fortunate enough to procure one ahead of the launch. Whenever Google makes it official, it's clearly an impressive looking device, but ever since I heard about Google manufacturing its own phone, a thought has been nagging at me: Why do it and what are the company's goals in creating its own branded phone?

Why Throw Your Partners Under the Bus?

When Google announced a mobile phone operating system, it made sense to me. It could create a portal of sorts through the mobile hardware to Google services where it could feast on the ad riches associated with that mobile traffic. Then Google created tools for developers and it made the OS open source and free, really free, no strings attached whatsoever. The ecosystem has flourished and Motorola recently released the Droid, a phone with a lot of buzz, that appears to be the best Android-powered phone yet.

As 2009 closed, there were predictions of a big market share boost for 2010. In other words, the plan is working. The system is developing, even flourishing.

As I've written many times, Google's core business is search and Ad Sense. Almost everything the company does comes back to that, so why would it get into the hardware business and essentially sabotage its own business model by competing against those same developers?

What Are They Thinking?

Don't get me wrong. The phone looks nice, maybe a little too nice. It's sleek and has enough bells and whistles to please any phone geek, but the fact that it's so nice puzzles me even more; as though Google really wants to compete with the development system it has worked so hard to build. It reminds me of Microsoft's plan to open up retail stores in Malls near Apple stores. The problem with this approach is that there are other retail partners like Best Buy selling Microsoft products in that same retail zone, and by opening a store there, Microsoft is essentially competing with its own distribution system.

Google appears to be doing the same thing by creating a phone that, at least according to Engadget's initial reports, improves on the Droid. Why screw Verizon, Motorola and other partners by putting your brand on the outside of a phone when what really should matter to Google is the OS that runs the phone?

I've thought a lot about it, and I still don't see a good reason for producing this phone. Google could have sat back, watched its Android market share explode and reaped the rewards of its strategy.

Even if the Google phone is wildly successful, and it's not clear it will be (or at least enough), I don't see it making up for the revenue it will likely lose by essentially competing with itself and in the process alienating its partners. And I'm still left wondering why Google would do that.

[jccraig]

Does anyone like the cell phone company's customer approach? I despise the contracts, gouging, limitations, and overall business model that is not customer centric. Google is in a perfect position to change the whole world of communication as we know it. I pray they actually are thinking outside the box enough to make this work!

[Techwriter10]

I agree with you Jccraig. In fact, I wrote a post on that very subject recently called Could Google Phone Mark End of Network Domination. But at the same time, I still think Google would be better served as company to stay out of the hardware business.

Thanks for your comment.

Ron

[lordram]

There is nothing like a little competition to get the adrenaline pumping. Maybe this is a litte insurance policy Google has created to tell the rest of the gang, "look guys, get behind this seriously, or else, just in case our hardware takes off, what will you guys look like an year from now?"

Besides, if the other vendors succeed, Google can always pull the plug on their hardware whenever they want ...

[Techwriter10]

The trouble with that approach, lordram, is that Google is essentially competing with itself in this instance. As I wrote, they don't really need to compete with the system they've already set up and appears to working just fine.

Thanks for commenting.

Ron

[nathanmarks]

I don't think this is as complicated as everyone makes it out to be. The Droid is only available on Verizon; the N1 only with Tmobile (and maybe At&t). Some people won't get an iPhone or Droid because of the carriers the phones work with; some also won't get an N1 if it only works with T-mobile. This isn't about competing with the Droid (or even with the iPhone to some degree): it's about creating market share across telecoms and demonstrating what Android can do. Someone's going to see the N1, like it, but may not want to go w/ T-mobile. No problem- the Droid is very similar but on Verizon. Likewise, some may have thought about the Droid but were turned off by Verizon (me) or the keyboard (me as well)- guess what? Now they have more options. If anything, this is going to be a boost to all Android phones.

I'm sure Google has some ideas in store for N1 that Verizon, Sprint, or At&t wouldn't go for (VoIP?). So it makes sense that the N1 is on t-mobile, the smallest( (right?) national co. which has a tendency to try new ideas (since it's likely only going to increase their customer base). so Google and Tmoble try a few things; if they work, expect other carriers to follow. If they don't, no worries: the introduction of the phone has already created a lot of attention, which is good for all Android phones.

[Techwriter10]

Nathan,
Interesting analysis, but I think Android was doing well already, and as I pointed its market share has been growing steadily and expected to continue to do so through 2012 (according to one article I saw). As for the carriers, there is something to be said for this, but there will be Android phones eventually across all carriers whether or not Google gets in the game.

Thanks for taking the time to comment.

Ron

[nathanmarks]

Ron,

You could be - and probably are - right. I'm only offering my perspective as someone who has neither an iPhone or Android device and is looking at both of them since my contract on my T-mobile Blackberry is up.

Yes, Android is doing pretty well, but from an outsider's perspective, at this moment in time it's all about the Apps. Simplistic, I know, but again, I'm speaking from the perspective as someone who sees a phone doing all sorts of cool things and I want that. If I'm deciding between an iPhone or an Android phone, the iPhone seems to be a clear winner since it has (gasp!) 100,000 apps vs. Android's 18,000. Granted, a vast majority of the apps may be crap, but the discrepancy in number isn't doing Google any favors. So perhaps what they need, what they want, is something to dramatically increase the trajectory of Android apps. What better way to do that than increase consumer demand and attention?

As someone who really likes the design and features of an iPhone, I've been with too many of my friends who couldn't get a signal on their iPhone or have had calls dropped. I'm not saying that a carrier has to be perfect, but At&t has enough to make me wait it out.

I also really wanted to get excited about the Droid, but the design is, frankly, hideous and the keyboard was a joke. I've also had contracts w/ all of the carriers, and while I hate them all to some degree, I hate Verizon and Sprint far more and hate T-mobile much, much less.

Maybe I'm an anomaly, but the carrier has a lot to do with what phone I go with.

But here's the deal. I'm not looking for an iPhone Killer. I'm looking for a phone with offers the functionality of an iPhone and to know that it works very, very well, will be supported for some time, sync effortlessly with my gmail, and work with a carrier that doesn't strike me as pure evil.

[Techwriter10]

The carrier matters to the extent it doesn't gouge you (which they all tend to do, let's face it) and it works in your area. I chose AT&T long ago because they worked in my house and Verizon at the time didn't. Years later with family contracts that have different renewal dates, it's pretty hard to switch at this point. I use an iPhone and I've enjoyed it a lot. I haven't had any problem with making calls or dropped calls, even when traveling (except in NYC). It's been great for me. I don't love paying a $30 monthly data fee, but I look at at the cost of doing business.

I've looked at the Droid and I really liked what I saw. My son has a Samsung Impression and it has a very nice keyboard. There are lots of interesting phones out there, but there is usually some sort of trade-off, whether it's carrier, price, keyboard, touchscreen, work compatibility and so forth.

You just have to decide which features are most important to you. To me, the number 1 job of a phone though is that it makes phone calls. May seem obvious, but it's easy to lose sight of that these days.

Ron

[dahhboo]

Ron,

I totally agree w/ your basic concern: I've been thinking the same thing since the N1 was initially announced, er... leaked.

The only rational explanation I can think of is that Google believes that the 1st wave (anything pre-2010) of Android phones is starting to set an expectation of "not as good as an iPhone."

If Google can prove that consumers will prefer the N1 to the Hero and the Cliq (since comparing across carriers is basically impossible), then hopefully the bigger carriers will push for phones as good or better than the N1. This should hopefully raise the quality level for all Android phones (in theory). We'll have to wait n' see,

[Techwriter10]

Dahhboo
Interesting theory, but you would think that the carriers would clamoring for the best phones they could get regardless, wouldn't you? But you're right that in the end we just have to wait and see how this plays out. Should be interesting to watch though, shouldn't it? :-)

Thanks for the comment.

Ron

[woooee]

The same kind of thing was said when Proctor and Gamble introduced Oxydol in the late 1920s. It competed with Tide, which was then the market leader. Sure enough, Oxydol reduced Tide's market share but the combined market share was greater than Tide's alone.

[Techwriter10]

Wooee,
Interesting comparison, but we are talking about consumer goods strategy versus a strategy of giving away the basic product (in this case, the Android OS). I'm not sure the two are an apples to apples to comparison, but I'm impressed with your knowledge of history.

Thanks for commenting.
Ron

[LarryCresskill]

Will the new google phone be "unlocked" and, if so, would anybody want to recommend the best carrier to use with unlocked phones.

[maddoghall]

It is fairly easy to get an unlocked phone, if you are willing to pay the full price for an unsubsidized unit. I am using an unlocked HTC Hero.

The real question will be if the Nexus will allow an unsigned image to be installed and booted, allowing the customer to change the operating system. After all, Android is supposed to be "Open Source"