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Google Nexus: When web meets the phone

By Business Standard
January 11, 2010 11:34 IST
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When Google speaks, its competitors and the media sit up. They know that the $23-billion online search giant means business.

This time is no different. After nearly three years of speculation that it would eventually manufacture its own phone, Google has launched what it calls a 'super phone' and christened it the 'Google Nexus One'.

The handset has been made by Taiwan-based HTC, though the design, branding and software platform is Google's, the Android 2.1. The phone is available only in the US, UK, Hong Kong and Singapore, but will later be sold in India too.

What Google has done differently this time around is to create a retail store for customers to purchase the phone -- the 'Google webstore' sells an unlocked (not tied to an operator) version at $529 (around Rs 23,000) while the phone costs $179 with a T-Mobile contract (the telco-driven model subsidises the handset price).

The hype was such that soon after the webstore opened up, unlocked Google Nexus One phones started selling on eBay for anywhere between $530 and $1,000 (the prices started falling the next day) and Google Nexus One domain names for up to $2,000.

Nexus One is not about hardware or pricing, but about Google's control of the complete end-user experience -- from procurement of the handset to delivery of web services to the device. Google also aims to improve the store over time and serve new countries like India.

The retail move has upset telcos, who will now have to compete on pricing and the quality of their networks rather than exclusive deals for Android phones. And Google's 'Super Phone' will compete directly with other high-end Android phones from the likes of Motorola, Samsung and HTC itself.

Google will have to convince its Android partners and licensees that it is not in competition with them. Research firm In-Stat also believes that new operating systems (OSes) such as Android will cut into the market share of Symbian, which is the dominant OS with over 40 per cent market share.

But will Google's move hit Apple's iPhone sales is the million dollar question. Since Android phone-makers do not invest as much as Apple does in making an OS, which they get free from Google, this will push down prices over the long term.

Apple, though, does not sell on the basis of its costs, it sells at a premium. For instance, it sells far fewer machines than its Windows competitors, but its higher prices allow it to rake in a lot more money. Apple also dominates the phone business in terms of revenue, despite its relatively low sales.

In the third quarter last year, for instance, Apple sold 7.4 million iPhones, as compared to Nokia's 108.5 million phones. But Nokia accrued just $1.1 billion in operating profit, while Apple, according to Strategy Analytics, made $1.6 billion. This excludes what Apple gets from its App Store, which by some estimates is over $2 billion a year.

Google's multi-device plan also helps Android attract many third-party apps. But over 3 billion apps have been downloaded for the iPhone and iPod touch from the App store. So even if Android phones outsell the iPhone, Google will have to do a lot of running to catch up with Apple, which is not sitting idle either.

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Business Standard
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