Most observers of the US mobile market have been expecting significant changes to occur in 2010, as the battle between wireless carriers, device manufacturers and content aggregators intensifies. They have not had to wait long. After a period of intense rumours, Google announced the release of the Google phone 'Nexus One' on 5 January – a device designed by Google and made by HTC. With this new device, is Google getting ready to become the new spoilsports of the mobile industry?
It is interesting to compare this move by Google with the release of the iPhone in June 2007 by Apple – a considerable revolution of the mobile market, tearing down any operator’s walled garden strategy for mobile content practically overnight and overwhelming major device manufacturers. Since then, the mobile market seemed busy with carriers defending their traffic revenue (and having difficulties securing content revenue), and device manufacturers trying to match the appealing iPhone capabilities.
In this dynamic market, observers were naturally expecting further revolution, and what a better suspect than Google, which has, without doubt, the innovation capacity and the cash resource to shake the mobile industry? Indeed, it came without surprise when one year and a half ago, Google made its first step into the market with the Android platform. The move was rather modest, and Google’s stated ambition was limited to the implementation of its open platform in the greatest possible number of devices sold by the greatest possible number of operators.
But Google is known to be ambitious, and there were high expectations that Google would deliver a device to further alter the smartphone market. The revolution would have been to come up with an innovative phone and most importantly sold independently of carriers. But to do so, Google would have had to overcome a major challenge – that is, to go without the significant carrier’s subsidies.
Hence a lot of observers were predicting that Google would be able to create a viable business, subsidising the device itself. In particular, many theories have been put forward on how Google could get revenue from enhanced mobile advertising (building on the acquisition of AdMob). But those observers are now disappointed after the release of the Nexus One, as apart from the fact that Google is selling this device directly, it is still heavily subsidised by T-Mobile (yet it is available unlocked for an additional USD350) and it only provides some limited software upgrades and some new hardware features.
But why this confusion about Google’s ambitions and manoeuvres? In fact, many observers have been too hasty in comparing Google to Apple, which led them to misread Google’s strategy. They possibly overlooked the fact that Apple and Google have different businesses, which lead them to pursue different strategies: Apple makes money by selling mobile devices and Google makes money by selling advertising. For this reason, Apple’s strategy is all about the scarcity and desirability of their products, while Google’s strategy is all about eyeballs.
Apple had everything to gain in disrupting the mobile market back in 2007, while Google has no interest today in upsetting its partners (carriers and device manufacturers) too much, who support its continuous effort (and most of the costs) of driving customers to the Google 'cloud'. For Google’s business model to develop on mobile, they need as many smartphones in the market as possible, with consumers using the Internet and Google applications.
The Nexus One is a natural element in Google’s strategy to increase advertising inventory that it can monetise through its core business, by providing users with a device with a large screen and full browser capability. Additionally, Google definitely wants to increase the volume of smartphones in the market, as a greater volume will drive down costs, thereby increasing advertising inventory still further.
But there is little doubt that the Google and Apple will, sooner or later, compete over mobile. If the Nexus One (or other devices sold through Google’s store) succeed, they could potentially reduce the appeal of the iPhone. Meanwhile, Apple recently acquired Quattro Wireless, a mobile advertising start-up, so we may see some concrete threat to Google’s advertising business soon.
Analysys Mason has expertise in both the mobile and media industries. Click here to find out more about our consulting experience and here to read about our Mobile Content and Applications research programme.