How Google Could Give the Nexus One Away For Free

nexus_2One of the bigger unknowns surrounding the Nexus One is whether or not Google would eat some or all of the cost of a handset in order to get it in the hands of as many people as possible.  This article won’t be a debate on whether they’d do it but rather how they could justify it.  Let’s have some fun and assume that they have already announced it.

Google Gives Everything Else Away

Google already has a history of giving things away that they could (or should) be charging for.  Their GOOG-411 service is better than any directory assistance I’ve ever used.  How is that they gave that away?  Think of all that was learned by its usage. They know every business, name, and location ever searched for.  That’s valuable data.  Further,  each voice-activated search has variations in accents and phrasing that is being used to perfect the speech synthesis we now enjoy on handsets.

You could say same things about Google Maps Navigator.  Even in beta, it rivals every paid GPS service I’ve had the chance to experience.  How can they justify giving that away freely?  I believe that monetization will come from location-based advertising.  As one drives, ads will popup on the screen alerting users to nearby specials, promotions, and events.  Rather than hitting people over the head with too many, I expect some form of opt-in agreements where the user can select layers or interests.  Maybe you’d like to know of hotels and restaurants as you drive around in a rental car while on a business trip.  Letting the consumer choose which messages they hear makes it less obtrusive. At the same time, it addresses privacy concerns for those who are worried Big Brother knows your exact whereabouts.    I’m willing to bet that your local pizza shop might consider advertising their deal of the day to passersby looking for a quick bite.

Targeted Mobile Advertising

Forget driving down the street and getting hit with ads and alerts.  We could be beyond that before long.  How long do you think it will be before you point your camera phone at a restaurant to see what that day’s specials are?  Businesses wouldn’t even have to broadcast an ad that hits everyone.  Instead, they can display their offers only when prompted by the user.  Think of this as the new pay-per-click.  Google is more than equipped to handle the metrics, letting advertisers know how effective campaigns are, what works, what doesn’t.  Nobody looked at your business this week?  You don’t have to pay.  Have a loyal customer base always looking to see your daily or hourly specials?  You’ll want to let them know as they drive by.  I imagine businesses would be willing to pay a premium for this kind of advertising.

Home Page Placement

Only twice that I can recall has Google offered advertising on their home page.  Both instances were Android-related.  I don’t think that was a coincidence.  Quick recap for those unaware: When the T-Mobile G1 and Motorola Droid were released, Google had a simple text link advertisement listed under the search bar for a day or so.  It was an unprecedented move the company who long kept ads away from the search page.

If anyone knows how effective those ads were, it would be Google. Sure, the ads were designed to drive traffic to Verizon and T-Mobile‘s websites, but we know they were keeping an eye on the response.  What if Google saw something in those two short ad campaigns that really excited them?  What if, in those short campaigns, the click-through rate (CTR) was so impressive that the company realized they should be using this space for their own products?  It’s not unrealistic to think Google could do the same for their own phone.  This is not to say they would go about placing banner ads on the page.  Maybe something an ongoing ad under the search bar would be enough to recoup the cost.

Your Turn

There are plenty of ways Google could get creative with advertising and search.  For all I know, they could be working on something completely out of left field that we’ve never even thought about.  If any company has been forward thinking over the last decade, it’s Google.  We need to understand that just because they haven’t done something in the past, doesn’t mean they won’t in the future.

I’d love to hear your thoughts on this.  Do you have anything to add or suggest that might make another potential revenue stream?  Please, leave a comment below!

  • Thinking about this realistically – "Giving away" a HTC manufactured handset is unbelievable to me – how will the world of carriers and other handset manufacturers react to this? You are effectively cannibalising sales of a)other handsets and b)premium contracts.

    Customers may just get hold of these handsets with minimum data contract pricing and use wifi / skype etc… instead of buying into 18+ month profitable voice data contracts.

    Can Google subsidise the world? Are they anti-competitive? Becoming monopolistic? Will carriers put up with HTC doing this?

    Who knows at this point but we will find out soon enough…

  • ted

    How could they subsidize one android phone and not another?

    This move would put them in bed with HTC and would alienate MoTo, Samsung, and all the other manufactures i can't think of.

    They would need to do this for all android phones, or none….
    The fact that Android is free, is all the subsidy manufactures need.

  • Justa Notherguy

    Cost-reducing subsidies for mobile phones are one thing, of course. But a truly 'free' cellphone – with no implicit, fee-paid contract or other 'strings' attached – would truly be an unprecedented event. Something so astonishing would attract the enmity of competitors and unwelcome interest from the feds.

    As has been discussed elsewhere, I think we'll see this new Android phone offered at around $200-$300…possibly with a menu of service providers, including VoIP. This way, Google can get T-Mobile and/or other partners involved, using them and Google Voice to explain/excuse the dramatic subsidy.

    But, more than pricing or plans, I'm anxious to see what changes come from the dogfooding trial. Testers were asked to weigh in on what's good about the phone and what's not – something Motorola did too little of, with Droid. Let's hope their expectations are high and the phone team are open to criticism.

  • Luigi Montanez

    Google has already given HTC Android phones away. They've given away both Dreams and Magics to developers. They famously gave away Magics to all attendees of I/O, but they've also sent off packs of phones to friendly companies and organizations.

    I think Google would be wise to give a Nexus One away to all Android developers currently with an app published on the market. Then they should give each of those developers three "Golden Vouchers" to give away to friends, each redeemable for another Nexus One.

    Hell, they should even give away phones to all iPhone developers with an app in the App Store.

    That'll create a huge incentive for developers to build on Android, and more Android apps will mean more users.

    • As silly as that sounds – that is an incredible idea!
      The whole incentive method seems like it would genuinely work!

      Would create a lot of buzz!!!!!!

  • PhineasJW

    I agree with Justa above. I find it very unlikely that Google would give this phone away for free, for two reasons:

    1. I don't think their advertising return would support their revenue loss on the hardware.
    2. It would destroy their handset/carrier partnerships and likely earn an immediate visit from the Feds.

    I think it's far more likely that Google will sell the Nexus at *cost* (give or take a little either way). Then, Google essentially breaks even on the phone, sells an unlocked iPhone-competitor far cheaper than anything else on the market, and gets more people hooked into Android and using their core services.

  • Scott,

    I think you are 100% right. I think they Google sees the limitations of adwords because it forces the viewers to be in front of their computer.

    I thought the exact thing. what if when you're driving down the street, your phone pops up local ads for the businesses your passing by.

    Google could afford to give the phones away free because it wouldn't be very long before those local ads would pay for that phone.

    If they put in an order to HTC for 20 million phones, they could probably get the phones made for under $25 a piece. So how many ads would it take to pay off that $25 price tag?

    Not very much.

    I have a brother in Destin Florida who is starting a new chiropractic business. Would he pay $.10 per impression for people driving by to get them to look over at his store? I'm sure he would.

    it's a wonderful model and I think that Google is can optimize the stuff out of it.

    Mark Russell

    PS, good thinking! you are on top of your game!

  • Rob

    There is no way they will give this away for free. Google would back themselves into a corner right off the bat…every future google phone people would complain about if it wasn't free.

    Nice story to get people excited about–discounted with targeted advertising is likely. Free?–no way.

  • James

    Wait, they can already do everything you listed on all Android phones and on any iPhone where users download their software. How does it help Google to also give away 100s of dollars worth of phone hardware per user to get the exact same result that they are already getting without a new subsidy?

    Google already has their Google Search app on the iPhone. Apple implements the map application using Google maps data but I don't see why Google can't negotiate to have ads show up during map searches or simply add their navigation app to the iPhone app store.

    The fact that Google already gives everything else away is specifically why it makes no business sense to subsidize hardware. I can't come up with any business model that makes sense for Google to even subsidize the Nexus One much less give it away for free.

  • ari-free

    It doesn't make sense to have this ambitious 'Android for everyone' strategy for a phone that only works on t-mobile. Many Americans can't even get coverage from t-mobile and those that do would take down the network

  • LiteSoul

    Very nice reading, I believe you got it right Scott.
    My take is Google will sell it at cost.

  • just some dude

    I think you have to look at how much an individual brings in by targeted advertising to Google by way of there handsets. minus lets say $100 for the OS "android" cus there giving it away for free. so just a guess here but lets say the ad revenew from one person is $300 per two years, which i think is conservative, then google can recoup the cost. This may turn out to be the cheapest phone yet in terms of price.

  • I'm wondering whether or not they will sell the telephone in France and other European countries too without a monthly subscription …

  • If we consider the fact that the main initial market for these phones are devs, techies, geeks, early adopters. These groups surely can't be generating anywhere near the revenue that the main populous using blackberries, iPhones and desktops/notebooks are. How can they? It's made in numbers.

    If Google are going to outlay, what will amount to 10's of millions of green, then how can they make this money back in a timely manner. They can't – it's Android through the carriers which is making money and that involves handset subsidy, contract pricing, loyalty and ignorance of what's on offer.

    All this must add up to that Google 'may' offer the handset in a similar manner to the Droid / Milestone whereby it will be up for an unlocked, sim free [cheaper] pricing model and they will see how it runs. Above all they want people on Android – not – individual handsets per se, surely.

  • Nick

    Does anyone remember the original Android concept? It was for a free phone and service, in return you'd have to listen to an advertisement after a call/text or before browsing the web. It seems like a "Googlish" thing to do… That said, I don't think they will do it because it would destroy the current market and also mess up the Open Handset Alliance that they've been working on since they bought Android.

  • this is great to know about advertising

  • Mark

    Why did they say that the g1 would get flash player and now its going to only be available for select phones?

  • I like this hypothetical article. I'm sure Google would use a ton of ads.


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  • I like this hypothetical article. I'm sure Google would use a ton of ads.


    Online Marketing strategy blog

    Make money online marketing

  • i want it so bad..

  • I hope Nexus One will be cheap unlocked. For my french operator Zero Forfait