MOUNTAIN VIEW, Calif.--Forget about the Google Phone already: the Nexus One is merely a blip on Google's long-term strategy for the rise of mobile computing.
One could be forgiven for assuming Google was about to knock over the smartphone market--two and a half years after Apple did just that--with one quick blow going into Tuesday's Android event with a phone designed by Google and sold at retail by Google. After all, that's what the Internet said would happen leading up to the event.
But what actually emerged from Building 43 on Tuesday is just another Android phone: a nice one, to be sure, but one featuring hardware designed completely by smartphone maker HTC and software features that will soon be available to other Android phones with advanced hardware, like the Droid. The real story is perhaps less sexy than a sleek iPhone killer that so many techies would love to see compete with Apple, but it's a sign that Google CEO Eric Schmidt has learned his lessons about competition over a lifetime in the tech industry.
What Google is trying to do is gradually reel in Apple over a period of years by emphasizing open phones with open application stores sold through a variety of channels running an open-source operating system. And, for good measure, it's also trying to do nothing less than reinvent the way mobile phones are sold in the U.S.
In order to do that, Google is going to have to do two things. It will need to show that consumers are willing to embrace a distribution channel for smartphones that is not controlled by wireless carriers, who will never give up their gatekeeper role over access and pricing of these phones if they are not forced to do so by customer demand. And it will have to continue to create compelling mobile software that serves as a check on the iPhone.
According to a source familiar with the process, the Nexus One was designed by employees of One & Co., a San Francisco design firm acquired in 2008 by HTC. Andy Rubin, vice president of engineering for Android at Google and leader of the project, later told GigaOm that "there are no hardware or industrial designers on my team." Leading up to Tuesday's event, widespread reports claimed that Google had designed the Nexus One by itself, and while the company may have specified hardware requirements to go with its software, that's not the same as designing the phone.
So while Google is not making its own hardware, as Rubin maintained back in October, it will eventually be doing the second thing he claimed Google wasn't doing that day: competing with companies it formerly considered customers.
With T-Mobile and Verizon on board for the Nexus One launch, all appears rosy between Google and those partners, who even though Android was a free product were essentially the end customers of that software up to this point. But make no mistake: Google's ultimate goal is to create a business plan where top-notch Android phones are created by companies like Motorola and HTC and then sold through a virtual mall of sorts where carriers like T-Mobile and Verizon have to compete for your business.
Indeed, in the same report referenced above, Om Malik's sources claim that behind the scenes, Motorola and Verizon are annoyed as they were expected to be leading up to the launch of the Nexus One. That's because Google's plans for the Nexus One and future Nexus One phones involve cutting out the heart of the smartphone market.
At the moment, the carriers cut three-way deals with the phone makers and operating system vendors to sell phones exclusively on their network, hoping to get the best phones on the market as to entice as many people as possible to sign up for two-year contracts with data service. What Google is proposing is a business model in which you pick a phone and then separately pick a carrier, all without having to leave your house.
In other words, it would be like buying a PC. Comcast doesn't have an exclusive deal with Dell where if you want one of their PCs, you have to get it from Comcast and lock yourself into a two-year cable modem package. It means wireless carriers would have to compete on pricing and the quality of their networks rather than exclusive deals for hot phones.
Google argues this is what caused the PC-based Internet to flourish, and if the mobile Internet is to do the same thing, it needs someone to break the logjam of carriers, phone makers, and software providers.
But will it work? In a way, Google is currently doing exactly what it decries: it's offering an excellent phone through an exclusive channel tied to a single carrier. Later this spring the Nexus One will be available on Verizon's network, but it's harder to sell unlocked CDMA phones (Verizon's technology) because they don't use removable SIM cards found in phones based on the GSM family of standards. So that phone might well be tied to a two-year Verizon contract, and Verizon confirmed Tuesday that it won't be sold anywhere other than Google's store.
But Rubin said during a question-and-answer session following Tuesday's event that Google has to be in the game before it can start shaking up the market. He linked the potential for this type of strategy to the same revolution that took place in retailing, with companies like Amazon.com proving that people were willing to buy products over the Internet without checking them out in stores first. That allowed companies like Amazon to eliminate the overhead associated with maintaining a physical retail store and consumers to have more flexibility with their spending.
In a way, the strategy behind the Nexus One is very Googly: launch early and iterate constantly. Schmidt's previous gigs at Novell and Sun Microsystems showed him what could happen when innovative companies were slowly subsumed by determined competitors with deep pockets (Novell versus Microsoft) and open software married to cheap hardware (Sun versus Linux). This time, he's marrying both in an attempt to remake mobile computing in Google's image by taking on Apple and the wireless carriers.
Don't expect Google to sell a ton of Nexus One phones in 2010. Rubin told GigaOm he thinks the company can sell 150,000 this year, which is a fraction of the 1.8 billion smartphones that Pyramid Research recently said it expects will be sold over the next five years.
The upside for Google is that even if this strategy doesn't work, the mobile Internet will still carry advertising.