UPDATE: The Wall Street Journal is reporting several things today that confirm the issues Google is experiencing:
1. Verizon will sell the Incredible (also from HTC) and not the Nexus One device.
2. Vodaphone will sell the Nexus One in stores, not online, and will make the device available for free.
Looks like Google may be shedding their inventory overseas. Sprint continues to report through it’s Application Developer Program that the Nexus One will be available this quarter.
***********************
With much of this week’s attention focused on the Palm implosion (read more of Palm’s inventory woes here and see their stock graph here), I thought it would be worthwhile to focus on another announcement that happened this week: Google Nexus One availability on the Rogers and AT&T networks. Google has been pretty quiet about their on-line store, their initial relationship with T-Mobile, and subsequent upgrades to their service (their Blogs talk about new spare battery availability, a Nexus One video series on YouTube, but not much else). While the speculation is that sales had been light, it wasn’t until the recent comparison to the MOTO Droid and the iPhone sales by the software firm Flurry that we got a reliable, quantitative view of how bad it is. Flurry posted the following chart on its blog:
Using the 74-day benchmark established by the 2G iPhone (released in 2007), Flurry used its estimates from its applications software that is installed on the vast majority of iPhone and Android operating systems to come to these conclusions. Is the Google store an experiment gone totally wrong? Here’s a comparative view of the “best” Android devices from Sprint, VZW, and AT&T (note: the Nexus One 24-month cost is assuming T-Mobile as the underlying carrier. A more readable version of this chart can be found in the attached PDF):
Here’s Google’s first problem: In a world where “free” is the new normal for smartphones, the Nexus One costs $160 more up front, and $120 more over the next 2 years than essentially the same phone (VZW Droid). You could buy lot of cool applications with that. Also, the Nexus One may not provide a lot more value than the Samsung Moment ($110 cheaper up front, $240 over next 2 years) or the Backflip ($180 cheaper up front, $120 cheaper over next 2 years).
This is a Google channel marketing issue, and a tricky one at that. Do they start to highlight the Android Version differences (no one knows and cares about the differences between Éclair and Cupcake except for a handful of programmers)? Do they start to include credit on Google Voice (or create a personal Google Checkout account) to compensate for going through the Google channel? Do they make the Wal-Mart and Amazon pricing battle a three way affair? The inventory is aging quickly (I’m not sure which ages faster – smartphones or bananas), and, if they are holding $300-400 million worth of Nexus One inventory (700,000 phones in inventory at $500/ phone, or 850,000 @ $400 per device), this distribution could turn into a financial accounting issue come Q2.
Fortunately, Google is not Palm. They can take risks with 2009 operating cash flow of $9.3 billion and an ending cash/ marketable securities of $25 billion – they likely generated $350 million in cash flow in 2010 by MLK Day. It’s worth experimenting to drive more Android connections. But there are a lot of lessons learned:
- Google could do more with Wal-Mart and Amazon if they want broader distribution of their devices. (Imagine an Android store-within-a-store in every Wal-Mart focused on applications).
- Google struggled early on with service and returns. As their distributed base grows, the service problem will only increase.
- No smartphone markets itself. In a 3-4 day news cycle, the “share of voice” gets lost – quickly. This is why the carriers spend insane amounts on advertising.
- Despite shifts to on-line purchasing, many consumers continue to buy at stores. Once the potential customer has entered the store, the probability of a Nexus One purchase diminishes significantly.
- The smartphone “dive to free” is going to remain as long as data plans proliferate. Paying $100 for a premium device (except for the iPhone) may be asking too much in 2011.
If Google continues to distribute separately, they need to negotiate a $20 voice plan (400 minutes) or a $30 plan with unlimited voice and text (Carlos Slim did with Verizon on wholesale). The carriers could do this and still retain the customer as post-paid retail additions (they control the subsidy, after all). This “phone-based plan” pricing structure was initiated by AT&T with the iPhone launch ($30 minimum data plan charges), and also by VZW in January. But the change to this structured pricing will not come without months of agonizing analysis. (BTW, AT&T and Verizon shareholders win the faster the data grows provided Cable cell site backhaul does not capture significant market share – see “What Qwest Results Teach us about AT&T and Verizon” post from a few weeks ago).
Here’s Google’s next problem: Android applications are proliferating. Techtree had an article this week that confirmed that Google has surpassed 30,000 apps in the Android Market. Techtree also estimates that around 60% of these applications are free. According to Google, sixty thousand Android phones are shipping each day. Viewing 30, 40 or 140 thousand applications through a “10 at a time” lens is counter-productive. Google is the leader in search – why not have a searchable database of today’s 30,000 Android applications, perhaps demonstrating how each of them work on a Nexus One? Google is a leader in establishing personal preferences – why not establish a profile and notify application developers that the Android base needs this particular application? Google has a base that uses Google stuff daily – why not ask them what they want? Why not move the Google Apps store to Amazon or Wal-Mart or, even better, try a “store within a store model” inside of selected Wal-Mart and Best Buy locations.
There are some easy and low-cost solutions to this problem. Google can implement all of these without a carrier. And, through a more visible marketplace, can start to establish itself as the applications leader, and not the storefront, for wireless.
Next week, a take on CTIA. Please join me and several of the Arden Media/ RCR Wireless friends for a “Late Nite” on Tuesday evening (10 p.m.) at the Body English bar at the Hard Rock hotel. If you are attending, enjoy the show. Thanks for your comments and suggestions for future Sunday Briefs.
Now for five you may have missed (more links available at www.thesundaybrief.com):
- In one of my meetings this week, I was made aware of the website www.pleaserobme.com. The purpose of the website is to make folks aware that posting “where you are” might tip off others to “where you aren’t.” It looks like the website has been taken silenced. More to come.
- MIT has set up a new entrepreneurship site and it looks pretty impressive.
- Mark Suster has an interesting article on the difference between Twitter and social networks.
- Following a theme we have explored in several Sunday Briefs, Leap announces it is closing 10% of company retail stores.
- Multichannel News’ detailed look at the retransmission proposal made by several cable companies to the FCC (who asked for comments on Friday afternoon).
Thanks! This is probably the most interesting info I have found on this subject on the net. Would you think about hosting guest articles from others?
Finally, Finally…I’ve been looking for this information for a long time. Thanks
[...] Google’s Multi-Hundred Million and Multi-Billion Dollar Wireless Problems [...]
Have you ever considered adding video to your blog to keep the readers entertained? I just read through the post and it was quite good…thanks for sharing
Help me with some ideas on video – I would be glad to include it.
I wanted to thank you for this great read!! I positively enjoying each very little little bit of it and I have you bookmarked to check out new stuff you post.
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Glad folks like it – tell your friends and I’ll be doing more posting as we get closer to Q1 earnings time.
I want to say – thank you for this!
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Perfect work!
well, it’s not perfect, but hopefully it helps all of us understand that bigness does not constitute competency. I would also argue that brains (and Google’s got a bunch of smart people working for them) does not equal success.
Conversely, let’s look at the importance of distributing through Wal-Mart. Tracfone made a brilliant move (with the help of Verizon’s Wholesale pricing) that will likely result in even more net adds for both companies. Tracfone didn’t assume that they could distribute better than Wal-Mart (they couldn’t do it) and agreed to give Wal-Mart its own brand (Simple Talk branding is exclusive to them). Salespeople can sell them nearly as easily as any other electronics.
Which billionaire made the better distribution decision (albeit very different types of decisions) – Carlos Slim or Page/ Brin? My money is with Carlos.
What a great point you make. Yes, some people just don’t need to comment to feel they have participated to the fullest. That’s not their style.
Agreed. But if comments can lead to a better understanding of the topic, and if folks hold back, the conversation is lost.
Thanks for writing such an appealing post. Cheers
Glad to do it. We’ll get more details when Google announces earnings on 4/15 (next Thursday).
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There was a lot written about the possibilities, but not a lot about the probable outcomes and the effects of these outcomes on your investments. As for the duration of the topic, the NYT has a guest editorial from Dr. Susan Crawford calling for Title II being declared.
i got a question for the you, topic i mean why did you write it because I believe its not on subject compared to the rest of your blog. Thanks for your time.
It actually is on topic, although you are correct, it’s not on topic with some of the more recent articles. The issue at hand is the change in distribution strategies. Look at Wal-Mart’s announcement today with Simple Talk. Verizon Wireless is going to allow their name to be used. A big change. Contrast that with Google – they directly distributed phones instead of going through the traditional store channel – good move? Verdict is out. So compare and contrast – Verizon’s (semi-) unbranded decision to market Simple Talk vs. Google’s decision to be an on-line retailer – which is the better decision – right now I would pick Verizon. Hope that helps.
Interestingly, this was on CNN last week….
Yes, they have a good technology relationship with WIRED magazine. The article is decent.
My guess is it’s the template – I’m doing some compression with pictures as well. But other than that, nothing plugged in that’s different. Keep reading, and thanks for the comments!
Accounting Tips, Accounting, Accounting System…
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The Nexus One is in technical things a little bit better as the iPhone but this offers more opportunities and is more comfortable.
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sure – if you need more data, I can direct you to it. All of the data is from the carriers’ 10-Q or can easily be derived from their schedules. Rest In Peace, Nexus One store.
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I’ll check on the RSS feed issue.
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Remember to follow the updates including the one from Friday (when Google announced that they shut down the on-line store).
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I need to add more video (like the Wal-Mart ads that I link to but do not embed the video for). Stay tuned – more to come. Thanks for the feedback – I take it seriously.
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Thanks – tell your friends.
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sure.
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Kent – you can subscribe to the RSS feed, or on the “About” page you can subscribe to the email. Or you can check back Sunday Evening. Or, if you would like to be on the mailing list, please send an email to me at jim@mobilesymmetry.com and I will add you to the Sunday Morning email. Thanks
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Thanks – I just put up a new post today – have a read and tell your friends!
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It’s called Contempt and it’s on the WordPress site.
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