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

Phone is secondary to mobile-online reach

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

That innovation puts advertising-based Google at the heart of a massive capability to attract to Google's site an annual base of 1 billion mobile-phone buyers globally. The site will likely offer a range of ads from third-party vendors selling mobile phone add-on equipment and accessories such as earplugs, multimedia content and links to Android Market apps, analysts said today.

Asked about those advertising-related connections today, Andy Rubin, vice president of engineering at Google, made Google'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. This [phone and store] is the next front of our core business."

Rubin added that Google is not trying to make a profit on sales of the Nexus, but is trying to "make sure we have great access to Google services ... and the best possible Web experience... You buy this and the advertising model takes off."

Rubin also clarified that it would be "inaccurate to say that Google designed the phone," giving that credit to mobile phone vendor HTC. Still, it was clear that Google worked on the Android 2.1 operating systen in the Nexus One interface, which includes 3D visual effects and speech-to-text capabilities for "speaking" the content into any text field such as a tweet or an e-mail.

In the Google Web storefront today customers can buy the Nexus One to use with T-Mobile USA's network for $179, with a two-year contract, or for $529 unlocked, which means taking the device to another GSM carrier for service.

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 , vice president of product management, who noted that more operators and more devices will soon be added.

As an indication of Google's control over the buying process, two T-Mobile representatives today 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 sold 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 today, 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 research firm 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 ad 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 storefronts, 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 said Google hasn't named the third party vendor that will take orders and mail out the unlocked phones, since many of the details are still unclear.

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

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