What's the Point of Google's Phone ?

Nov. 5.07 | About: Alphabet Inc. (GOOG)

By Carl Howe

Everyone seems to be in love with the Google (NASDAQ: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 (NASDAQ:AAPL) iPhones, Nokia (NYSE: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.