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Google's Nexus One smartphone: Will mobile ads offset cost?

Matt Hamblen | Dec. 15, 2009
Unlocked phones haven't done well in the U.S., just ask Nokia

FRAMINGHAM, 14 DECEMBER 2009 - Google Inc. isn't talking publicly about reported plans to sell a powerful Android-based smartphone called the Nexus One directly to consumers next year, but the idea is already raising eyebrows with analysts.

The chief concern is that selling an unlocked phone directly to consumers, probably online, could be twice as expensive as buying one through a carrier. Today, for example, the Motorola Droid from Verizon Wireless sells for $200 with a two-year contract, but it goes for $400 unlocked, analysts said.

The unlocked approach has largely failed in the U.S., with the world's biggest phone manufacturer, Nokia, doing poorly with the concept. Nokia recently announced that its two direct-sales stores in Chicago and New York will close early next year, a store official said in an interview. Online sales of unlocked devices will continue.

Part of the reason unlocked phones don't do well in the U.S. is that not all of the U.S. carriers will activate every unlocked phone. And doing so is inconvenient, if not frustrating, for users who must remove a SIM card from the back of the unlocked phone and take it to an amenable carrier for activation.

"Selling directly hasn't worked as a business model in the U.S.," Kevin Burden, an analyst at ABI Research, said in an interview.

Conceivably, Google could offer its phone at a price comparable to a subsidized phone from a carrier -- as long as customers agree to receive mobile ads on the devices. Since advertising is central to Google's revenue model, that approach might make some sense, analysts said.

"Google doesn't want to be in the phone business or the mobile carrier business, so this must be about something else, and that's the advertising business, since Google is in the business of selling ads," Burden said.

In one mobile advertising model being tested in Germany, users agree to receive a certain number of ads on their phones to reduce their monthly cellular and texting rates, although reducing the up-front cost of the actual device is relatively novel.

Reinforcing the idea of using mobile advertising with direct sales of unlocked phones, Google bought AdMob in November for $750 million in stock.

Burden and Jack Gold, an analyst at J. Gold Associates, both believe the Nexus One is likely to be an HTC-built device, using Android 2.0 or higher. Gold said it might be the next iteration of an HTC developer's version he received in May at the Google I/O Developer Conference -- along with thousands of others who attended.

Gold said the touchscreen phone he received at the conference and used had six buttons on the front above the scroll ball, not the four navigation buttons shown in pictures of the Nexus One circulating on the Web.


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