Google reinvents mobile pricing, purchasing

Google (NASDAQ:GOOG) might not be interested in building hardware, but it is certainly interested in the business of selling phones. The software giant made its first official announcements on the highly anticipated Nexus One, but more interesting than the already well-known specs and features  of the HTC-built device was the Google-dominated way in which it will be sold – a method that carriers T-Mobile (NYSE:DT), Verizon Wireless (NYSE:VZ, NYSE:VOD) and Vodafone (NYSE:VOD) have already thrown their support behind.

Google is taking a unique approach offering the phone both unlocked for $530 and at $180 through a standard carrier plan with T-Mobile at launch and through VZW and Vodafone this spring. But the purchase of both the hardware and carrier service will take place at the new Google Web store using a Google account and a Google Checkout account.

Mario Queiroz, Google's vice president of product development, told attendees at its Mountain View, Calif. headquarters today that the Web store was designed with a focus on a simple purchasing process and a simple offering of plans from operators. They are launching it first in the US and will be shipping in test markets in the UK, Singapore and Hong Kong. Google also plans to add more operators in the US and internationally but announced support from T-Mobile, VZW and Vodafone initially. Through the Web store, the Nexus One, as well as more devices eventually, can be purchased without service or at the discounted price with service from a Google partner, in this case T-Mobile.

In an interview prior to the announcement, In-Stat principal analyst Allen Nogee pointed out that the dual strategy is likely to balance out the challenging climate that other handset makers like Nokia have experienced when selling unlocked phones in the US, a market where consumers are used to carrier subsidies. At $530 for the unlocked version, he doesn't think it's an option many consumers will select.

Furthermore, while the Nexus One will support all radio bands, it does not support 3G at the PCS frequencies, making the unlocked version less desirable, as it will only run on AT&T's 2G EDGE network. So while Google has every intention of competing against Apple's iPhone with its new device, it isn't directly going after Apple's existing customer base. Nogee said it is more likely to give existing Android devices, like VZW's Droid, a run for their money. Google also said that it is focused on making future phones"world phones," but did not confirm if the Nexus One will support both CDMA and GSM when it comes to VZW in the spring.

The Nexus One has had many in the industry excited since it was first leaked on Dec. 11. Google taglined it"where Web meets phone," as well as deemed in a new category of "super-phones" based on its storage and processing speed. With a 1 GHz Qualcomm Snapdragon processor, one of the phone's distinguishing features is its speed. The phone will also run on Android 2.1, the latest software update to the OS, including customizable and interactive wallpapers, 3D graphics and voice enablement of every text field in the handset, including emails and texts.

In response to a question about why it was necessary for Google – not HTC – to design the phone, Google executives responded that Google is only merchandising the handset online, it did not design it, and everyone will get the Android 2.1 software within a couple of days.

As it stands today, as a device limited to T-Mobile or AT&T's EDGE network, the Nexus One might not be a game changer in the US, but it could be a good sign for both Android and the carriers. It means that a larger number of Android-based devices will spring up on several different operator networks than previously seen, Nogee said. Android's momentum has already made a dent on the market too – due in large part to its carrier versatility. According to research firm NPD's latest information, in the first two months of the fourth quarter of 2009, Android quadrupled its market share over the third quarter, moving it into the third-ranked slot behind RIM and Apple.

"Although there are relatively few open-source OS-based smartphones in the market today, the open-source OS momentum is difficult to ignore," Nogee said."After years of hype, it is easy to see that 2010 will be the year of Android."