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The device has basically no profit for google Citation? Not trying to be flippant, but I'm not sure how we know that?

by enjo 14y ago

mdasen 14y ago
I'm not the OP, but: I don't think we know that. Companies like to play with their cards close to their chest. Similarly, we'll likely never get a cost breakdown on Google Fiber - something that would be immensely useful in conversations about the viability of gigabit fiber. But I digress. I think there are good reasons to think that there might be little to no profit. High-end phones usually have around a $200 parts cost. Then it costs money to assemble it, transport it from Asia, transport it to a user's doorstep or store, package it, write the drivers for it, test it, design it, license the IP for everything from GSM to ActiveSync and H.264. You need to build in a cushion to handle returns that you then can't sell as new, a cushion to handle warranty repair, a cushion to handle tech support. Heck, Forrester Research estimates that a call to tech support costs them $33. Whether these costs are being paid by Google or LG isn't really important, just that they exist as costs. It's somewhat hard to see the Nexus 4 doing better than scraping by. Now, Google might be counting on selling these to lower-cost customers via a low-cost chain. Maybe they're direct shipping from Asia and keeping very few on hand and assuming that the techies they sell to will make few tech requests and the only warrantee service they'll need to provide will be when something is actually truly wrong. I guess it's hard for us to see the profit there. You're right that there's nothing we can cite. Ultimately, it will be interesting to see whether Google keeps this up for many years. Right now, Samsung's GS3 international seems to go for $550. There doesn't seem much compelling about it over the Nexus 4. The HTC One X seems in the same range. Google has been known to underestimate costs like tech support (and simply offer poor support). I think it's possible that Google is underestimating some of the costs here. Google also is looking to push an agenda. That's wonderful for us as consumers. Anytime a company is looking to push something other than their profits is an opportunity for us to get a good deal - like when a company would rather be popular than profitable. Really, I think what we're really talking about is LG's profit on the Nexus 4 - I don't think it's Google's profit that we're debating, but I have no citation for that either. Google's agenda is to get as many people as possible with smartphones that they can make money off of via search and other things. I wish I could find it, but there was someone from the Android team who had said that Google was trying to prove that a high-end phone could be sold at this price point. The Android team member also noted that people at Motorola disagreed. Ultimately, here people can have a positive disagreement (one where we disagree because we lack the data that would end the disagreement). Still, the smartphone market has been decently competitive in the Android arena and we've seen many high-end devices being sold nowhere near that price point. In fact, Samsung, HTC, and even LG itself are selling the devices at much higher prices. Heck, T-Mobile is selling the Nexus 4 for more than $500 off-contract. Did LG offer Google a certain number of Nexus 4s on the cheap so Google could prove it's point in exchange for being able to leverage the Nexus brand outside of Google Play at higher prices? I'd love to think that Google is making a ton of profit on these devices. It would mean that I'd get cool toys much cheaper in the future. Given that Samsung, HTC, and even LG itself can't seem to match that price (or even within $150 of that price), it casts doubt. We'll see over the coming months and maybe Google will be more open. In the meantime, we lack good data and that saddens me because I like data.
- nilsbunger 14y ago
  Awesome answer. It looks like ubm and isuppli haven't done teardowns yet, but hopefully they will soon.
- raveli 14y ago
  Great answer. Another important point is that - just like with gaming consoles - the money is not just in the hardware unit but in the app market. This gives Google yet another advantage when compared to other Android phone providers. But I would go as far as saying that Google has had (and will have) only a limited stock on Nexus 4 just to make sure it isn't stepping on the toes of other manufacturers in the Android ecosystem. They've made their point with Nexus 4 to make iPhone 5 look over-priced and lacking in many features (articles claiming innovation is happening elsewhere have been appearing all the time now). They've also stolen at least some of the thunder of Nokia's new Lumia 920, which has been selling surprisingly well if the first reports are correct. So, what it seems to me is that Google has done a brilliant move: launch a product everyone is talking about instead of iPhone 5 and the Windows phones but keep the stocks small enough so that it won't really cannibalize its partners' market.
- sami36 14y ago
  you're making a whole lot of assumptions there. I'm not sure all of them pass the test of reality. 1- How about the Nexus 7. it sells for 200 $, built by another vendor. There are no carriers in that equation, is it also being sold at a loss or near break-even ? 2- How big of a margin do you need before you deem a business profitable. AAPL has margins in the 40~45%, I don't know about Samsung but the've just released quarterly results indicating record profits. if a business operates at 7% profit margins, would you describe them as pursuing a loss leader strategy ? countless public companies are doing just fine with those margins. What if it's just high time in this stabilizing/ somewhat mature business for the very fat operating margins to come down. 3- the 649 $ price point makes it impossible to have competition because nobody (or very few) would pay that for a handset, thus the carrier/ subsidy model longevity. WHAT IF that 299/349 $ price is just the sweet spot that is needed to unleash true competition between devices without the interference of carriers & Google were simply blindsided by the success of the Nexus 4. 4-How about the fact that the Nexus devices come without skinning. don't underestimate the cost that goes into that exercise (however misguided, in my opinion.) It also indirectly lowers the cost of the device by putting less pressure on choosing (powerful) hardware components sue to the extra-lean nature of the OS.
jarcoal 14y ago
I would also like to see one. I think we know the profit margin is probably slim (low price + small batch), but exact figures would be nice to see.

The device has basically no profit for google Citation? Not trying to be flippant, but I'm not sure how we know that?

by enjo 14y ago

The device has basically no profit for google Citation? Not trying to be flippant, but I'm not sure how we know that?

I'm not the OP, but: I don't think we know that. Companies like to play with their cards close to their chest. Similarly, we'll likely never get a cost breakdown on Google Fiber - something that would be immensely useful in conversations about the viability of gigabit fiber. But I digress. I think there are good reasons to think that there might be little to no profit. High-end phones usually have around a $200 parts cost. Then it costs money to assemble it, transport it from Asia, transport it to a user's doorstep or store, package it, write the drivers for it, test it, design it, license the IP for everything from GSM to ActiveSync and H.264. You need to build in a cushion to handle returns that you then can't sell as new, a cushion to handle warranty repair, a cushion to handle tech support. Heck, Forrester Research estimates that a call to tech support costs them $33. Whether these costs are being paid by Google or LG isn't really important, just that they exist as costs. It's somewhat hard to see the Nexus 4 doing better than scraping by. Now, Google might be counting on selling these to lower-cost customers via a low-cost chain. Maybe they're direct shipping from Asia and keeping very few on hand and assuming that the techies they sell to will make few tech requests and the only warrantee service they'll need to provide will be when something is actually truly wrong. I guess it's hard for us to see the profit there. You're right that there's nothing we can cite. Ultimately, it will be interesting to see whether Google keeps this up for many years. Right now, Samsung's GS3 international seems to go for $550. There doesn't seem much compelling about it over the Nexus 4. The HTC One X seems in the same range. Google has been known to underestimate costs like tech support (and simply offer poor support). I think it's possible that Google is underestimating some of the costs here. Google also is looking to push an agenda. That's wonderful for us as consumers. Anytime a company is looking to push something other than their profits is an opportunity for us to get a good deal - like when a company would rather be popular than profitable. Really, I think what we're really talking about is LG's profit on the Nexus 4 - I don't think it's Google's profit that we're debating, but I have no citation for that either. Google's agenda is to get as many people as possible with smartphones that they can make money off of via search and other things. I wish I could find it, but there was someone from the Android team who had said that Google was trying to prove that a high-end phone could be sold at this price point. The Android team member also noted that people at Motorola disagreed. Ultimately, here people can have a positive disagreement (one where we disagree because we lack the data that would end the disagreement). Still, the smartphone market has been decently competitive in the Android arena and we've seen many high-end devices being sold nowhere near that price point. In fact, Samsung, HTC, and even LG itself are selling the devices at much higher prices. Heck, T-Mobile is selling the Nexus 4 for more than $500 off-contract. Did LG offer Google a certain number of Nexus 4s on the cheap so Google could prove it's point in exchange for being able to leverage the Nexus brand outside of Google Play at higher prices? I'd love to think that Google is making a ton of profit on these devices. It would mean that I'd get cool toys much cheaper in the future. Given that Samsung, HTC, and even LG itself can't seem to match that price (or even within $150 of that price), it casts doubt. We'll see over the coming months and maybe Google will be more open. In the meantime, we lack good data and that saddens me because I like data.

nilsbunger 14y ago
Awesome answer. It looks like ubm and isuppli haven't done teardowns yet, but hopefully they will soon.
raveli 14y ago
Great answer. Another important point is that - just like with gaming consoles - the money is not just in the hardware unit but in the app market. This gives Google yet another advantage when compared to other Android phone providers. But I would go as far as saying that Google has had (and will have) only a limited stock on Nexus 4 just to make sure it isn't stepping on the toes of other manufacturers in the Android ecosystem. They've made their point with Nexus 4 to make iPhone 5 look over-priced and lacking in many features (articles claiming innovation is happening elsewhere have been appearing all the time now). They've also stolen at least some of the thunder of Nokia's new Lumia 920, which has been selling surprisingly well if the first reports are correct. So, what it seems to me is that Google has done a brilliant move: launch a product everyone is talking about instead of iPhone 5 and the Windows phones but keep the stocks small enough so that it won't really cannibalize its partners' market.
sami36 14y ago
you're making a whole lot of assumptions there. I'm not sure all of them pass the test of reality. 1- How about the Nexus 7. it sells for 200 $, built by another vendor. There are no carriers in that equation, is it also being sold at a loss or near break-even ? 2- How big of a margin do you need before you deem a business profitable. AAPL has margins in the 40~45%, I don't know about Samsung but the've just released quarterly results indicating record profits. if a business operates at 7% profit margins, would you describe them as pursuing a loss leader strategy ? countless public companies are doing just fine with those margins. What if it's just high time in this stabilizing/ somewhat mature business for the very fat operating margins to come down. 3- the 649 $ price point makes it impossible to have competition because nobody (or very few) would pay that for a handset, thus the carrier/ subsidy model longevity. WHAT IF that 299/349 $ price is just the sweet spot that is needed to unleash true competition between devices without the interference of carriers & Google were simply blindsided by the success of the Nexus 4. 4-How about the fact that the Nexus devices come without skinning. don't underestimate the cost that goes into that exercise (however misguided, in my opinion.) It also indirectly lowers the cost of the device by putting less pressure on choosing (powerful) hardware components sue to the extra-lean nature of the OS.

jarcoal 14y ago

I would also like to see one. I think we know the profit margin is probably slim (low price + small batch), but exact figures would be nice to see.