Google has announced that it will soon bring an end to its online sales of its Nexus One handset. The company will still show off Android phones on its site, but purchases will be done the old-fashioned way: through mobile service providers.
Google's direct sales model was an attempt to radically alter the business model for mobile handsets. Instead of buying a phone from a carrier, with a contract and a subsidized up-front cost, the company was hoping to cut out the network. Customers would buy the phone directly from Google, paying the full fee up-front, and then putting in a SIM of their choice.
This, however, ignored the realities of the phone market, as the company soon discovered. Its approach to tech support—send an e-mail and maybe get an answer eventually—was always doomed to failure. Given how important phones are to our lives and our lifestyles, that was never going to be acceptable. Customers might not like calling call centers, but if there's one thing worse than being stuck on hold waiting for the muzak to end, it's not being stuck on hold at all, because there isn't even anyone to call.
A month after launching the phone the company relented, giving its customers the ability to talk to someone. But this was not the only problem with its sales model.
As it wrote in the announcement, "it’s clear that many customers like a hands-on experience before buying a phone." A phone is something that people want to touch, to see how heavy it is, what it looks like in person, how good the screen is, if it fits nicely in their pocket—for many of us, the phone is an extension of ourselves, which is why we see so many different shapes and styles of handset on the market. So expecting people to be happy buying a handset that they cannot even touch, much less play around with, was a bridge too far.
There's also the small matter of expense. A one-off payment of $529 is hard to stomach. In many countries, we're not accustomed to paying so much for mobile phones, as normally their true cost is hidden—we pay less up front and commit to paying a monthly fee for 12-24 months. Only those brave souls who were willing to stump up for the early termination fee would get any idea of the true cost of their handset.
In a world of subsidized handsets, then, the Nexus one felt very expensive. It's true that SIM-only contracts are cheaper than with-handset ones, but the difference rarely feels significant enough to justify buying a full-price phone—much better to pay a little bit more each month and avoid the up-front cost. Even if you do the math and work out that the Google way is cheaper, there's still the unpleasant prospect of spending so much at once.
So, when looking to enter the European market, it's no surprise that the company sought to form partnerships with network operators and fall in line with every other major handset company, ensuring that the phones are available through the mobile operators' extensive retail stores, and that the initial pricing results in much less sticker shock. In the UK, for example, where Google has partnered with Vodafone, the Nexus One can be had for free on any call plan costing £35 or more per month.
Google is now attempting to build a similar retail presence in the US, and when it has done so it will end its online sales. It might not have an easy time accomplishing this, however. Its attempts to partner with Verizon and Sprint resulted in rejection by both networks, so the prospects for a CDMA version of the Nexus One seem very poor indeed.
Google's demands on branding and a refusal to allow the networks to cripple the handset, combined with the strong sales of the Motorola Droid and the buzz surrounding the new HTC Droid Incredible, are likely the cause for Verizon's decision. Similarly, with Sprint touting the new Android-powered HTC Evo 4G, there's little room for the older Nexus One.
This leaves the GSM providers as possible Nexus One promoters. As yet, there's no indication of who those might be; AT&T is obviously most interested in promoting the iPhone (and now iPad), so it might be unlikely to give the Nexus One much promotion. T-Mobile was the distributor of the original Google handset, the G1, so the company may find more joy there.
Google isn't the first to try this approach; Apple had originally hoped for a similar shift in business models. The first generation iPhone was, at $599, even more expensive than the Nexus One. After just two months on market, Apple cut the price by $200, offering a $100 credit to disgruntled early adopters. Subsequent models were introduced at prices much more in line with industry norms.
The subsidized business model is purportedly unpopular among the handset manufacturers; it dilutes their branding and diminishes the perceived value of their products. Customers don't realize that high-end phones actually cost hundreds of dollars, hence their surprise and outrage at ETFs. But with two high profile attempts to change the market—and two equally high profile failures to actually do so—it's clear that mobile operator partnerships and subsidized phones are here to stay.
Source: ars technica