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.
@Unveified, Yeah, the magical unicorn poop Google Phone (by the way I'll be buying one, have been waiting to replace my G1) the phone that can defy physics, space & time, useable on all frequencies, free-yeah google is going to actually give this phone away, or maybe they'll pay me to take it off their hands, that's it, they'll actually pay us $$499 to just order the phone off the magic Google Phone website.
And I forgot the free Google phone service, HSPA speeds for free, I just have to watch a Burger King ad once a week on my phone, and they'll pay me to do it, so I'll get a phone, that Google will pay me $499 to use, and then they'll pay me to use their service, I'll take $73.99+taxes/month and the 911 fees, so I'll be like making money to use a Google Phone, heck, I'll get 10 of them so I don't have to work again...
HAHAHAHAHAHAHAHAHAHAHAHAHAH
Snort
HAHAHAHAHAHAHAHAHAHAHAHAHAHAH
God damn it, I peed myself again....
I bet google's going to build their own cellular network to compete against at&t, verizon, sprint and t-mobile.
The world is quite big outside the US and there unlocked phones pretty much a standard thing. In fact in most of Europe there is a law that forces the carriers to unlock phones for a fee, usually no more than $20.
Saying that Google phone wont hurt the carriers. There will be a (not too big) market in US for that phone and I suspect that the reason behind Google phone is #1 providing a state of the art phone for developers. #2 creating a quality and functionality standard for the manufacturers.
1) Commit to your third party handset developers that they have access to the same latest and greatest build of Android that your own people do. This levels the playing field.
2) Market differentiation. Target price points and feature sets that your third party partners are not. If it works, then you function as trail-blazer. Step out of the way and let your third party partners then compete to drive prices down in that area. If not, oh well. At least you're in a better position (as Google) to bear the loss.
3) Be completely honest with your partners about your position. Honesty => trust => better feedback.
I'm opposed to the idea that phones should be locked out to the carriers. That's the very reason why cellphone carriers abused the subscribers with their rocketting charges. If you compute the subsidized price of the iphone + the monthly charges until the contract ends, it's more than doubled the price of buying the iphone and getting the basic monthly fees. We should wage war against this abusive charges from the mobile phone carriers and buy the unlocked unsubsidized phones. Then, we have the freedom to choose our monthly plans, the best carriers in the market, and a universal phone that we can take anywhere in the world.
Since when has America been the only market?
In the rest of the world the cell companies could not care less what you attach to the network, as long as they get some cash out of it.
Anyway, if its branded Google it will succeed. Google is many places above Apple in the worlds top brands list, its name alone will sell it.
And while manufacturers try to directly peddle their wares in the states, the operators probably continue to offer service to unlocked phones at a more expensive or equal price to subsidized phones depending on if you are on contract, which kind of makes it stupid to buy an unlocked phone if you don't have your heart set on one your carrier doesn't offer.
With the acquisition of Gizmo5 I think it's clear Google has something up their sleeve. Exactly what that is I'm not sure yet.
There were rumors that the would launch a VOIP only phone, but I've used Gizmo5 VOIP over WiFi and 3G and it's no up to par with regular carrier service yet. So no one would rely on that as their only means of communication.
Some other things to think about. Since Nexus One is made by HTC (and really just looks like the Droid Eris if you ask me) then HTC isn't losing out. They're making money if the phone sells. So they're not alienating their manufacturers. Now if the Next One becomes a line of Android phones made by various manufacturers (i.e. Nexus One by HTC, Nexus Two by Motorola, etc etc) but designed by Google to decrease fragmentation that's come with Android phones it could actually help. If Google dictates to build a Nexus phone you must meet certain requirements which allow easy upgrades of new firmware and marketplace software it could be a win-win. And would def make developers a little happier knowing they don't have to build software for 10 different phones, some with Android 1.5 some with 2.1 some with HTC TouchFlo-like interface etc.
It's all too complicated, I'm waiting to see what Google has to say.
for those of you who are still up on this it looks like a couple new vids and a new picture got put up on thenexusone.com
Or, Choice #4:
Get the hardware manufacturer to subsidize the phone down to the point where its price is consumer-acceptable.
I know it's a whole new (ish) model, and the hardware manufacturers have never bit at that before. But this is GOOGLE. They control the advertising business. How much money is in THAT?
It's all about change, folks . . .
Jeff Yablon
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Answer Guy and Virtual VIP Business Change Coaching
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How about just setting a hardware to be the showcase of the OS at it most?
Without it, probably Android couldn't show its most, as every phone could lack some capabilities or the situation would evolve where every manufacturer would have its own flavour (as it seems).
This way, Android also keeps being an independent OS since it has an standard, without manufacturers competing both in ui and handset, getting the Os to dilute somehow.
This way, Android could always compete strong with its competitors (the OSs), that at the moment have the advantage of the single-hardware that peaks their performance.
How is the point of this opinion related to the headline? Dear Engadget, you're better than this sensationalizing drivel. Just stick to reporting scoops on gadget news, shall we?
Until you can give me a ten word answer on how this is different from anybody else rebranding and directly selling an HTC Android handset, I will remain reluctant to believe any bit of this column.
mike, google knows what they are doing. they aren't stupid.
Google is only doing what other companies dreamed of doing.
They're taking as much market control as they can of the entire electronics industry.
Just wait, and in time they'll be producing Hardware other than just phones.
Haven't you heard of the Chrome OS? Googles own replacement for Windows & Mac.
It's only due time when they control the technology industries.
This is stupid pointless nonsense.
It's all speculation -- this entire article is based on RUMORS, just that.
Anywas...my .02
"Selling unlocked devices sans carrier is a lousy business model in the States, however."
Yeah, because USA carriers are full of shit and want to control their customers from switching services. That needs to change..maybe Google DOES have the right idea...maybe if they do it, other manufacturers will as well, and we can get rid of subsidies alltogether, and take the control of the device OUT of the carriers hands, and put it back in the hands of the person who paid for it -- the user.
Since Google is indeed a very powerful entity, and not just in the USA -- globally as well, maybe they can set the tone here. They have almost always done the right thing in the past when it comes to consumers' issues. They care more about their users than they do money...they offer amazing services free of charge, and that's something no other company has ever done on this massive of a scale in the history of economics.
I Really hope they do end up selling unlocked handsets, I really do.
Just another thought -- I don't know about anyone else, but me personally -- I would much rather pay a little bit more for a device and make it 100% mine, and get it without any contracts, or limitations, or ETF's, or being locked in to any provider. Maybe people should have the chance to try out providers for a month or so and see which one they like better, without signing a 2 god damn year contract! The current wireless system in the USA makes that damn near impossible, unless you get one of those lame ass pre-paid phones, which are alyways garbage handsets from 2 years ago.
The wireless industry in the USA needs to change -- we need to be MORE like the EU.
One more thing (lol I can go on all day) -- the authors point about this device "competing" with other android handset mfg's is nonsense. HTC has in the past, and will most likely continue to sell unlocked USA versions of their GSM handsets, and so does Samsung, Nokia, etc. etc. Give it time..like I said, if Google DOES do it, maybe that will get EVERYONE doing it -- and in the end, this can only HELP the consumer...BIG TIME...getting a device you want shouldn't mean you HAVE to sign up with provider XYZ.
Can you imagine if that when we purchase a DELL laptop or Desktop, that we HAVE to use AOL (just an example) for an ISP, no one else...it would be locked into that service and that service only? Do you think people would accept that? How is it any different with smartphones? They are miniature computers, some of them are more powerful than laptops made 3 years ago. We need to stand up for the consumer and take back the control of OUR devices. GO GOOGLE!!
somebody said it's not going to be popular if it will be unlocked and not sticked to any carrier it won't be as popular and there will be less sales... in Europe there are no locked phones and people now everything about new phone models and are buying them like here no matter that thery are not subsidized ...
http://www.iphoneservicesdepot.com
unlocked phones mean nothing when the networks are locked down
Considering how the unlocked Milestones (EU Droid Equiv) can't view protected Apps on the Market, I'd imagine Google would have this sorted out for their own Phone and that's some horrifically bad double-standard for the 'Do no evil' company.
good thought... Michael Gartenberg is right, Apple fails each time they tried to licence they OS. ... but each story is a diferent story: different persons, different dates... we will see.
One thing is going to occur for sure: Google will become even powerfull than Microsoft ever, this could become a problem for the consumers.
It would make sense to sell unsubsidized for T-Mo, since their new plans don't have device subsidies, and are priced accordingly. That would be small market since most users are on AT&T or Verizon.
A niche device doesn't necessarily compete with the mass market Android devices in any meaningful way. A pricey phone on T-Mobile is in no competition with the DROID on THE Network.
Looks like a hp jornada!
how about they just forget the states and sell the thing in the civilized world then
Generaly I never read this column, why, its writer its plain stupid. Sorry, I just had to say it. He always gives random arguments with little to non base. First of all, Its not truth that only subside cellphones are successful, he is only taking into account the US, where people are used to this model. In other marked AKA europe, unsubsidize cellphones are succesfull as well, Ex, Nokia E71 nokia N95, both best seller in their categorize. the E71 its now the best sell business phone on the planet, nokia sell those by millions en Europe and Latin America and they sell it at itss retail price. So maybe Google its not thinking in a continuously depressing economy, and its thinking in a bigger recovering economy or growing markets. So just for the thoughts
I think, you are missing the point of a Google Phone. Google needs to take charge (or Control) of Android and its destiny in the mobile space. In the current model, we already have a few variants of Android and not all apps work on all the version. Moreover, Google is already spending so much of time helping manufacturers design the handsets for Android. By having a Google phone, Google can provide a template to all the manufacturers to adapt.
In the long run, this will benefit Android, Google, and all of us. Read more http://truvoipbuzz.com/2009/12/thank-you-google-for-the-google-phone-opinion/
Why are there "only three ways to sell phones"? Michael Dell has teached us that new ways can be invented and become very successful. But why invent a new one? Google could learn from Michael and just directly sell the phone to the people over the internet. That fits perfectly.
The Biggest problem with people in US is they think THEIR STRATEGY & THEIR MARKET is every thing in the world. Just Look at the fastest developing countries in the World China, India(mostly) they do not know what a Subsidized Phone is 100% in India(i was one of them before moved to North America) will use a fully unlocked and no contract phone no matter what the retail prise is on top getting the best calling & Data Plan. Earlier Indian Mobile users were not that tech Savvy until they realized what a Smart Phone can do for increasing productivity. such as iPhone and G1 as well which are being sold extensively now in India(it was a slow start but its catching up now). However Indian Users are smart they will always look/wait for a better deal or a better devise that can do more and have very limited restrictions on..Yes Google Phone may be the answer to All those...It can certainly give the Platform to users in Indian & China (it can be 10 times more market then US & Canada alone). with this kind of Market Google may not even bother if it does not work in North America. I am sure this is what happened with Google's other products. I am not against any one here but what I would like to see in people in US is learn "World Culture" More rather than Just sticking to your own thoughts forever. I am Sure gPhone (if at all it comes out) I will certainly go for it and advice the same to all I know...there needs to be a Change in how the carriers in North America Rips off by subsidization of phones. come on Google get this Puppy Quick On To the Market and Change the Way People should own a Phone..of their Choice. "Open Source >> Open Carrier" and that would be Kool.
I didn't see it stopping anybody from buying the iPhone 2G at full price. Ebay and Craigslist are a big market for unlocked phones and I myself have purchased unlocked phones from overseas in the past. If the Nexus One can offer what the iPhone has, then I don't see it failing.
Gotta love how often the word death is used on the internet