We’ve all been a little breathless over the idea of The Google Phone, and that everything could change (some of us, anyway). But, wait, you say, Google can’t just give away a phone like that. Well, they could.
Let’s just start with the numbers. Google has a gigantic $US22 billion pile of cash. Just sitting there. It had profits of $US1.64 billion last quarter, on revenues of $US5.94 billion. It has a lot of money.
Now let’s look at the Nexus One. There aren’t any good cost breakdowns of the closest phone to it, the Droid, but iSuppli’s teardown pegged the iPhone 3GS at a build cost of about $US180 to build about six month ago, so it’s not a bad assumption that today, the Nexus One would run around $US200, maybe a little more. Selling the Nexus One direct to consumers at cost – in other words, the exact same amount it costs Google to build them – by definition costs Google nothing. Even if Google were to take a massive $US100 hit on every phone to sell them at $US200 (or less) and wanted to push five million of them, it would cost Google $US500 million. That’s a pretty tiny of chunk of $US22 billion. I mean, Sergey Brin spends millions on companies without Eric Schmidt even noticing. Point being, Google, even in the most drastic scenario, doesn’t need a phone company to subsidise the Google Phone.
Now, let’s look at how Google makes all that money, considering all the crap they give away for free, like email, finding stuff for you, browsers, turn-by-turn navigation and, lately, operating systems. Advertising. $US5.75 billion of its revenues – 97 per cent – came from advertising. Whenever you go on the internet, essentially, Google makes money. It’s why they give away all that stuff, because, they want you online a lot.
So, that doesn’t quite explain why Google would want people to have a Nexus One that badly. Until you look at stuff like Morgan Stanley’s 424-page tome, ‘The Mobile Internet Report’, which says things. Things like mobile internet will be “at least 2x size of Desktop Internet” and that smartphones will beat out notebook and netbook shipments next year. And remember that by purchasing AdMob, Google became the biggest mobile advertiser on the planet (that’s with just 24 per cent marketshare, meaning they have plenty of room to grow and conquer). It works out even better for Google if you’re using an Android phone, because it’s completely tethered to Google services, driving you to the internet that much more. (Both on your Android phone and your big computer.) Bottom line: More people using smartphones, especially theirs, going on the internet, makes Google money not just immediately, but long term, since you’re not going to go back to a dumbphone.
And that’s not even considering some of the more offbeat rumors or speculation, that’ll it be subsidized by ads built into the phone, or go full-blown VoIP (Google just bought a VoIP company called Gizmo5) instead of voice plan, on top of using a weird online rebate through Google.
We’re just saying, it’s totally reasonable Google can sell the Nexus One for cheap, without help from the carriers, and it’s not so crazy even, for Google to give it away, just like turn-by-turn navigation. That’s what might be worth getting a little breathless about.
vince
December 18, 2009 at 10:05 AM
The way I see it is that all this Google acquisition means something. Google is not just making a phone to be used on T-mobile network and be compared with the Iphone. just like the Droid, the Hero. Google is not making a phone to be termed the “Iphone killer.
Report PermalinkGoogle intend to change the market with this Nexus One of a phone. lets fold our hands and wait.Google is about to surprise everyone and change the game.
Art Nau
December 18, 2009 at 10:14 AM
sounds very sweet
Report Permalinkcant wait till the official announcement
Marty Askew
December 18, 2009 at 11:45 AM
Im guessing its going to be a US only release
Report PermalinkRK
December 20, 2009 at 1:44 AM
Limit to themselves to a country with 10% unemployment and a serious crunch on consumer spending? Don’t see why, especially if the point is they can sell a phone without a carrier deal to go with it.
Nate Dogg is quite right that factoring in only the build cost of the phone kind of misses some other costs and you’d be looking at 250-300 minimum for breakeven even selling direct from Google’s website without a retailer cut. Iff they’re willing to take a haircut on it, you could get down to US$250 or less.
I think it’s true though that people could be persuaded to buy a phone up front again, instead of free + extortionate contract, for a phone this good, and as long as they could then get a good deal on phone and data separately.
Report PermalinkJay-oh
December 18, 2009 at 2:01 PM
If Google plans to sell their Nexus one at cost price or even a little bit above cost price, unlocked and sold directly from google rather than carriers………….then hello Android! Who wouldn’t want a smartphone thats cheap in the pocket?
The biggest factor for the device’s success is its specs. If the rumours of a snapdragon chip, capacitive screen, wifi and 5mega pixies snapper are true then the phone will be popular very quickly with its cheap price tag (Fingers crossed for 3.5audio jack :P).
Having said all that, with killer specs like that in a mobile device being sold for cheap will rock the mobile phone industry. How would nokia, RIM, Sony Ericsson, LG and apple react towards this handset? Could this influence Microsoft to reinvigorate project Pink and also sell a phone on the cheap running winmo7 in the near future? How would HTC feel if they manufactured Nexus One for google and realise that this device could cannibalise their existing and future line up of devices? All interesting questions, but whats your take?
Report PermalinkNate Dogg
December 19, 2009 at 12:31 AM
What? This would have to be one of the worst thought out posts that I have ever read from gizmodo – and that’s saying something.
Do you think HTC are going to make the phone for Google and essentially sell it to them at cost? What about the development costs associated with the handset? And what about the cost of storing the units and processing orders – including the fees that the banks/credit card companies take? There is no way google could sell this thing for the kind of price that you are proposing and expect to make a profit.
In regards to them already giving away software, email, navigation etc, surely some of that will be making money from advertising now such as ads in gmail. They also make money from providing such services to business. With regards to things like navigation, I am sure they have the future in mind when they can tell us in a friendly robotic voice that a particular supermarket or burger joint is nearby.
I expect that they couldn’t sell this thing for under $US400 – and who, apart from a few tech geeks would shell out that sort of money when you can get a phone for ‘free’ or near free from a telco? Especially considering as the telcos don’t provide any special discounts on phone calls, sms, data plans etc for people who don’t require a handset. Even if they did most consumers are idiots and love the idea of getting a ‘free’ phone along with $300 worth of credit a month for only $50 a month.
Get your hand off it Gizmodo, or you will go blind.
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