7 ms·

Google admitting defeat in 'direct to consumer' model phone sales

79 points by bockris 16y ago

TrevorBramble 16y ago
On one hand I'm sad to see the attempt of opening a direct sales channel called off. I still think it would succeed in time, as people in general become familiar with the handsets and Android. On the other hand, I've advised every (non-technical) person I know who is looking into a new smartphone to go try them out in person to see how they feel about the interfaces (along with pointing out the differences in application availability, carriers, etc.)
- anigbrowl 16y ago
  I think they're wise to expand into the retail space, but I'm perplexed at why they would shut down the direct channel. I guess retailers don't want to be mere demonstrators, losing actual sales to the online store. I would probably have bought my N1 a month or two earlier than I did, but for anxiety about dropping >$500 on something I had only seen pictures of...on the upside I like having it customized with my name and email address. That eliminates the resale value but I'm gambling that Antiques Roadshow will find it interesting in a few decades :)
  - johnnyb4 16y ago
    It's not mentioned in the article, but perhaps it has to due with the support burden? http://mashable.com/2010/02/09/nexus-one-live-phone-support/ http://mashable.com/2010/02/09/nexus-one-live-phone-support/ With having to deal with technical support, and all the small margins associated with retail, I'm not surprised at Google's decision.
simon_ 16y ago
I don't think it's likely, but I deeply hope that Google (or somebody else) can kill the US addiction to subsidized handsets. The market will be so much more efficient and flexible when we pay for phones as phones and pay for service as service.
- gte910h 16y ago
  I'd honestly prefer it was just legislated that we do it like Europe (where you see the amount you're paying for the phone itself, and there aren't really ETFs)
  - roel_v 16y ago
    What's an EFT?
    - gregstoll 16y ago
      An ETF is an Early Termination Fee, which you have to pay if you leave your contract early. It protects the carriers since they're subsidizing your phone.
      - pyre 16y ago
        You say that it 'protects' them, but it was only recently (last year or two) that they decided to pro-rate those fees. So a month before my 2-year contract is up, my ETF would be the same as if I cancelled within the first month. This is bogus if the reasoning is so that the carriers can 'recoup the cost of the phone that they were subsidizing.' Even with the pro-rated ETFs now, IIRC they won't be insignificant at the 'month before the end of a 2-year contract' point even though the carrier has obviously made back most (if not all) of their sunk costs by then... ETFs are there because the mobile carriers like to bank your monthly fees as a constant revenue stream, and when people cancel early it screws up their numbers and projections, much in the same way that banks penalize you for closing out a CD early. Talk about how it's to 'protect the carriers from people that cancel early without covering the full cost of the phone' is just people buying in to the BS story that the US mobile industry's PR depts have been telling us for years.
        gte910h 16y ago
        > decided to pro-rate those fees. They didn't decide. Non-prorated fees were found to be unenforceable. I'd call that forced.
lftl 16y ago
There aren't a ton of details in the post, but I really hope this doesn't mean the end of an unlocked Nexus One, or whatever Android phones will follow. That being said, Google needed to kill this. Along with the no retail try it before you buy it issues, Google isn't setup for being a retail company -- it just isn't in their DNA. I mean, people had to drop $500 for a phone, and then only support they get is a web forum, where they may or may not actually get an answer from a Google employee? Weird confusion over whether Google or HTC or T-Mobile was responsible for different support issues? I'm sure Google COULD fix these things, but it would take fairly significant internal effort.
- cma 16y ago
  They did fix the web forum issue.
- ergo98 16y ago
  >it just isn't in their DNA Very true. Google is a company with a very high revenue per employee. When I bought a N1 I had minor ordering issues and it was clearly that their support mechanisms were simply a joke -- they do that part absolutely terrible. I got much better responsiveness (and not just lame automatic email replies) when buying a $9 fan.
- eli 16y ago
  I assume it just means that Google will stop pushing it through their webstore. I'd be very surprised if they actually prevented you from buying the phone unlocked. After all, you can buy pretty much all HTC smartphones unlocked through sites like http://www.htcphonestore.com http://www.htcphonestore.com
bugmenot 16y ago
I'd buy one if it didn't say 'Sorry, the Nexus One phone is not available in your country or region'. I'm in EU.
mc 16y ago
They should have waited till the end of the year to make this call. I bet there are a bunch of users who were waiting till October to buy a phone at the discounted rate. That's 24 months after the original G1 was released, which is when those owners are eligible for discounted upgrade. Like myself.
- jrockway 16y ago
  Wasn't there some issue about the Nexus One not being eligible for upgrades? And anyway, the Nexus One is a downgrade from cheaper phones anyway; the Incredible and Evo 4G are simply amazing and are in the same price range. (Remember, you only pay a prorated early termination fee in the US now, so if you only have a few months left on your contract, switching to a competitor is cheap. I have a year left and am definitely switching from T-Mobile to Sprint on June 4th.)
  - barake 16y ago
    The Nexus One and HTC Incredible are virtually the same phone. Just like the European Hero/US Hero/Droid Eris are the same. Also 'upgrading' to the Nexus One (or a number of other nice phones) on T-Mobile requires you to switch to an Even More plan.
    - vetinari 16y ago
      Nexus One is almost identical to HTC Desire (differs in RAM amount, dual-mic on N1 and different firmware). Both are GSM/UMTS phones. HTC Incredible is CDMA (Verizon) phone.
- alaithea 16y ago
  The cost analyses that came out around the N1's release convinced me to go with an unlocked phone once my contract runs out. Like you, I was waiting (another year and a half to go). Although the N1 will no doubt be eclipsed by newer models at that point, I am sad to see this direct-buy option go away.
FraaJad 16y ago
Google, don't lose heart. It's not you. It's just that people in US don't know that they can buy phones in open market without signing away a chunk of income to cell companies every month. There are bigger, more mature markets elsewhere. Go after them. You might even get more people to use your services (maps, etc.) on a mobile than they would on a PC. Also, $350-$400 (may be even $500 for topend) is a sweet spot for smart phones in India. And people do buy these phones in open market without a contract. All the best. Go forth and prosper. /an iPhone and Droid owner.
- frossie 16y ago
  an iPhone and Droid owner If you don't mind me asking, how/why do you use two phones?
  - rthyjhnm 16y ago
    Multitasking ? http://justanotheriphoneblog.com/wordpress/general/woz-has-a-fix-for-multitasking-battery-life-on-the-iphone http://justanotheriphoneblog.com/wordpress/general/woz-has-a...
  - FraaJad 16y ago
    iPhone is my main phone. I'm using the droid to learn more about the android platform and do development on it.
- RK 16y ago
  Google, don't lose heart. It's not you. It's just that people in US don't know that they can buy phones in open market without signing away a chunk of income to cell companies every month. As far as I know, only T-Mobile USA has really come on board so far to make non-subsidized phones a better deal. T-Mobile has cheaper rates if you are not on contract. If you buy the AT&T compatible Nexus One, for example, you still pay the phone "subsidy" the entire time are using AT&T, even though you own the phone outright.
  - grandalf 16y ago
    If you're a loyal T-Mobile customer you get to pay a loyalty tax if you want a Nexus One compared to if you are not a T-Mobile customer.
alain94040 16y ago
Amazing failure, when you consider that they advertised the Nexus One on the #1 most prominent web page possible: the google search form. I'm actually surprised that it didn't work. This was top premium ad space. How can it fail? Unless their expectations for sales were so stratospheric that even their massive campaign couldn't pull it off?
- jrockway 16y ago
  People don't like multi-year multi-thousand-dollar commitments, even if they see an ad on Google.
  - grandalf 16y ago
    Correct. Google drastically overpriced the phone. As others have pointed out, signing up for a multi year contract in exchange isn't really a bad deal unless you wanted out of the contract sooner (and even then it's not too bad). I had expected Google to sell the phone over the web for $99 with no contract. That would have been the sort of bold, gutsy move that Google needs to do to change the mobile phone market. It seems that Google is actually looking to get a piece of the existing pie and doesn't care about changing the way phones are sold.
    - orangecat 16y ago
      Google drastically overpriced the phone. The Nexus One is cheaper than a contract free (but still locked!) iPhone 3GS. Their "mistake" was being honest about the price, and not explaining how it would more than pay for itself in lower monthly charges if you used T-Mobile's non-contract rates. Even that may not have worked, because consumers are generally really bad at math.
      - grandalf 16y ago
        Perhaps. But just as Google offers gmail for free I think it would have been possible to design a business model that allowed the phone to be sold at a discount without a contract. I think Google's pricing was targeted at investors (as in look, we can get top dollar for a phone just like Apple) rather than at consumers who would happily give Google lots of behavioral data for ads in exchange for a discounted phone.
jrockway 16y ago
I think one of the problems was that the phone didn't include the radio hardware to be truly portable. Sure, you can buy an unlocked phone, but there is no other network you can use 3G on. So you are locked to a single carrier anyway. If Google released a phone that supported both AT&T and T-Mobile and Sprint and Verizon, then it would be a great deal. Hate AT&T? Just port your number to Sprint and keep the same phone. The phone companies would hate this, and the extra radios would cost like five cents more, so I don't see this as ever happening. But that's what would be truly innovative -- a $700 unlocked phone just isn't very compelling when you have to pay the subsidy anyway.
- barake 16y ago
  As I understand it you cannot activate unlocked phones on Sprint and Verizon. They keep a list of serial numbers of phones meant for their networks and generally speaking you cannot activate a Sprint phone on Verizon's network. This isn't a problem with GSM carriers, only CDMA.
  - jrockway 16y ago
    But you can buy CDMA phones on ebay and activate them on Verizon or Sprint. You just call them and tell them you want to do it, and since you are paying them money, they let you.
  - philf 16y ago
    If that's the problem, they should try selling the phone in Europe.
Goronmon 16y ago
So, can anyone explain why it makes sense for them to stop selling the phone through the online store? I guess it's some combination of cost for both storing, shipping and providing support as well?
- wmf 16y ago
  And it annoys the carriers.
neovive 16y ago
It's a wise move for Google and was likely planned from the outset. Google, primarily an advertising company, was just looking for a way to generate interest in their new mobile platform. It's unlikely that they were planning to stay in the retail mobile phone market for the long term.
hugh3 16y ago
I still don't understand why no carrier will sell me a smartphone, any smartphone, on prepaid. If one were available I'd probably buy it, but damned if I'm gonna change my 13-year prepaid-phones habit now. (Also, I don't have a US credit rating and I kinda like it that way)
- RK 16y ago
  You don't rent, own, or pay utilities?
  - hugh3 16y ago
    Sure, I rent and pay utilities. That doesn't affect my credit rating, which I checked the other day and is still "no record found".
- perokreco 16y ago
  I bought an unlocked Nokia and have a prepaid T-Mobile plan, you don't need to buy phones from carriers.
Rabidgremlin 16y ago
They could have also sold to more countries then just the US and the UK. What's the point of having a web accessable store front when you only sell to a couple of countries?
BrianAnderson 16y ago
I think one thing to think about is how, unlike Apple, Google does not want to upset the "apple" cart (yes, I am a literary genius). To them, removing friction in carriers and device manufacturers from adopting Android is critical. Given this caused some stir in the ecosystem, it makes sense to remove the offering so they are seen as more conformist, rather than a change agent. While change agents are good for you and me, well entrenched companies do not really like them. Status quo is very much a preferred state of affairs!
known 16y ago
I think Google need to pour its heart and not just technology into direct to consumer phone.
eli 16y ago
I don't get why people are blaming US consumers for the popularity of the subsidized handset model. Of course people take the subsidies. If you're going to pay the same monthly rate whether you get a discounted phone or buy one outright, then why waste $200-300. Once the rest of the US carriers follow T-Mobile's lead and let people pay less in exchange for bringing their own phone, then a lot more people will start going that route.

79 points by bockris 16y ago

On one hand I'm sad to see the attempt of opening a direct sales channel called off. I still think it would succeed in time, as people in general become familiar with the handsets and Android. On the other hand, I've advised every (non-technical) person I know who is looking into a new smartphone to go try them out in person to see how they feel about the interfaces (along with pointing out the differences in application availability, carriers, etc.)

anigbrowl 16y ago
I think they're wise to expand into the retail space, but I'm perplexed at why they would shut down the direct channel. I guess retailers don't want to be mere demonstrators, losing actual sales to the online store. I would probably have bought my N1 a month or two earlier than I did, but for anxiety about dropping >$500 on something I had only seen pictures of...on the upside I like having it customized with my name and email address. That eliminates the resale value but I'm gambling that Antiques Roadshow will find it interesting in a few decades :)
- johnnyb4 16y ago
  It's not mentioned in the article, but perhaps it has to due with the support burden? http://mashable.com/2010/02/09/nexus-one-live-phone-support/ http://mashable.com/2010/02/09/nexus-one-live-phone-support/ With having to deal with technical support, and all the small margins associated with retail, I'm not surprised at Google's decision.

simon_ 16y ago

I don't think it's likely, but I deeply hope that Google (or somebody else) can kill the US addiction to subsidized handsets. The market will be so much more efficient and flexible when we pay for phones as phones and pay for service as service.

gte910h 16y ago
I'd honestly prefer it was just legislated that we do it like Europe (where you see the amount you're paying for the phone itself, and there aren't really ETFs)
- roel_v 16y ago
  What's an EFT?
  - gregstoll 16y ago
    An ETF is an Early Termination Fee, which you have to pay if you leave your contract early. It protects the carriers since they're subsidizing your phone.
    - pyre 16y ago
      You say that it 'protects' them, but it was only recently (last year or two) that they decided to pro-rate those fees. So a month before my 2-year contract is up, my ETF would be the same as if I cancelled within the first month. This is bogus if the reasoning is so that the carriers can 'recoup the cost of the phone that they were subsidizing.' Even with the pro-rated ETFs now, IIRC they won't be insignificant at the 'month before the end of a 2-year contract' point even though the carrier has obviously made back most (if not all) of their sunk costs by then... ETFs are there because the mobile carriers like to bank your monthly fees as a constant revenue stream, and when people cancel early it screws up their numbers and projections, much in the same way that banks penalize you for closing out a CD early. Talk about how it's to 'protect the carriers from people that cancel early without covering the full cost of the phone' is just people buying in to the BS story that the US mobile industry's PR depts have been telling us for years.
      - gte910h 16y ago
        > decided to pro-rate those fees. They didn't decide. Non-prorated fees were found to be unenforceable. I'd call that forced.

lftl 16y ago

There aren't a ton of details in the post, but I really hope this doesn't mean the end of an unlocked Nexus One, or whatever Android phones will follow. That being said, Google needed to kill this. Along with the no retail try it before you buy it issues, Google isn't setup for being a retail company -- it just isn't in their DNA. I mean, people had to drop $500 for a phone, and then only support they get is a web forum, where they may or may not actually get an answer from a Google employee? Weird confusion over whether Google or HTC or T-Mobile was responsible for different support issues? I'm sure Google COULD fix these things, but it would take fairly significant internal effort.

cma 16y ago
They did fix the web forum issue.
ergo98 16y ago
>it just isn't in their DNA Very true. Google is a company with a very high revenue per employee. When I bought a N1 I had minor ordering issues and it was clearly that their support mechanisms were simply a joke -- they do that part absolutely terrible. I got much better responsiveness (and not just lame automatic email replies) when buying a $9 fan.
eli 16y ago
I assume it just means that Google will stop pushing it through their webstore. I'd be very surprised if they actually prevented you from buying the phone unlocked. After all, you can buy pretty much all HTC smartphones unlocked through sites like http://www.htcphonestore.com http://www.htcphonestore.com

bugmenot 16y ago

I'd buy one if it didn't say 'Sorry, the Nexus One phone is not available in your country or region'. I'm in EU.

mc 16y ago

They should have waited till the end of the year to make this call. I bet there are a bunch of users who were waiting till October to buy a phone at the discounted rate. That's 24 months after the original G1 was released, which is when those owners are eligible for discounted upgrade. Like myself.

jrockway 16y ago
Wasn't there some issue about the Nexus One not being eligible for upgrades? And anyway, the Nexus One is a downgrade from cheaper phones anyway; the Incredible and Evo 4G are simply amazing and are in the same price range. (Remember, you only pay a prorated early termination fee in the US now, so if you only have a few months left on your contract, switching to a competitor is cheap. I have a year left and am definitely switching from T-Mobile to Sprint on June 4th.)
- barake 16y ago
  The Nexus One and HTC Incredible are virtually the same phone. Just like the European Hero/US Hero/Droid Eris are the same. Also 'upgrading' to the Nexus One (or a number of other nice phones) on T-Mobile requires you to switch to an Even More plan.
  - vetinari 16y ago
    Nexus One is almost identical to HTC Desire (differs in RAM amount, dual-mic on N1 and different firmware). Both are GSM/UMTS phones. HTC Incredible is CDMA (Verizon) phone.
alaithea 16y ago
The cost analyses that came out around the N1's release convinced me to go with an unlocked phone once my contract runs out. Like you, I was waiting (another year and a half to go). Although the N1 will no doubt be eclipsed by newer models at that point, I am sad to see this direct-buy option go away.

FraaJad 16y ago

Google, don't lose heart. It's not you. It's just that people in US don't know that they can buy phones in open market without signing away a chunk of income to cell companies every month. There are bigger, more mature markets elsewhere. Go after them. You might even get more people to use your services (maps, etc.) on a mobile than they would on a PC. Also, $350-$400 (may be even $500 for topend) is a sweet spot for smart phones in India. And people do buy these phones in open market without a contract. All the best. Go forth and prosper. /an iPhone and Droid owner.

frossie 16y ago
an iPhone and Droid owner If you don't mind me asking, how/why do you use two phones?
- rthyjhnm 16y ago
  Multitasking ? http://justanotheriphoneblog.com/wordpress/general/woz-has-a-fix-for-multitasking-battery-life-on-the-iphone http://justanotheriphoneblog.com/wordpress/general/woz-has-a...
- FraaJad 16y ago
  iPhone is my main phone. I'm using the droid to learn more about the android platform and do development on it.
RK 16y ago
Google, don't lose heart. It's not you. It's just that people in US don't know that they can buy phones in open market without signing away a chunk of income to cell companies every month. As far as I know, only T-Mobile USA has really come on board so far to make non-subsidized phones a better deal. T-Mobile has cheaper rates if you are not on contract. If you buy the AT&T compatible Nexus One, for example, you still pay the phone "subsidy" the entire time are using AT&T, even though you own the phone outright.
- grandalf 16y ago
  If you're a loyal T-Mobile customer you get to pay a loyalty tax if you want a Nexus One compared to if you are not a T-Mobile customer.

alain94040 16y ago

Amazing failure, when you consider that they advertised the Nexus One on the #1 most prominent web page possible: the google search form. I'm actually surprised that it didn't work. This was top premium ad space. How can it fail? Unless their expectations for sales were so stratospheric that even their massive campaign couldn't pull it off?

jrockway 16y ago
People don't like multi-year multi-thousand-dollar commitments, even if they see an ad on Google.
- grandalf 16y ago
  Correct. Google drastically overpriced the phone. As others have pointed out, signing up for a multi year contract in exchange isn't really a bad deal unless you wanted out of the contract sooner (and even then it's not too bad). I had expected Google to sell the phone over the web for $99 with no contract. That would have been the sort of bold, gutsy move that Google needs to do to change the mobile phone market. It seems that Google is actually looking to get a piece of the existing pie and doesn't care about changing the way phones are sold.
  - orangecat 16y ago
    Google drastically overpriced the phone. The Nexus One is cheaper than a contract free (but still locked!) iPhone 3GS. Their "mistake" was being honest about the price, and not explaining how it would more than pay for itself in lower monthly charges if you used T-Mobile's non-contract rates. Even that may not have worked, because consumers are generally really bad at math.
    - grandalf 16y ago
      Perhaps. But just as Google offers gmail for free I think it would have been possible to design a business model that allowed the phone to be sold at a discount without a contract. I think Google's pricing was targeted at investors (as in look, we can get top dollar for a phone just like Apple) rather than at consumers who would happily give Google lots of behavioral data for ads in exchange for a discounted phone.

jrockway 16y ago

I think one of the problems was that the phone didn't include the radio hardware to be truly portable. Sure, you can buy an unlocked phone, but there is no other network you can use 3G on. So you are locked to a single carrier anyway. If Google released a phone that supported both AT&T and T-Mobile and Sprint and Verizon, then it would be a great deal. Hate AT&T? Just port your number to Sprint and keep the same phone. The phone companies would hate this, and the extra radios would cost like five cents more, so I don't see this as ever happening. But that's what would be truly innovative -- a $700 unlocked phone just isn't very compelling when you have to pay the subsidy anyway.

barake 16y ago
As I understand it you cannot activate unlocked phones on Sprint and Verizon. They keep a list of serial numbers of phones meant for their networks and generally speaking you cannot activate a Sprint phone on Verizon's network. This isn't a problem with GSM carriers, only CDMA.
- jrockway 16y ago
  But you can buy CDMA phones on ebay and activate them on Verizon or Sprint. You just call them and tell them you want to do it, and since you are paying them money, they let you.
- philf 16y ago
  If that's the problem, they should try selling the phone in Europe.

Goronmon 16y ago

So, can anyone explain why it makes sense for them to stop selling the phone through the online store? I guess it's some combination of cost for both storing, shipping and providing support as well?

wmf 16y ago
And it annoys the carriers.

neovive 16y ago

It's a wise move for Google and was likely planned from the outset. Google, primarily an advertising company, was just looking for a way to generate interest in their new mobile platform. It's unlikely that they were planning to stay in the retail mobile phone market for the long term.

hugh3 16y ago

I still don't understand why no carrier will sell me a smartphone, any smartphone, on prepaid. If one were available I'd probably buy it, but damned if I'm gonna change my 13-year prepaid-phones habit now. (Also, I don't have a US credit rating and I kinda like it that way)

RK 16y ago
You don't rent, own, or pay utilities?
- hugh3 16y ago
  Sure, I rent and pay utilities. That doesn't affect my credit rating, which I checked the other day and is still "no record found".
perokreco 16y ago
I bought an unlocked Nokia and have a prepaid T-Mobile plan, you don't need to buy phones from carriers.

Rabidgremlin 16y ago

They could have also sold to more countries then just the US and the UK. What's the point of having a web accessable store front when you only sell to a couple of countries?

BrianAnderson 16y ago

I think one thing to think about is how, unlike Apple, Google does not want to upset the "apple" cart (yes, I am a literary genius). To them, removing friction in carriers and device manufacturers from adopting Android is critical. Given this caused some stir in the ecosystem, it makes sense to remove the offering so they are seen as more conformist, rather than a change agent. While change agents are good for you and me, well entrenched companies do not really like them. Status quo is very much a preferred state of affairs!

known 16y ago

I think Google need to pour its heart and not just technology into direct to consumer phone.

eli 16y ago

I don't get why people are blaming US consumers for the popularity of the subsidized handset model. Of course people take the subsidies. If you're going to pay the same monthly rate whether you get a discounted phone or buy one outright, then why waste $200-300. Once the rest of the US carriers follow T-Mobile's lead and let people pay less in exchange for bringing their own phone, then a lot more people will start going that route.