Why Googles New SAAS Model Wont Work

By Clint Boulton  |  Posted 2009-12-19 Print this article Print

Google would get greater control over sales of Android devices, positioning its many mobile Web services, from Google Maps to Latitude to Google Voice, in front of users. Any or all of these services would be paired with Google's mobile ads.

eWEEK found Ovum analyst Jonathan Yarmis skeptical about the idea that customers would be willing to pay $500, or whatever the Nexus One might cost given its many new features:

"There's a huge leap of faith required to think the customer will pay the unsubsidized price up front. Even if you're going to get the subsidy back when you activate the phone, you still have to put that large charge on your credit card up front. And knowing the way the process will work, they probably won't give you the credit until 4 to 6 weeks later, so you have to carry the cost for a billing period."

Even so, Yarmis agreed that Google wants to change the power structure between the platform owner, the device manufacturer and the carrier, and suggested that Google could subsidize smartphone pricing with its own advertising chops.

"By owning two pieces of the equation, Google increases its leverage both with carriers-'Take it or leave it'-and the other device manufacturers-'Sure, you have freedom, but if you do things we don't like, we'll compete more aggressively with you,'" Yarmis said.

Of course, as Frommer noted, the biggest hurdle in his SAAS plan would be convincing carriers to cede handset sales to Google, a company with money-making expertise that lies in digital advertising, not hardware.

Whatever distribution plan Google has for the Nexus One, Yarmis said, all paths lead back to advertising, which comprises about 97 percent of Google's sales and underscores Google's $750 million bid for mobile display ad provider AdMob.

He concluded, "Mobile advertising is the next frontier and it's a battle they can't afford to lose. The really good news for them: Oftentimes, the 'innovator's dilemma' is such that chasing the next frontier is often damaging to your existing business (e.g., Microsoft and cloud). That's not the case here. They can chase, and accelerate mobile advertising, and it represents a net increase in available advertising dollars and a net increase for Google in its share."

Meanwhile, the layers that compose the Nexus One continue to be pulled back. Like the Motorola Droid, the device lacks multitouch capability, which is a bummer for people accustomed to pinching and zooming from other Android gadgets. Of course, developers can tap the phone's root.


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