What's the Point of Google's Phone ?

Everyone seems to be in love with the Google (GOOG) phone plan, which the Wall Street Journal expects Google to announce today. And what's there not to love? It would be a Google platform, it would be based on the open-source Linux operating system, would likely allow third-party applications, and certainly would include Google's search, applications, and ad network. Google's stock has risen to more than $700 as part of that speculation.

But let's put on a marketing hat for a minute and ask four simple questions about these plans:

1. Who is the customer for this product? This is actually a tough question. Based on the articles I've seen, Google's pitch is being made to telco carriers, not to consumers. Yet as I'll discuss below, the primary value of Google's approach appears crafted to hurt incumbent mobile carrier businesses because it will open up their networks, not help them. So if the carriers are the real customer for this product, Google has a lot of work to do.


2. What problem does this product solve? The problem most articles posit Google is solving for the carriers is one of not having open phone platforms. But for most carriers, this is not a problem, it's a feature, and one of their own devising. By controlling and restricting the user's mobile phone platform, the carriers optimize their opportunities for making money, as was recently noted by Wired's Rob Beschizza in his article, 10 Reasons to Hate Cellphone Carriers. So why should Google offer a phone that the carriers don't actually want to sell?


3. Will this product solve the customer's problem? Funny thing; most consumers could care less about the openness of their platform. What they do want to do (at least according to the Pew Internet Project) is 1) make calls, 2) send text messages, and 3) take pictures, 4) play games, and 5) access the Internet, in that order. And while an open phone platform might help raise up the priority of accessing the Internet, it's not at all obvious that Google's phone plans will radically simplify the other four functions consumers use their phones for.


4. What's uniquely different about the Google product? The obvious points here are that the phone is from Google and that it is designed to be open and run Google apps. But given that buyers can already run many of those apps like Google Maps and search on their Apple (AAPL) iPhones, Nokia (NOK) smartphones, and RIM (RIMM) Blackberries, this differentiation may not be as powerful as people think. And if people think the fact that the phone runs Linux is its big differentiator, these 40+ vendors of Linux-based phones might beg to differ.

So to recap, from a marketing point of view, the Google phone is designed to 1) tick off the carriers who will sell it, 2) reduce the opportunities for those carriers to drive handset and service revenue, 3) improve the fifth most important mobile phone feature incrementally, and 4) roughly parallel work that's been done by other handset makers. Ummm. Perhaps this isn't such a good idea.

Don Reisinger over at CNET lays down an interesting scenario for how the Google phone might play out, but I think he oversells the value of an open platform to the average consumer without the consumer being able to see the value of it first. Consumers don't buy open platforms -- they buy products that fulfill their needs. If open platforms sold consumer products, we'd all be running Linux notebooks today.

My view: Google's gPhone isn't targeted at consumers. It's a reference platform for one purpose: to get hardware makers to help it bid for the 700 MHz spectrum.

Who'd be interested in such a thing? Perhaps companies like HP, Dell, Acer, Lenovo, and a few others, who to date have had few mobile phone offers, but might like to to grow their businesses. After all, their executives must be looking at the numbers Apple is posting for sales of iPhones and doing their own calculations. Being able to join up with Google and offer devices based on its reference platform would speed their time to market by years, while costing them each only some cash. Meanwhile Google would not have to pony up the entire $4+ billion needed to buy the spectrum. Pretty cool.

Now I know that this isn't as sexy an idea as Google building and marketing an Apple iPhone-killer. But it makes a whole lot more financial and marketing sense than Google trying to sell a product that has little appeal to either consumers or carriers. And with a wide variety of vendors building devices for the new open access spectrum, Google would have more customers for its traditional Google applications and services without having to build and sell phones itself. And best of all, it would conserve its cash for other activities like buying companies and building data centers.

Perhaps we'll find out today.

Full disclosure: the author owns a bit of Google stock.

Comments

[omooc:]

Perceptive analysis. Regardless of who the intended target is, what is the estimated revenue from this venture? omooc

2007 Nov 04 09:44 PM

[Richard Alv...:]

Carl you are 100% correct. I would even add guys like Cisco, Netgear, Moto, etc. All would have an even chance under a Google 700 network.

Just look at all the awesome things WiFi has done in the last 6 years.

2007 Nov 05 08:21 AM

[GRiddick:]

Good morning, Carl

Good article. I think you have an excellent point here. If we have not learned one thing in the last three years, shame on us all.

Google is damn smart! Their "OpenSocial" network timing was brilliant. It is my guess that they simply forced Microsoft to pony up for an inflated value in Facebook, while developing their counter-strategy with MySpace and others simultaneously.

Here they go again with the carriers, a much easier target than the folks from Redmond.

Too bad Google hasn't learned to play fair. Their willful copyright infringement activity, both here in the U.S. and abroad, is an embarrassment to an entire industry ... if not a nation.

Stealing other people's property for your own personal gain is wrong. Google does it every single second of every single day. It's growing list of advertisers seem oblivious to it all. Google's business practices are shameful in my view.

So now we're going to open up a few hundred million additional advertising opportunities to the rocket scientists, lawyers, and investment bankers from Mountain View.

This should all be very interesting, indeed!

George P. Riddick, III
Chairman/CEO
Imageline, Inc.

[e-mail]...

2007 Nov 05 10:20 AM

[geotopia:]

Chicken and Egg problem. This isn't going to be a money maker for Google, but a way to bully the phone co.s to open up to Google and others. In the future, once there's a market, Google can make more $ from it's traditional business of advertising. The brand has equity and if at least one cellular co. jumps on, they'll have a short order for an iPhone-like (ish) offering.
Based upon that, a Disney branded phone for kids would do just as well in the short term.

2007 Nov 05 10:32 AM

[geotopia:]

Chicken and Egg problem. This isn't going to be a money maker for Google, but a way to bully the phone co.s to open up to Google and others. In the future, once there's a market, Google can make more $ from it's traditional business of advertising. The brand has equity and if at least one cellular co. jumps on, they'll have a short order for an iPhone-like (ish) offering.
Based upon that, a Disney branded phone for kids would do just as well in the short term.

2007 Nov 05 10:32 AM

[geotopia:]

Chicken and Egg problem. This isn't going to be a money maker for Google, but a way to bully the phone co.s to open up to Google and others. In the future, once there's a market, Google can make more $ from it's traditional business of advertising. The brand has equity and if at least one cellular co. jumps on, they'll have a short order for an iPhone-like (ish) offering.
Based upon that, a Disney branded phone for kids would do just as well in the short term.

2007 Nov 05 10:33 AM

[s:]

Google's already turned the internet into one big advertisement. What consumer is actually excited about that pervading even further onto his/her phone? No thanks. I'll take the iPhone. Smooth operating system & no advertisements required.

2007 Nov 05 11:22 AM

[karpodiem:]

One of the most perceptive and forward thinking articles on SA.

Well stated.

Alex Karpowitsch

2007 Nov 05 01:16 PM

[karpodiem:]

One of the most insightful posts I've read on Seeking Alpha.

Well stated.

-Alex Karpowitsch

2007 Nov 05 01:19 PM

[Swampthing:]

Great descrition as to what Google is doing!!!!!!

Great analysis.

2007 Nov 06 02:51 PM

[thinkingman:]

I think the author missed some of the potential for this phone. I'll admit that the immediate benefactors of this new phone technology are a small group, and my opinion of this article is colored by my perspective, being part of that group. But this is still the first mobile communications device that can be customized by its users. As happened with the Linux operating system and Windows Mobile phones, a community of developers and hackers will form that continually improve the phone's capabilities. If the phone's purpose as I see it is realized, this will give rise to faster paced and more consumer-driven innovations in a market that desperately needs exactly that. I've heard that "The United States is a third world country..." in regard to mobile communications from too many people to count, and 3G networks and ideas like this phone are what ewe need to fix that. Most importantly, I think that the ruthless business practices of some carriers toward their customers have to be stopped, but getting phones that do more is a good step.

I don't think that Google sees the phone itself as a money-maker. I think that it will make money for them indirectly though, in part by increasing mobile acces through their portals, and in part by increasing their visibility in the market place. The other HTC phones that run Windows Mobile are ao amazingly packed with features, and reasonably priced, that I can't believe its taken them this long to get around to something like this. Incidentally, most of the online features that I use on my Windows Mobile HTC phone are Google applications. For example, I see no purpose in purchasing a GPS receiver when I have Google Maps on my phone.

This article leaves me wondering if the author isn't perhaps a staunch iPhone supporter. The iPhone is a great phone, but an open mobile platform with even a fraction of the fashion zing sounds like a much, much better thing to me.

2008 Oct 07 06:42 PM