Nexus One another tactic in Google's ad-revenue strategy

Phone is secondary to mobile-online reach

Dash all the announcements of Google Inc.'s fast new phone, Nexus One, because on Tuesday the search company made conceivably bigger news with its creation of a Google-hosted Web store for purchasing its Android devices.

That innovation could give advertising-based Google the ability to attract about 1 billion mobile-phone buyers from all over the world to its site each year. The site would likely feature ads from third-party vendors selling multimedia content or mobile phone add-on equipment such as headsets, as well as links to Android Market apps, analysts said.

Asked about those advertising-related connections, Andy Rubin, vice president of engineering at Google, made the company's goal clear. "Our primary business is advertising... a superphone [like Nexus One] is a great way to access the Web, and that... supports our whole business model, which is advertising," he said. The new phone and store represent "the next front of our core business," he added.

Google is not trying to make a profit on sales of the Nexus, said Rubin. Instead, it's trying to "make sure we have great access to Google services... and the best possible Web experience," he explained. "You buy this and the advertising model takes off."

Rubin also clarified that it would be "inaccurate to say that Google designed the phone;" instead, he gave credit to mobile phone vendor HTC. Still, it was clear that Google worked on the Android 2.1 operating system used in the Nexus One interface, which includes 3D visual effects and speech-to-text functionality, which allows users to enter content into a text field -- such as a tweet or an e-mail -- by speaking instead of typing.

In the Google Web store Tuesday, Nexus One phones for use on T-Mobile USA's network were available for $179 with a two-year contract. They were also available for $529 unlocked, meaning people could use them on the networks of other GSM carriers.

Google also says there will be a Verizon Wireless CDMA-capable version of Nexus One available sometime in the spring. Anyone with a Gmail account linked to a credit card can purchase any of the devices, Google officials said. So far, only Nexus One is offered, but Google is promising more to come.

The entire purchasing process was explained in a blog post by Mario Queiroz, Google's vice president of product management, who noted that more operators and more devices will soon be added to the new online store.

As an indication of Google's control over the buying process, two T-Mobile representatives on Tuesday said the Nexus One must be purchased from the Google site and cannot be purchased in T-Mobile stores, although T-Mobile's site provides details on the monthly costs of the device. Google confirmed that the T-Mobile version must be purchased from its store, although it is available unlocked, and only committed to T-Mobile.

The $179 T-Mobile version requires a two-year contract of $80 a month for 500 minutes of talk time and unlimited data, or $2,099 over the course of the contract. Theoretically, a $529 unlocked phone using a $60 monthly plan (as T-Mobile offers for some other phones) would cost $2,019 for two years.

The simplicity of purchasing a mobile phone is what caught the eye of some analysts attending Google's event on Tuesday, even more than the 1-GHz Snapdragon processor and other features in the touchscreen Nexus One.

"Today was really less about the Nexus One phone and more about the retail model Google has for selling phones," said Ken Dulaney, an analyst at Gartner Inc. While Dulaney said he liked the Nexus One's hardware and software design, he called the announcement "a gauntlet thrown down to Amazon," the leader in online retail.

Dulaney said Google is "trying to get control of Web-based retailing of phones, but if they get control of this, who knows what happens."

It's likely that Google will support the effort through third-party ads on the phone site, for devices such as Bluetooth headsets that work with the featured phones, or even downloadable content, Dulaney said. For now, he said advertising on the phones shouldn't be too prevalent, adding that "eventually Google will get to that."

If Google's phone store does well, it could affect phone sales at brick-and-mortar retailers, possible leading to consolidation among the thousands of smaller stores operated by wireless carriers, Dulaney predicted.

But he also said it's too early to predict the impact of the business model, with only one Google phone for sale so far. He noted that many of the details are still unclear. For example, Google hasn't named the third-party vendor that will take orders for and mail out the unlocked phones.

Dulaney also predicted that sales of unlocked phones would be strong, although not necessarily in the U.S. "There's a huge demand for unlocked phones all over the world. Google will do well selling them, but the question over time is how well they will do."

Computerworld editor Mike Barton contributed to this story.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, send e-mail to mhamblen@computerworld.com or subscribe to Matt's RSS feed .

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