Why the Nexus One is important for Google and Android

5 Jan

Google today broke a number of self-imposed rules with the launch of the Nexus One. Firstly, Google has stepped into the retail biz, something that it has stayed away for more than a decade of its existence.

Secondly, Google can be seen playing favourites by launching the phone with HTC and promising another with Motorola. Mind you, we are not talking about simply helping a handset vendor with making a product but then buying stocks of the product and selling them.

Thirdly, Google is changing the manner in which carriers operate in most western countries, where phones are locked to a carrier and where the carrier wrangles greater control over the phone and often dictates what can and what cannot be offered (apps/services) on the phone. Consumers can buy the Nexus One directly online and if they want, can get it at a subsidised price by hopping on to T-Mobile’s network.

So let’s tackle these three points individually. The only reason we believe that Google has stepped into the retail biz is to get greater control over hardware on which its operating system works on. The Nexus One does not sport the Sense UI, which is a trademark of most HTC Android phones. Rather it runs the vanilla Android UI. Take it for granted that all future phones that Google will retail on its store will be stripped off any third party UI. The Sense UI was a reason why HTC has not been able to port the latest version of the Android OS on the Hero, which even today is the best Android phone available in most countries. Google wants to ensure that all Android phones run the latest OS version to avoid fragmentation. And there is only one way to do that – to buy stocks of the product from vendors and retail them on its own.

Then there is the case of playing favourites. It is clear now that Google will work very closely with just a handful of hardware partners for developing Android. Since Google is investing heavily by retailing the products, it will play a greater role in development of those products. So how does a company like HTC, which transformed from an OEM to a vendor, fit into the puzzle? Well, it is a win-win situation for HTC, as Google would retail the product in countries where carriers dominate the business and HTC retails it in more ‘open’ countries where phones are sold in a free market, where Google does not have retail presence.

And finally, how will the carriers react to this? Well, to be honest, we don’t think the Nexus One will really alter the way consumers buy phones in those countries. The proposition of getting a subsidised phone for which you pay every month is too good to convince consumers to pay an upfront amount that is three times the subisidised price. Nothing’s gonna change over there.

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