Google Quiet on Hardware Ambitions to Stay Alive

By Clint Boulton  |  Posted 2010-01-10 Print this article Print

So why isn't Google coming clear about its alleged mobile hardware ambitions? Self-preservation. Schachter said it will not state this goal because it fears damaging the precious, powerful brand Google has cultivated over the last 11 years if the company fails.

Indeed, there are always risks when companies, particular software-driven businesses, double as purveyors of hardware. Jefferies Research analyst Youssef Squali wrote in a Jan. 6 research note that Google's retail model could depress margins:

"We believe that as the 'merchant of record,' Google is likely carrying the inventory risk for a business that's likely to generate profitability that is substantially below the company's traditionally 60 percent-plus EBITDA margin."

Yet Schachter sees another silver lining in the Webstore. He believes that by offering the Nexus One and other devices through its own store, Google could diffuse some of the fragmentation plaguing Android, for which multiple operating system versions-1.1, 1.5, 1.6, 2.0 and 2.1-exist.

He said that by infusing its smartphones with the most current software, Google can encourage other carriers and OEMs to essentially keep up with Google and update their own Android devices with the latest software versions as well. The Webstore, backed by Google's promotion on its front page and elsewhere, should help in that regard.

Still, mobile advertising is the business model that most financial analysts are rallying around in the wake of the announcement. Squali sees the Nexus One and Webstore as another way for Google to expand its mobile search and apps footprint, which can then be monetized via ads.

"During the 3Q09 call, Google saw 30 percent quarter-over-quarter rise in mobile searches," Squali wrote in a Jan. 6 note. "We expect Google to monetize this hyper-growth in search volume via location-based search ads, which are typically more attractive to advertisers, given the 'in-market' nature of such consumers."

Eventually, thanks to the direct-to-consumer model of its Webstore, Google could gain some control over how consumers buy mobile device and services, enabling it to offer VOIP or ad-subsidized mobile devices in the future


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