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Are Free Phones in Our Future? A VC’s Take on Why Google is Buying Motorola

24 points by robertbud1 15y ago

silkodyssey 15y ago
I don't see Google giving away phones for free. This would be seen as anti-competitive and unfair by their partners and they would drop android and seek alternatives like windows phone. Google wants a world where Android runs on different handsets by different manufacturers. This is part of why the Android ecosystem is so resilient. Failure of one manufacturer is not going to destroy the Android operating system as there would be other companies to pick up the slack. Google cannot afford to fight the mobile wars on its with strong enemies in Apple and Microsoft who would love to see Android die.
beerglass 15y ago
Are all VCs this smart??
simondlr 15y ago
I don't think it will happen, but the fact that it seems entirely plausible is what is interesting. Can Google keep buying platforms and keep make it free?
untog 15y ago
Giving away phone isn't new, as long as they're tied to a cellphone contact (they will be). Giving away smartphones is new, but given the pace of smartphone adoption it's not surprising- they're effectively replacing dumbphones in countries like the US.
- retube 15y ago
  In the UK smartphones have been "free" for a while. You can get a "free" iphone4 or ipad2 on a 24 month contract, or not quite "free", but an iphone4 + ipad2 for just £99 !!!!!! <rant>The Advertising Standards Authority should ban this type of marketing. The phones are not free, the cost is just included in the monthly contract. People never multiply £40 by 24 and realise that actually they're going to be spending £960 over 2 years. And given that the same call plans are available sans phone for £10 - £20 they're not getting any kind of deal at all </rant> P.S oh yeah, that iphone4+ipad2 for £99 ? Try 99 + 24 x £65 (!!!) = £1,659
  - corin_ 15y ago
    On Vodafone I have a contract that gets me free phones. If I switched to sim-only and bought my phones seperately, it would save me £10/month for the same number of included minutes/data/etc. Over 24 months that's a saving of £240. The phone I just upgraded to is currently selling at a retail price of £520. That's a pretty good deal as far as I'm concerned. As to the ASA, the first reason against this is: nobody has EVER signed up to a contract to get a free phone, without realising that they would have to pay a monthly fee. It might confuse some people, but it doesn't mislead. The second reason is that, even if everyone agreed that it was a good thing to do, it's pointless. Some (maybe all except the UK, I've no idea) European countries have banned this, and you know what adverts you see over there? "New iPhone, just €0.99!" Great, thank god they banned "free" phones, now people have to pay 99 cents
    - retube 15y ago
      No. what i mean is the total cost of contract should be specified. If you're paying £30 / month for 2 years, they should have to say: this will cost you £720.
      - corin_ 15y ago
        It's a contract, and the contract cost doesn't just cover the phone, it covers a monthly service. People understand that.
ForrestN 15y ago
"Free" phones already exist in conjunction with calling plans. Video game makers have sold systems at a loss in order to profit from the games. Amazon is experimenting with reduced hardware cost for Kindles subsidized by ads. I am not sure where the thresholds are in terms of whether or not ads can support free hardware, how this interacts with calling plans, etc. But this is definitely the way the low end of the consumer electronics market is going.
toddmorey 15y ago
I thought this was absolutely ridiculous until I thought about Google perhaps ramping up to build / purchase a carrier or to operate as an MVNO. Cell phone service from Google? With (nearly) free smart phones and tightly integrated Google services? That actually sounds pretty compelling and there's lots of room for innovation and disruption. Owning the hardware production isn't required, of course, but it creates interesting possibilities around features and pricing.
andybak 15y ago
There's no mention of the damage to the Android ecosystem. All partners would be basically shoved out of at least the low-end segment and would get more nervous than they already are about their role in Android's future. I can't take the article seriously unless it addresses this issue in some detail.
budu3 15y ago
In the case that Google has a disagreement with it's partners, how easy would it be for them to fork Android?
- ConstantineXVI 15y ago
  Technically? Not too difficult. Strategically? They'd lose the Market (need to attract devs), lose Google apps (Maps in particular), and run the chance of diverging from the Android API (making point #1 more difficult). Oh, and absolutely no chance of Google stepping up to defend them from patent suits (and for all we know, Google might target the rebels themselves).
- Tyrannosaurs 15y ago
  I think someone has already done this, and Amazon are rumoured to be doing it. It's possible but you'd need fairly significant resources to make it work as there are a lot of bits around Android that aren't open that you'd need to replicate or replace.
- pedalpete 15y ago
  Let's not forget that many of these same Android partners are also making Windows phones on essentially the same hardware. Would the partners absorb the cost of forking and managing an OS or just drop the OS for a competitor?
siphr 15y ago
It is a definite possibility. I think they key factor is that if the net revenue generated by advertising and/or other means per motorola/google android device is reasonable in relation to the cost per device then ofcourse there is monies to be had.
- Tyrannosaurs 15y ago
  At the moment supposedly it's not - $10 per year (to Google). That's obviously great when you consider the total number of Android devices out there but Google would have to ramp it up majorly to have enough to subsidise devices. Not impossible, certainly not if they introduced additional services (particularly paid for ones) but a way off I think.
  - corin_ 15y ago
    Where did you get the $10/year figure from?
    - Tyrannosaurs 15y ago
      http://www.forbes.com/sites/ericsavitz/2011/02/08/googles-android-a-billion-dollar-ad-business-in-2012/ http://www.forbes.com/sites/ericsavitz/2011/02/08/googles-an... $5.90 in 2010, increasing to $9.85 in 2012. Estimates from Piper Jaffray but based on things said by Eric Schmidt. Android is a volume business for Google. (By comparison each iPhone is worth $100 - $150 a year to Apple).
mildweed 15y ago
Free entry-level phones, maybe. But as much of our computing is still moving from the desk/laptop to the phone, there will always be a demand for more advanced phones, thusly somebody will want to pay for them, thusly there will always be a market for better-than-entry-level phones.
yardie 15y ago
Going by the supposedly "free" Chromebooks being sold for $349 I highly doubt it.
- corin_ 15y ago
  The OS is free, the hardware was never meant to be free. And importantly, Google do not own the companies that make them.

24 points by robertbud1 15y ago

I don't see Google giving away phones for free. This would be seen as anti-competitive and unfair by their partners and they would drop android and seek alternatives like windows phone. Google wants a world where Android runs on different handsets by different manufacturers. This is part of why the Android ecosystem is so resilient. Failure of one manufacturer is not going to destroy the Android operating system as there would be other companies to pick up the slack. Google cannot afford to fight the mobile wars on its with strong enemies in Apple and Microsoft who would love to see Android die.

beerglass 15y ago

Are all VCs this smart??

simondlr 15y ago

I don't think it will happen, but the fact that it seems entirely plausible is what is interesting. Can Google keep buying platforms and keep make it free?

untog 15y ago

Giving away phone isn't new, as long as they're tied to a cellphone contact (they will be). Giving away smartphones is new, but given the pace of smartphone adoption it's not surprising- they're effectively replacing dumbphones in countries like the US.

retube 15y ago
In the UK smartphones have been "free" for a while. You can get a "free" iphone4 or ipad2 on a 24 month contract, or not quite "free", but an iphone4 + ipad2 for just £99 !!!!!! <rant>The Advertising Standards Authority should ban this type of marketing. The phones are not free, the cost is just included in the monthly contract. People never multiply £40 by 24 and realise that actually they're going to be spending £960 over 2 years. And given that the same call plans are available sans phone for £10 - £20 they're not getting any kind of deal at all </rant> P.S oh yeah, that iphone4+ipad2 for £99 ? Try 99 + 24 x £65 (!!!) = £1,659
- corin_ 15y ago
  On Vodafone I have a contract that gets me free phones. If I switched to sim-only and bought my phones seperately, it would save me £10/month for the same number of included minutes/data/etc. Over 24 months that's a saving of £240. The phone I just upgraded to is currently selling at a retail price of £520. That's a pretty good deal as far as I'm concerned. As to the ASA, the first reason against this is: nobody has EVER signed up to a contract to get a free phone, without realising that they would have to pay a monthly fee. It might confuse some people, but it doesn't mislead. The second reason is that, even if everyone agreed that it was a good thing to do, it's pointless. Some (maybe all except the UK, I've no idea) European countries have banned this, and you know what adverts you see over there? "New iPhone, just €0.99!" Great, thank god they banned "free" phones, now people have to pay 99 cents
  - retube 15y ago
    No. what i mean is the total cost of contract should be specified. If you're paying £30 / month for 2 years, they should have to say: this will cost you £720.
    - corin_ 15y ago
      It's a contract, and the contract cost doesn't just cover the phone, it covers a monthly service. People understand that.

ForrestN 15y ago

"Free" phones already exist in conjunction with calling plans. Video game makers have sold systems at a loss in order to profit from the games. Amazon is experimenting with reduced hardware cost for Kindles subsidized by ads. I am not sure where the thresholds are in terms of whether or not ads can support free hardware, how this interacts with calling plans, etc. But this is definitely the way the low end of the consumer electronics market is going.

toddmorey 15y ago

I thought this was absolutely ridiculous until I thought about Google perhaps ramping up to build / purchase a carrier or to operate as an MVNO. Cell phone service from Google? With (nearly) free smart phones and tightly integrated Google services? That actually sounds pretty compelling and there's lots of room for innovation and disruption. Owning the hardware production isn't required, of course, but it creates interesting possibilities around features and pricing.

andybak 15y ago

There's no mention of the damage to the Android ecosystem. All partners would be basically shoved out of at least the low-end segment and would get more nervous than they already are about their role in Android's future. I can't take the article seriously unless it addresses this issue in some detail.

budu3 15y ago

In the case that Google has a disagreement with it's partners, how easy would it be for them to fork Android?

ConstantineXVI 15y ago
Technically? Not too difficult. Strategically? They'd lose the Market (need to attract devs), lose Google apps (Maps in particular), and run the chance of diverging from the Android API (making point #1 more difficult). Oh, and absolutely no chance of Google stepping up to defend them from patent suits (and for all we know, Google might target the rebels themselves).
Tyrannosaurs 15y ago
I think someone has already done this, and Amazon are rumoured to be doing it. It's possible but you'd need fairly significant resources to make it work as there are a lot of bits around Android that aren't open that you'd need to replicate or replace.
pedalpete 15y ago
Let's not forget that many of these same Android partners are also making Windows phones on essentially the same hardware. Would the partners absorb the cost of forking and managing an OS or just drop the OS for a competitor?

siphr 15y ago

It is a definite possibility. I think they key factor is that if the net revenue generated by advertising and/or other means per motorola/google android device is reasonable in relation to the cost per device then ofcourse there is monies to be had.

Tyrannosaurs 15y ago
At the moment supposedly it's not - $10 per year (to Google). That's obviously great when you consider the total number of Android devices out there but Google would have to ramp it up majorly to have enough to subsidise devices. Not impossible, certainly not if they introduced additional services (particularly paid for ones) but a way off I think.
- corin_ 15y ago
  Where did you get the $10/year figure from?
  - Tyrannosaurs 15y ago
    http://www.forbes.com/sites/ericsavitz/2011/02/08/googles-android-a-billion-dollar-ad-business-in-2012/ http://www.forbes.com/sites/ericsavitz/2011/02/08/googles-an... $5.90 in 2010, increasing to $9.85 in 2012. Estimates from Piper Jaffray but based on things said by Eric Schmidt. Android is a volume business for Google. (By comparison each iPhone is worth $100 - $150 a year to Apple).

mildweed 15y ago

Free entry-level phones, maybe. But as much of our computing is still moving from the desk/laptop to the phone, there will always be a demand for more advanced phones, thusly somebody will want to pay for them, thusly there will always be a market for better-than-entry-level phones.

yardie 15y ago

Going by the supposedly "free" Chromebooks being sold for $349 I highly doubt it.

corin_ 15y ago
The OS is free, the hardware was never meant to be free. And importantly, Google do not own the companies that make them.