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Experts question Google phone business model

Nancy Gohring | March 5, 2010
While the idea is admirable, it's probably not possible to execute in the U.S., they say

It's a matter of syntax for Google to say that its fee is not an ETF, Castonguay said.

To the customer, Google's "equipment recovery fee" looks identical to the typical ETF fee operators charge for canceling before the end of their contract. That's not legitimate [to give it a different name] because they haven't changed the model, said Hazelton.

Google might be able to get away with calling its fee something different if it came up with a totally different business model, such as offering a subsidized phone even for customers who don't contract with a mobile operator, Hazelton noted.

The search giant isn't yet in a position to do that because it hasn't figured out how to monetize the services, like Google Maps and Gmail, that it offers to its mobile users, Hazelton said. If it does begin to earn money from services that run on Android phones, it might be able to subsidize phones using that income. That would be a real value, he said.

Google's filing has another interesting tidbit of information: the search giant says it has yet to collect any fees from Nexus One users for canceling their service. The analysts were surprised by that, given that churn rates are usually around 2 percent and smartphone return rates are typically upwards of 20 percent.

When asked for comment on how its cancellation rate could be so low, the Google spokeswoman said she had nothing more to add beyond what's in the filing.

Observers can interpret the lack of returns in a couple of ways. It could be that customers are so satisfied that they haven't wanted to return the phone. Or it tells you the ERF and ETF are working, Hazelton said, meaning the fees are expensive enough to discourage people from canceling their contracts.


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