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andrewruess

Google's Direct Subsidy?

An interesting rumor posted this morning: Google will directly subsidize the sale of an unlocked Nexus One to $199.

androidandme.com­/2009­/12­/news­/android­-rumor­-report...

It does kind of make sense.

For every Android user out there: 1) Google is the default search engine; 2) they are using Gmail; 3) Google ties people into their ecosystem. Google makes money from the ads in the web searches and in Gmail.

Google also takes 30% of all app sale revenues published through Android Marketplace.

Longer term, the 'game changer' seems to be in changing telecom companies to dumb pipes with who you only have a monthly billing relationship (and perhaps contract free). Your primary relationship is with the platform and Google. Only afterwards will you go and choose your carrier.

I don't know why this hurts any third party manufacturers. Motorola can still make great hardware, still use Android, and also sell direct to consumers. There is also nothing to prevent Motorola from making its own app store that you can only use on Motorola Android devices, and they take their 30% from their app store sale revenues too. I just don't find it too likely for Motorola to sell their Android phones unlocked AND at a loss. There is no guarantee they will get any money back from that deficit, like Google can (through app sales and advertising).

I see this being very important in 2011, when you pop in a LTE SIM card to choose between Verizon, AT&T, or T-mobile. And who knows, by that point Sprint/Clearwire might roll their WiMax technology over to LTE too.

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9 replies
deinfinityx

I am with you, this is going to shake up the telecom industry here in America here and that is what Google wants. Plus what you mentioned about money is what I have been saying. Hell Apple could give away the iphones and make so much more money on them because of the app store but IMO they are to greedy.
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dave

Eh, I don't really think so. The math doesn't work out. An unsubsidized iPhone is somewhere around $700 / $800?

Apple takes 30% of the price of any particular app. So that means in order for Apple to make $800 in app sales from a particular user to justify the cost of the iPhone, they will have to buy around ***$2,650*** in applications! No way.
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deinfinityx

Touche on that i was to lazy to do the Math, i guess it would be easier for Google to do it since everything on Android is centered around using Google products which gets them more money.
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evergreen

right. in the Past an unsubsidized phone has been $700. The question to ask is how much does it cost to make that phone? Nowhere near $700 is my guess. The $700 price point ---now how's that workin for ya Nokia and SonyEric? I don't see these two guys as having navigated the immense changes in wireless over the last 2 years very well at all. I see them as failing. I see goog has an opportunity to subsidize these phones for $199 or $249 because they are driving people to search and use goog apps.
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Apocrypha

They will charge you $700-800 for an unsubsidized phone, but it doesn't cost that much: gigaom.com­/2009­/12­/09­/who­-is­-getting­-rich­-off­-the­-...

Between Apple markup to telcos then telco mark up so you will go on a 2 year or longer contract, there's a lot of extra profit in there.
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SteveoSaurusRex

gizmodo.com­/5302080­/isuppli­-the­-iphone­-3gs­-costs­-1...

I'm sure google can sell this for $200 and either make a small profit, break even or a sell at a minimal loss... including shipping, housing & all that stuff

money will be made back in ads on the phone as i've seen on my gf's droid

$800?! Apple charges ATT a high snob tax: www.tuaw.com­/2008­/02­/17­/the­-street­-mac­-owners­-are­-...
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SteveoSaurusRex

i thought that article from the street was funny, about apple consumers being snobs. but i dont think its fair. apple makes good products, even if they are as high minded as sony www.engadget.com­/2009­/12­/14­/xperia­-pureness­-availa...
(as opposed to dell & hp... then again, other things can be said about dell & hp).
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Theli

Google would probably have to buy the phone from HTC for the same price as carriers pay, assuming the volume is similar. Not sure exactly what HTC would charge for phone like the Nexus. It's clearly a high-end phone, and probably not cheap.

This article suggests that Google will give a carrier a percentage of the ad revenue generated by a handset, under the condition that the carrier doesn't cripple it. That's possibly how they got Verizon to agree to allow Google Voice on the Droids.
abovethecrowd.com­/2009­/10­/29­/google­-redefines­-disr...

If Google could calculate how much money an average Android handset generates them during its lifetime, they could take the percentage they would normally give to the carrier and put it towards subsidizing the hardware.

I haven't seen any evidence that they are considering this, though. For now it seems more likely that the phone will be completely unsubsidized when sold by Google, and $199 when sold by T-Mobile. One can of course dream.
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Henzapper

Wait, I thought Google didn't make any money from the Android Marketplace. I remember hearing somewhere that the 30% goes somewhere else, like to the carriers or something. Not completely sure about this though.
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