Entelligence: A Google Phone could be the death of Android
By Michael Gartenberg 
posted December 15th 2009 6:04PM
posted December 15th 2009 6:04PM
Entelligence is a column by technology strategist and author Michael Gartenberg, a man whose desire for a delicious cup of coffee and a quality New York bagel is dwarfed only by his passion for tech. In these articles, he'll explore where our industry is and where it's going -- on both micro and macro levels -- with the unique wit and insight only he can provide.
Without a doubt, the big buzz since the weekend has been over the "Google Phone," an HTC-built device called the Nexus One handed out to Google employees last week in what Google describes as a "mobile lab." Confirmed to be running Android 2.1, the Nexus One has once again raised the idea of Google selling unlocked devices directly to consumers. (Google has been selling unlocked HTC Android phones for some time, but only to developers.)
It would be a strange turnabout if Mountain View made this move, directly going in the face of previous assurances that Google had no plans to compete directly with Android hardware manufacturers. What's more, there are a lot of unanswered questions here.
The first question: How would Google bring an unlocked phone to market? There are really only three ways to sell phones. The first is to license spectrum from a carrier and become a mobile virtual network operator or MVNO -- a business model that time has proven to be a failure. The second, of course, is to partner with carriers and offer phones at discounted prices through carrier subsidies, which is more or less the case with every successful device on the US market today. The final model is to sell unlocked devices at full retail price that can be used by consumers on the network of the their choice. This is allegedly the model Google will be using to sell the Nexus One.
Selling unlocked devices sans carrier is a lousy business model in the States, however. There's no mass market for unlocked phones in the US -- just ask Nokia how hard it is to sell a high end phone with no carrier subsidy or support. Either Google would need to take a huge loss on every device to achieve a consumer-friendly price point, or hope to convince consumers to pay full price for an unsubsidized device -- even though Eric Schmidt in the past has argued phone prices need to trend to zero through full subsidies. What's more, an unlocked device will at least get you onto T-Mobile and AT&T's EDGE networks, but Verizon and Sprint both require phones that are approved for network use and can easily be locked out.
There's something even more fundamental that struck me as I listened to the "Google Phone" chatter, and that's the basic challenge of licensing to competitors. One reason Microsoft is successful in the PC industry is that it's never built PCs. Licensing to folks you compete with doesn't work: either your licensees do better than you do, in which case why bother, or you do better than your licensees, in which case your licensees wise up and go elsewhere. Apple's tried this twice: first with the Newton, where Apple did better than the licensees, and second with Classic Mac OS, where licensees like Power Computing did better than Apple -- eventually driving Cupertino to give up on the licensing idea entirely. Palm tried it, and it eventually had to split up into Palm and Palm Source. Nokia tried it with S60. The whole point of the Open Handset Alliance is to create a partner ecosystem of handsets and other devices, and a "Google Phone" that undercuts both carriers and licenses might well be the death of Android in the marketplace.
There might be a strategy here that allows for this to happen -- I can even think of one or two -- but until someone can give me a ten-word answer to how Mountain View can manage to build an ecosystem while trying to compete with it, I will remain skeptical that the Google Phone ever comes to market.
Michael Gartenberg is vice president of strategy and analysis at Interpret, LLC. His weblog can be found at gartenblog.net. Contact him at gartenberg AT gmail DOT com. Views expressed here are his own.
It would be a strange turnabout if Mountain View made this move, directly going in the face of previous assurances that Google had no plans to compete directly with Android hardware manufacturers. What's more, there are a lot of unanswered questions here.
The first question: How would Google bring an unlocked phone to market? There are really only three ways to sell phones. The first is to license spectrum from a carrier and become a mobile virtual network operator or MVNO -- a business model that time has proven to be a failure. The second, of course, is to partner with carriers and offer phones at discounted prices through carrier subsidies, which is more or less the case with every successful device on the US market today. The final model is to sell unlocked devices at full retail price that can be used by consumers on the network of the their choice. This is allegedly the model Google will be using to sell the Nexus One.
Until someone can give me a ten-word answer to how Mountain View can manage to build an ecosystem while trying to compete with it, I will remain skeptical that the Google Phone ever comes to market. |
Selling unlocked devices sans carrier is a lousy business model in the States, however. There's no mass market for unlocked phones in the US -- just ask Nokia how hard it is to sell a high end phone with no carrier subsidy or support. Either Google would need to take a huge loss on every device to achieve a consumer-friendly price point, or hope to convince consumers to pay full price for an unsubsidized device -- even though Eric Schmidt in the past has argued phone prices need to trend to zero through full subsidies. What's more, an unlocked device will at least get you onto T-Mobile and AT&T's EDGE networks, but Verizon and Sprint both require phones that are approved for network use and can easily be locked out.
There's something even more fundamental that struck me as I listened to the "Google Phone" chatter, and that's the basic challenge of licensing to competitors. One reason Microsoft is successful in the PC industry is that it's never built PCs. Licensing to folks you compete with doesn't work: either your licensees do better than you do, in which case why bother, or you do better than your licensees, in which case your licensees wise up and go elsewhere. Apple's tried this twice: first with the Newton, where Apple did better than the licensees, and second with Classic Mac OS, where licensees like Power Computing did better than Apple -- eventually driving Cupertino to give up on the licensing idea entirely. Palm tried it, and it eventually had to split up into Palm and Palm Source. Nokia tried it with S60. The whole point of the Open Handset Alliance is to create a partner ecosystem of handsets and other devices, and a "Google Phone" that undercuts both carriers and licenses might well be the death of Android in the marketplace.
There might be a strategy here that allows for this to happen -- I can even think of one or two -- but until someone can give me a ten-word answer to how Mountain View can manage to build an ecosystem while trying to compete with it, I will remain skeptical that the Google Phone ever comes to market.
Michael Gartenberg is vice president of strategy and analysis at Interpret, LLC. His weblog can be found at gartenblog.net. Contact him at gartenberg AT gmail DOT com. Views expressed here are his own.
Yes, we all know Google is stupid.
That's what you're saying,r ight?
Goggle is stupid.
They don't know what they're doing to themselves.
Uh huh.
Perhaps there's more to this than meets the eye, ya know?
@Freakin Ijit
Google Owns everything on the internet now. They can cancel all google services for other phones and only allow it for this phone
AHAHAHHAH!
instand PWNAGE
@NAME:
One would think thats the case, but since they don't provide anything that there isn't an alternative for, I think people would eventually forget about them after some time.
@Freakin Ijit Google has announced NO plans to actually sell the "Google Phone" - least of all outside of a carrier. It's an HTC device. HTC has relationships with every carrier in the US. As the article clearly points out: what would Google gain by selling this device off-network? It's not a model that works in the US. The devices are too expensive and your ability to use networks in the US is limited.
Slap-happy bloggers have decided Google will sell the Nexus One standalone. No one from Google said they would.
I think this was as much a move to get Google employees off the iPhone (which they are abandoning)
@Brad Hubbard
Not slap-happy bloggers, the Wall Street Journal.
http://online.wsj.com/article/SB10001424052748703757404574592530591075444.html
You slap-happy commenter, you :)
@Freakin Ijit
wasn't the G1 also considered the Google Phone brand but sold by HTC, I'm sure this phone will also go the same way as the G1 since it was already manufactured by HTC. Google sure doesn't want to jeopardize it's market until it has secured 95% penetration and ousted most of it's competitors...
@Ruben "One would think thats the case, but since they don't provide anything that there isn't an alternative for, I think people would eventually forget about them after some time."
What company does sell products that there is no alternative for? Every product on the market today has an alternative: Windows/OS X, PS3/XBox 360/Wii, Ford/Chevy, etc.
It is called competition and it is something that Google has proven to be VERY good at.
@001 Just because the WSJ reports on rumors doesn't make them facts.
@Freakin Ijit ,
Michael has taken a US centric view and very succinctly outlined the pitfalls of Google launching its own phone. Even though I have been sceptical of the view that Google would indeed launch its own phone. Lately, some hard evidence has come forward, for example, the registration of the Trade mark 'Nexus One' by Google. See http://bit.ly/52UExD
However, there is some logic for Google branded phones:
1. Most manufacturers are skinning the Android with their own GUI. There exists a demand for an Android phone with the unchanged features. Google can fit in here.
2. Most manufacturers have made a token presence with Android OS. Majority of their devices still use other more established OS. Google can give that push for mass adoption of the Android OS globally.
3. Most manufacturers have been lagging behind in adopting the latest version of the Android OS. Google’s direct presence will bolster driver development and adoption of the latest versions of the Android OS.
4. Google is testing the 'Nexus One' world wide, so it is possible that it would launch the unlocked versions there (since unlocked phones are the norm rather than an exception in most of the global markets)
5. It is also, possible that Google could certify a certain category of phones from manufacturers as 'Nexus One" provided they meet its exacting software & hardware specifications and get the leverage of the Google brand.
Lastly, I think Google will be able to retain members of the Open Handset Alliance if it remains concurrently open to all of them about the future development of the Android OS.
@(Unverified)
I think point #5 is spot on. That makes a lot of sense considering the hardware specs they established for Chrome OS. Plus one for you my friend!
@(Unverified) #4 in this little comment is pretty legit as well. I'm US military in Italy, where you can't even find a locked phone, because there are none, and that's basically because European countries are so close to each other, and the smarter Europeans have different SIM cards for different countries, which = different carriers. Google would have an effin hay-day in Europe if it was released over here. Thing is, I think they'd have to release it through a carrier over here somewhere, as there really aren't any electronics superstores to speak of, mostly just little locally owned, or sometimes franchised shops. I'm looking forward to see how this pans out over here.
@PaladinX13
A very entelligestic opinion indeed, although I have a feeling that google is already seeing this scenario (they always do, don't they) It will be highly interesting to see this one plays out. Detailed overview Nexus Phone Updates: http://bit.ly/google-phone-reactions-opinion
@(Unverified) I could see Google licensing a spectrum to some US carrier, acting as a mobile virtual network operator and selling the phone subsided.
They could actually make cost-price for the phone and unlimited data, since they'd be probably making money by search and advertising online through their virtual network users with cheap, fully integrated online experience on their mobile phone.
It's a bit over the top, but seems to me that it actually could work.
Keep your fingers crossed..
@Johanu If you think about it, WHY has Google developed an open-source mobile OS?
I'd say it was to boost smartphone sales, boosting the number of internet users by being able to be online everywhere, enlarging their revenue in online advertising.
I've got nothing against Google, and don't mind that much Google ads because they provide me email, rss reader and docs, and so on. So why couldn't they start providing cheap internet access?
@001 "The phone, called Nexus One, was designed inside Google and will be sold, at least initially, without being subsidized by a wireless partner, these people said."
That is the quote from your WSJ report. These people they say claim that this is what they are doing. These people are not identified, or recognized in this article. My people told me that Rupert Murdoch, WSJ owner, propagandist, hates google for providing news links, and that Rupert Murdoch wants to create as much trouble for google as possible. My people also told me Murdoch works for Karl Rove and the Devil.
I believe my sources before the WSJ any day.
The writer for this article apparently has never been to Ebay. Unlocked phones are more in demand. Nokia may not sell in the US but they dominate in the world.
@(Unverified)
True, all Android device manufacturers (except Motorola), have been giving Android second stage, most powerful smarphones still being sold with the cumbersome WinMo, with extra effort being made to skin WinMo and hide it's ugliness from the customer.
Plus, HTC is going to manufacture it, Google will only do the marketing part.
@001 But isn't the WSJ owned by Fox these days? If so, it wouldn't difficult to see them get this wrong (like they do so much else)...
@Johanu you just helped me realize everything. and i now seriously believe that google will take over the world. they must have figured this out all the way back during the dotcom boom. they are following red hat and novell in using open source to reduce cost and free software to help promote their more usefull server software
Lol. I'm gunna go ahead and say you're wrong. Maybe not, but I think yes.
The truth is, nobody knows what Goog will do, and all the what-ifs are simply pundit fodder to fill column space. One would wish that M. Gartenberg could rise above the morass by offering some new insight, but it's the same-old convention stuff: can't compete with your customer, etc etc.
Here's a different take, assuming that yes indeedy, Goog'll go retail: One of the problem with the current situation is platform fragmentation, as early units can't/won't always be upgraded to the current OS version.
What Goog can do is to sell direct a premium reference platform, as in one SKU only. It's premium because there is no subsidy. On the plus side, it will always have the latest Android upgrade along with the latest hardware, and it's unlocked, so no 2-year lock-in. This will appeal only to a small demog segment (early adopters), and won't fully compete with the subsidized models from the carriers.
With the high profile that the Goog phone will have, it will raise awareness among users about the latest Android features, and thus will increase pressure on carriers to keep pace with the OS advances. This admittedly is an iffy proposition, and there are some additional measures Goog can take to better preserve platform integrity. I won't go into those here.
Another strategy that a no-subsidy attempt would enable is for a high-profile drive--including both grass-roots pressure and lobbying for public policy changes--to demand a lower subscription rate for unsubsidized models, ala the anywhere-other-than-the-US model. One may point to Nokia as the folly of this move, but Goog has a much higher mindshare than Nokia, and Nokia never offered a capable open OS for smartphones. If Goog were to want to wrest the handset market away from the carriers, they can't do it w/o at least having an unsubsidized handset for sale.
So it is risky? That depends on how you measure the clout of the carriers. The balance of power has gradually been shifting from carriers to OS/handset makers, starting with the iPhone. And the move doesn't exclude the possibility of partnership with one of the smaller carriers (T-mobile or Sprint, say), either for the subsidized model, or for the unsubsidized/smaller subscription model.
It's not an either-or proposition. The carriers own the bandwidth, and whatever model is used, they will still make money from their bandwidth. Goog isn't a direct competitor because they don't own any bandwidth. It's an issue of control, and that can always be negotiated. I can see Goog providing both the OS and a handset (subsidized or no) w/o being a threat.
As a historical corollary, remember when Apple (briefly) had a clone market. The clones were more than happy to have Apple as the OS provider, and competing in segments that Apple didn't serve. Compared to this, Goog will have one SKU, serving a much smaller market.
The carriers are much like the Apple cloners of yore, in that most of them don't have a viable popular OS for the burgeoning smartphone market. Android has proven that it can compete with Apple's iPhone. So would you (the carrier) drop Android to go with Apple for even less control? Or would you chance it with something like WebOS/Bada/Maemo, or stick with good ol' WinMo? There's not a lot of choices, not if you want to sell smartphones w/ competitive features.
d00b
@d00b
By releasing a Google phone to consumers Google would be admitting that their Android strategy so far had failed, plain and simple. If they came out with a device as you describe that would sell to just a few 100k customers it would still be some of the most profitable customers they're taking away from their partners. Even as we're speaking, these rumours are hurting Droid sales.
@abugida If it is so plain and simple, why does it not make any sense. Why are they admitting defeat? There are several devices that have come out that are very impressive and helping improve the platform. Android will continue to appear on an array of devices and I believe will expand into devices we haven't seen much of yet (i.e. car entertainment/navigation/information, e-readers).
And the predictable blog attack on the Google phone begins...
I just expected a little less drama queen than "A Google Phone could be the death of Android".
@LAY: Agreed. It's the sensationalist bloggers going at it again trying to generate page views. I have to say, I'm a bit embarrassed that they caught me...
@LAY
I totally agree. The more I read Michael Gartenberg's articles, the more I think he is on crack. Maybe its just me but I think his OP-ED pieces are complete crap.
@djt
agreed.
@LAY : +1.
@LAY
Having read previous articles by Gartenberg, my expectations were about as low as they could be.
Didn't they say the same thing when G1 came out?
@zenomatic
Yes, but there weren't other devices on the market at the time...
Selling unlocked phones is a good way to not cater to the general market... ie the morons and old pwople tht need to die and make way for the future where you pay for everything with a chip and terrorist have to die out becuase if you dont have an ID you are denied food and shelter
AHAHHHA
mark of the beast is upon us!
@NAME
There's always at least one of you, isn't there?
@NAME
I don't know if you've realized it or not but based on your statement you actually proved something, the in reality the majority of the "market" you speak of is broke and needs to sign contracts to get a phone. Guess what, you can't afford the phone then. You either want or need this phone and from your comments just seems like you want it and can't afford.
Ha It sounds like you just escaped from the loony bin
I hope they catch you. For your own good
God speed
either that or you were wasted when you wrote his
uhm, luckily the phone maker is HTC, you dont need to keep going on about a "google built" phone.
@hondamx525 Yeah, what the hell its made by htc, wouldnt they be getting most of the check? and maybe they'll drop 2.1 on us the same day...for all phones xx....G1 plz...c'mooooon.
Whateva...
I'm just waiting to see what happens. I personally don't have an interest in Android other than to see if it is the game changer people claim it is or will be.
I like Google and some of its products but I do think it gets a lot of leeway from people. So it will be interesting to see how people react to this move of theres.
People get angry at Apple for having just 1 phone with their 1 OS but here we have Google which is doing the exact same thing....yes there is the matter than other phone makers are using Android but I fail to see why Apple should be labeled the devil because they want control over the entire device.
IF Google wants to do the same thing then that's their prerogative and more power to them. I just don't want to hear people bitching about Apple and the iPhone (which they know they would never buy).
@TheCodexAlera
If you dont like the Google Phone, but love Android, then get any number of other Android-based devices.
like the iPhone OS, but hate the iPhone? Then you're SOL.
@TheCodexAlera I haven't seen anyone say they're angry at Apple for only putting their own OS on their phones. I have heard people say they're angry with Apple for locking their phones down so tightly and their draconian rule over their marketplace. Since Google would be doing neither here...
@LAY
Your port LAY?
Everyone knows this upfront. If you don't like then OH WELL. Apple doesn't exist to please you. If you don't like what they are offering then MOVE ON and quit complaining.
That's all I'm saying.
The TRUTH is that nothing they do would please people like you or Mark. Apple could come out with the best phone ever tomorrow with all the bells and whistles yet you guys would still throw a fit because
1) It's locked down under Apple's rules
2) It has an apple on it.
And that's not fair. If you're all for open source more power to you...if Android is your thing then fine. BUT stop attacking Apple and Apple fanboys for loving their Apple products (including the iPhone).
The iPhone is the BEST phone I've ever owned personally I'm proud to carry one. It does everything I need and more. And I'm more than satisfied with it and AT&T (where I'm located).
That's the end of my rant. At the end of the day I don't hate Google or Android. I'm just sick of the real trolls like you mark who will always attack apple just out of pure spite, jealous, and anger over their success....
@TheCodexAlera Apple, as a consumer company, does in fact exist to please it's customers.
-bZj
@TheCodexAlera you sound hurt
@TheCodexAlera You're PROUD to carry one? I didn't realize it was some kind of badge of honor. Did mister jobs present it to you personally?
Perhaps you are out of the loop, but any moron with a couple hundred dollars can carry one. There is NOTHING to be proud of.
i think it's just the developer phone anyway.
@Rob Conway It's what I've been saying for ages, but everyone's been getting more excited than necessary. It's just a new model Android dev phone, i.e. the successor to the Dev phone 1 and the Ion.
@r3loaded i think all the tweeting from google employees is what has everyone all excited.
@r3loaded: Right there with you.
Especially Arrington, he got in a frenzy about it. Just like he does for everything Google.
@Rob Conway yeah that's possible but both of the other dev phones were previously released as normal phones, so regardless of whether or not google is selling it, I think this is a pretty exciting phone.
@r3loaded u fail to mention or care about the fact that both current dev phones are also sold to consumers as normal phones.