Google Building Hardware Business Around Nexus One, Webstore

Google wants to build big mobile hardware margins from the Nexus One smartphone and future Android-based devices, such as netbooks and tablets, said BroadPoint AmTech analyst Benjamin Schachter. He believes Google desires to build up a mobile hardware business around the Google Webstore. This would ideally be icing on the cake for Google's current mobile search and display ad model. Schachter said it will not state this goal because it fears damaging the powerful brand Google has cultivated over the last decade.

Many analysts view Google's Nexus One as a vehicle that will enable the company to reach millions of users of the smartphone with mobile search text and display ads, and possible even click-to-call ads.

BroadPoint AmTech analyst Benjamin Schachter is one of those analysts. Schachter has a hunch that, while the search giant won't admit it, Google hopes to actually build up a mobile hardware business around the Google Webstore it uses to sell the Nexus One and future Android-based devices.

Consumers can't walk into a retail store and buy the Nexus One at present. As the merchant of record, Google is selling the HTC-built, Android 2.1-based Nexus One online through its Webstore for $529 unlocked and unsubsidized, or $179 for a two-year contract with T-Mobile. Hardware parts for the Nexus One cost $174.15, according to iSuppli.

Noting that the Nexus One smartphone is the first of what could be a slew of mobile devices Google sells, Schachter said in a Jan. 6 research note, "We think that Google's unstated goal is to potentially build its mobile hardware business into a meaningful revenue driver.

"Mobile is a big enough market to move the needle for Google, and we believe success here may encourage the company to introduce more hardware such as netbooks, tablets, and other devices. In our view, yesterday was quite literally day one for Google's long-term mobile ambitions."

However, during the question-and-answer session at the Nexus One launch event Jan. 5, Mario Quieroz, vice president of product management at Google, said that while the retailing aspect is important, it's "another channel" and not intended to replace other channels.

Andy Rubin, vice president of engineering for Android, deflected questions about Google trying to make money on the HTC-built hardware, noting that while there is some opportunity to make some margin on the unit sales, "that's not what we're trying to do here."

"Our primary business is advertising," Rubin said. "This superphone category is just a great way to access the Internet and along with that comes our normal business model of advertising. ... If you want the best possible Google experience, you'll come to the store, grab the device, and [the Google] advertising model takes off."