The most intriguing scenario is one in which Google sells the device unsubsidized online and unlocked, letting users pick their wireless provider.
Because we’re fond of catch phrases that explain things with brevity, eWEEK calls this Google’s new SAAS model. Google’s original SAAS model is, of course, software as a service, the cloud computing model that enables the company to host applications and provision them to users over the Web. So call this the new SAAS model, “smartphone as a service.”
This model has been laid out by Silicon Alley Insider’s Dan Frommer, who suggested in a Dec. 14 post that Google wants to turn the mobile carrier and phone distribution market on its ear. Rather than having users go to Verizon Wireless, AT&T, Sprint or T-Mobile to pick out a device and sign up for wireless service and data plans, Google’s new model could work in the following fashion.
Users go to Google.com and search for devices, such as the Nexus One, which Google employees are testing and some bloggers have been lucky enough to sample. They order the phones unsubsidized and Google ships them.
A user then powers on the device and picks a carrier, which for the Nexus One would seem to be T-Mobile at this point because it’s a GSM device. AT&T does GSM too, but the company seems to be cold-shouldering Android. Strangely, Frommer suggested that there could be a bidding process, in which carriers would compete for users based on whether they want data only, data and voice, unlimited calling, and the like.
He also suggested that Google could even buy access to voice and data networks and act as the carrier. Users would get pay-as-you-go service, or have their accounts credited by signing a long-term contract. Other options Frommer speculated about:
““Maybe Verizon would give you a $200 service credit for a 2-year contract, or credit your Visa card. Or maybe carriers could compete here over “signing bonuses.” Google may offer you an extra credit to make Google your default search tool. You could also pick your number through this sign-up process, and even select to make Google Voice your primary voice technique. Google’s installer would configure your phone automatically.”“
Why Googles New SAAS Model Wont Work
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.