79 Comments

Summary:

Google plans to close its online retail store for the Nexus One handset in the U.S. and instead pursue the mobile operator retail model it uses in Europe with Vodafone. A failed experiment? Perhaps, but at least now Google won’t be competing with its partners.

Google plans to close its online retail store for the Nexus One handset in the U.S. and instead pursue the mobile operator retail model it uses in Europe with Vodafone. And as available inventory spreads worldwide, Google will morph its web storefront into a showcase for information on a wide range of available Android handsets. What was once a cannon shot across the bows of the U.S. carriers meant to change the way consumers purchase phones is now a small rubber bullet falling short of its target.

There’s a few lessons to be learned in the overall Nexus One experiment. With perhaps 200,000 Nexus One handsets sold since early January, the web store closure indicates that consumers aren’t ready to purchase a new handset sight unseen. While there are several online venues where one can purchase a phone — Amazon and Wirefly come to mind — all of the phones available online can also be found in brick-and-mortar stores, where consumers can get some hands-on time with them to help decide which model they is best for them.

Then there’s the marketing issue — there really wasn’t any. Sure, there were Google ads on the web, but no mainstream U.S. media outlets carried ads showing off the phone. How else would a potential customer even know the Nexus One was available for purchase? Contrast that with the $100 million ad campaign that Verizon sunk into the Motorola Droid launch and it’s easy to see why the Droid outsold the Nexus One by a factor of nine in the first 74 days it was available.

Finally, it seems clear that the majority of U.S. consumers still aren’t ready to adopt the unsubsidized handset model that Europe and other areas use. People here gripe about their 2-year contracts, but aren’t willing to go contract free by paying full price for a new handset. I’m done griping, as evidenced by my own purchase of a Nexus One for $529 in January. I have the freedom to switch phones or carriers without an ETF, or Early Termination Fee, and I pay $20 a month less for my plan than a subsidized customer does for the same plan. Either I’m still in the minority or I was raised in Europe in a past life.

All those lessons aside, the one factor that Google isn’t talking about  in today’s announcement is how its Android partners reacted to competing with Google. Essentially, that’s what happened the moment Google announced its own phone — it set the stage to upset the very partners it needs for Android. And without happy partners, Google can’t continue its assault on Apple, Nokia, Research In Motion and others in the mobile space. For that reason alone, pulling the plug on its Nexus One store just might be the best thing to happen yet for Google in the ongoing Nexus One story. Given that there are now 65,000 Android phones shipped daily, the partner relationships were really all Google had to lose in the first place.

Related research on GigaOM Pro (sub req’d):

Google’s Mobile Strategy: Understanding the Nexus One

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  1. Talib Morgan Friday, May 14, 2010

    I continue to assert the problem is not that people don’t want to buy unsubsidized phones. Instead, manufacturers will have to get to a point where they are okay with not getting obscene (in consumer devices, at least) margins on smartphones. With a bit more marketing and a $200-300 price point, the Google store could have been a success.

    1. yep I agree, somewhere I read that IPhone, Nexus One, Droid et all take only around 150 dollars to manufacture and if you double to cover all your other costs(R&D, design etc), it will come to around 300 dollars.

      1. As engineers, we were taught to quadruple the manufacturing cost to get the retail price. That takes it to $600. I’m not saying that’s right, but the middle-man economy demands it.

      2. That makes sense Kava with regards to products that have to be sold through Walmart, BestBuy, or mobile retail chains, but this article is about the Google Nexus One being sold DIRECT from Google to customers online, hence no “middle-man” retailer.

        Manufacturer > Google > Consumer

        instead of

        Manufacturer > Apple/Nokia/RIM/etc. > Retailer > Consumer

        Therefore Google could easily have sold the phone for far less.

        If they’d been willing to sacrifice some of their upfront profit to have a strong initial outing and grab significant market share, they could have actually been a contender.

  2. Google’s inability to provide appropriate Customer Service and resolve significant Nexus One issues are the real culprits here: 3G connection, screen calibration, inability to view screen in sunlight, dropped calls, etc.. Can’t help but wonder if Google is preparing to offload all the Nexus One inventory to the carriers who will be stuck trying to service phones with fatal flaws. Don’t waste your money!

    1. Jim

      I am with you on this. It is not just Nexus One, but across the board. Unless Google figures this out, it cannot be a real consumer power so to speak with all its new efforts.

      I am a big believer in their vision but not so sure that they have the capability of managing the details needed for being a consumer powerhouse. I think they still think too much from a machine perspective and this failed web store effort is a mere reflection of that.

      1. ahem… and do you consider Apple’s customer service acceptable? I have experienced the “apple method” several times recently and it is POOR.

        Worse is ATT’s! These companies (and others) daily prove that poor customer service is not a deal breaker.

        I still think it is interesting that people interpret google’s store as a failure. Yet their shopping/checkout services are responsible for a vast number of transactions (and no doubt a good amount of customer service). I remain convinced that the store accomplished what google wanted; y’all just don’t know what that goal was yet.

        Have any of you actually investigated what types and volumes of direct customer service google currently provides? Or are y’all just making assumptions?

    2. Kevin C. Tofel Jim Friday, May 14, 2010

      I agree with both of you on the customer service challenge. However, Google and HTC did address the 3G signal issue with a firmware update — I wish it had been sooner, but it wasn’t. I don’t have any screen calibration issues or dropped calls and the challenge to view the screen in direct sunlight is a direct function of the AMOLED display, which is being used on other non-Google phones. I wouldn’t call that a Nexus One issue that Google has left unresolved.

    3. +1

      You don’t ask customers to shell out $529 for a high-end device like that and then relegate customer service to online message boards. That is insulting.

      1. I agree wholeheartedly.

        It’s tough enough to get people to spend that kind of money on something that they haven’t yet seen, but the sell becomes tremendously harder when they know that they won’t get the kind of support that they are used to when they buy other phones and electronics.

    4. I agree…

      If you ignore the merits of the actual products, its interesting to contrast Google’s go to market with the Nexus One vs. Apple’s with the iPhone. They couldn’t be more opposite. In fact, Apple succeeded with the iPhone in all the areas where Google essentially failed with the Nexus One.

      For example: Google online only support vs. Apple walk up genius bar, Google online only sales vs. an army of Apple Store + ATT stores, Google launching on a niche carrier (tmob) vs. Apple with a large carrier (ATT), Google little to no marketing vs. sustained marketing blitz by Apple, Google unsubsidized pricing model (higher perceived barrier to entry) vs. $99 iPhone 3G and subsidized 3GS.

      Not to get all MBA on everyone, but it really seems that google screwed up 3 of the 4 Ps of basic marketing. Even though their product was compelling, their pricing, placement, and promotion made little sense…

      All of this really kind of shows the relative immaturity of Google as a consumer product company vs. Apple’s 30+ year veteran record such markets.

  3. What plan and what provider do you use with the unlocked phone. I am looking to get a non-contract sim too.

    1. Kevin C. Tofel KIran Friday, May 14, 2010

      I use T-Mobile’s Even More Plus plan, which provides me unlimited voice minutes, data and messaging for $79 a month, without a contract. I was originally paying $59 a month for the same plan limited to 500 minutes, but I had two other handsets at that time. Since I dropped my Palm Pre and iPhone, I now use the Nexus One exclusively and increased the minutes to unlimited.

      1. Ok cool. 59$ for 500 mins and unlimited messaging and data sounds awesome. Will need to verify if tmobile has good reception around Boston before switching. Mostly this should not be a problem.
        Thanks for the information K. !!

  4. Alan A. Reiter Friday, May 14, 2010

    You’re saving $20 x 24 months = $480. The Nexus One cost $529.

    So you could look at it as paying only $49 for the phone.

    Too bad most consumers don’t realize the long-term savings. And too bad it’s not easy to find these sorts of deals on unlocked handsets vs. lower monthly bills.

    1. Yup Alan, our instant gratification culture focuses more on the up-front cost, not the long term over the contract. Then again, to realize the long-term savings, you have to stick with a Nexus One for a while. That’s the other thing — we’re fickle too. When we want change, we want it when we want it. ;)

      1. Kevin,
        What plan do you use?
        I never bought the Nexus one even though I wanted to because I thought I would end up paying the same amount I pay for the iPhone every month.

      2. Pveera, I use T-Mobile’s Even More Plus plan, which provides me unlimited voice minutes, data and messaging for $79 a month. Much less than my old iPhone plan.

  5. The problem with going the unlocked route is that right now, T-Mobile is the only provider that cuts you a break for bringing your own phone. As far as I know, the others charge you the same amount per month whether they are subsidizing your phone or not – and it doesn’t go down at the end of the contract period, either. Set against that, the value of bringing your own phone is limited – especially given that you lock yourself into GSM or CDMA, and in the case of the latter you’re at the mercy of the carrier as to whether they will connect your phone. And even if you HAVE GSM, you’re stuck because AT&T and T-Mobile use different frequencies for 3G – and no phone that I know of supports both.

    The reason the rest of the world beats us ragged on mobility is because they all standardized on GSM and on 900/1800 Mhz. We will continue to be a third-world country for mobile phone purposes (and that’s an insult to the third world) until we have a single standard that actually lets you move between multiple carriers. LTE could be that, but I’m not holding my breath.

    1. Kevin C. Tofel jon Friday, May 14, 2010

      Jon, you’re absolutely correct on the frequency challenge we have here in the U.S. An unlocked GSM phone typically doesn’t gain us much when it’s an either/or choice for data due to the different frequencies used by T-Mobile and AT&T.

    2. That’s an epiphany I’ve had as well. Although I love my Nexus One and T-Mobile’s a great carrier, the freedom I get from an unlocked phone is a moot point when my only other choice is AT&T.

      T-Mobile might as well unlock all their phones and advertise that fact. No one’s going to switch to AT&T, a network barely capable of making a call.

      The 3G issue is also annoying.

  6. I suspect Google never had any intentions of being a large scale phone retailer, but instead, wanted to show people what a top line Android phone looks like without being mangled or crippled by phone companies and cellphone manufacturers.

    1. Hmmm… someone I can agree with. Arguably, building the Nexus One, Google actually bore the tooling and development costs for HTC to get into the highend Android equipment market. Thus “leading” the Incredible to market?

      More to the point, I believe the whole store thing was just more Google research and that it is actually for something else entirely. After all, even if someone like Google did decide to open an online store, why would they choose to sell cellphones of all things?!?!?! (Again, because it accomplished a different goal while letting them do their research in a “non-threatening” way.)

      I suspect their next “real” product will be (wait for it)the “gRouter”: a hybrid wireless home broadband router that replaces your current cable or DSL router but that also does direct wireless mesh networking (imagine the intersecting grout lines of your nearest tile floor). A special feature of this device will be its routing capabilities, which will enable it to dynamically route traffic through a mesh of nodes, including moving ones (in cars and other vehicles). This will allow for a dramatic increase in home broadband without actually laying Google fiber to the door. Instead they will be able to analyze the mesh and deploy multiple network backhaul points based on density and utilization.

      I wouldn’t want to be in the cellphone business then; or the home broadband business; or the tv business; or the home phone business

      1. That gRouter will add White Spaces to the mix. And work in addition to your current adsl, cable or fiber connection. Google can make it for $19 and sell them by the millions to cover the world with free wireless broadband on White Spaces, available also for all Android phones.

  7. modelportfolio2003 Friday, May 14, 2010

    Kevin, like you I am a happy Nexus One buyer and I live in UK and bought phone unlocked (SIM free) for $ 529 plus import tax. Six GSM carriers here compete for my monthly rolling contract (no long term contract—just 30 days notice and I am free) and I pay between $ 23-30 per month, depending on which carrier I choose (Vodafone, Orange, O2, Virgin, T Mob, 3) for 600 talk mins and unlimited text and unlimited web. That is a lot cheaper than the savings mentioned by Alan in the response.

    Really it is a sad day that the US consumer gets screwed again by the monopolist carriers–Verizon, Sprint, ATT. I do not need nor want my hand held by their commission salespeople who know less than I do about phones. They have to support this expensive, legacy infrastructure and managed to thwart Google. Hence US consumers locked into expensive smartphone deals for 2 years while technology changes.

    1. You got screwed too, $529 for an unlocked Nexus One is way too much profit margins considering the phone costs $150 to manufacture and Google has said they don’t want to profit on hardware.

      My guess, HTC gets all the profits, gets to decide the price unlocked, and HTC has telecom customers who actually decide that price unlocked has to be kept over 300% of manufacturing cost. Also, I think Google gave HTC all rights to “clone” the Nexus One in HTC Desire and Droid Incredible.

      1. Hamranhansenhansen Charbax Friday, May 14, 2010

        Nexus One has double the processor speed and double the RAM from a typical smartphone, and it has an OLED screen which I am personally not at all impressed with and would never buy, but I know it is very expensive. If you know how to make a Nexus One for $150 you should go into the business.

        If we were talking about iPhone 3GS, there you get 4-8 times the storage of a typical smartphone, 10 times better touchscreen, and about 1000 times more software. So if you can make iPhone 3GS for $150 you should go into the business also.

        Another thing you should note is that even if one of these carriers gives you a free phone, it would cost them $50 to do so. So what you’re really saying with a $150 price point is $100 for the phone (hardware and software). It’s really hard to make and sell any kind of electronic device for under $100.

        So basically, I think your $150 price point is a pipe dream. I don’t think you can buy a bag of Nexus One parts for that.

  8. I use a AT&T sim in a TMobile N1 and don’t miss the 3G data at all. The Edge data is still decent speed, and where it’s not, I have wifi. I’ve had AT&T 3G before, and I really don’t notice a different.

  9. Funny how the iPad could sell “sight unseen” and unsubsidised.

    1. Kevin C. Tofel Tom Friday, May 14, 2010

      I’m sure the marketing blitz and media reporting had nothing to do with that. ;)

      1. Actually, I don’t think it did. I for one have no use for Apple, generally speaking… But I bought (and love) an iPad. It’s the hardware more than the software.

        Sure the marketing will kick in…but the early adopters are a different segment.

      2. So, by that rational, because Microsoft spends twice as much on advertising as Apple, Microsoft Windows Mobile should should be the market leader. =p

    2. Conquistador Tom Friday, May 14, 2010

      Apple is not a fair comparison here. They have the world’s most loyal fanbase, and their build quality is pretty high.

    3. Hamranhansenhansen Tom Friday, May 14, 2010

      Yeah, I think there is too much excusifying for Google. There was a huge amount of “Google Phone” hype before the launch and it fell totally flat when people saw what was actually being offered was just another Droid, except without the Verizon and the subsidy.

      I thought the announcement that they’re closing their Web store lacked an “oops.” Doesn’t matter how big or smart you are, when you fall flat on your face it’s actually better to say “oops” than “I meant to do that.”

      Is Google in mobile for real, or is it just a hobby? When something goes well they say “for real” but when something goes bad, “it’s just a hobby … they’re doing a test.”

      200,000 Nexus One in 6 months? Apple sold 20,000 iPads in their very first hour of pre-orders, when nobody had seen or touched an iPad.

      I don’t mind that these companies are playing different games. But I do mind when people try to pretend they are when that’s convenient and are not when that’s convenient.

    4. I don’t think the iPad is a fair comparison for the Nexus in that regard. The iPad sold sight unseen to a lot of people who have never owned or possibly even seen or touched a tablet computer before. The Nexus, on the other hand, is a smartphone, which meant that it was trying to enter an already-established device market, and one into which a high-end, well-marketed Android phone had just been released. I think that instead we should take the example of the Nexus and use it to make some predictions about possible fates for Android tablets like the Notion Ink Adam, which is hotly anticipated in geek circles but virtually unknown otherwise.

  10. I, for one, am very happy to have an unlocked N1 in my pocket. Traveling back and forth between Europe and the US really makes such a device a must. And I hate the fact that I cannot buy a phone if I want to. I have to sign a contract, break a contract, pay a fee, beg them to unlock (maybe they will, maybe they won’t) maybe lose my warranty. I hate it.

    I don’t care if it is stores but PLEASE sell it to me without the bullshit if I want to buy it. I know I am in the minority, but…

    Of course, the other problem why an unlocked model won’t work is the service providers. For GSM there is literally no pre-pay plan that gives you data. (And I mean data for smart phones, like as you so often say, data is not data or something independent of the type of device.) I can go month to month but I don’t want to go in start up such a plan for 10 days in the US, just to have to start one up again with another number a few months later.

    Right now I am stuck without data (or I roam $$ with the European chip). I’ll be in the US a bit more in the next year and a half so I’ll get on a family member’s plan and have it switch on and off when I am gone for a longer period of time. But it is still bullshit. I can’t buy a phone, even if I wanted to, for ridiculously high price. I can’t buy a service for ridiculously high price. What gives?

    And if Google sold an unlocked CDMA phone. Could Sprint or Verizon simply say I won’t activate it. Of course they could.

    Alright. Rant over.

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