I don't put a ton of faith in iSuppli, but regardless my point is that it is unlikely anyone would sell a device at a loss--and $99 would surely be a loss, yes?--without any obvious way to recoup that money.
Making an open source mobile OS isn't a great way to make money either. Google sees mobile as critical to long-term success and is spending money to make big inroads. If they spend a billion dollars and get 20,000,000 new people as Google mobile users that may be a coup in the future. Hell, they spent more than that for YouTube.
How much are you willing to pay to put the brakes on your competitor and to catch up fast?
$100 per customer now to prevent them from locking into the iPhone isn't quite so ludicrous if you also have a long-term strategy to get that money back (and then some) using the advertising in the shipped google services.
Besides, you have a war chest for just such things... but instead of spending it on acquisitions you can use it to help buy customers, they become happy with you too.
I'm not really familiar with the subject, but if Google uses their profit from online advertising to get people to use their phones (by selling them cheaper than "possible"), wouldn't that be the same as Microsoft putting ie in Windows? So what do the anti-competition laws say about this?
No - as far as I understand it, the issue with IE wasn't that Microsoft used profits from Windows to give away IE, it's that they used a monopoly product (Windows) to give an unfair advantage to IE (out-of-the-box distribution not accessible to their competitors).
Actually, the potential issue would be whether they are using profits from one monopoly (search) to undercut competition in another competitive market (mobile phones). A guest post at TechCrunch actually had a good overview of the ways Google might face antitrust action:
As long as I have the ability to completely remove Google's version of Android, and put on a custom version of my own, I'm not that concerned with the rest.
As I mentioned in a previous comment, they know they'll make tremendous amounts of money from mobile search, and app sales (if/when they pick up for android).
Over a year, everyone with android will probably have supplied Google with hundreds of dollars of mobile search revenue.
If the Gphone sells for a low price, and in very high quantities, they will probably lose for every one sold, but will make much more per user than the $100-200 lost on production.
It also means more sticky users in the long run, popularizing android and turning more people towards google. More apps would be developed, other android phones will presumably sell more (unless the contrary happens, in which case it is the Gphone that sells, which means even more money for Google).
true, you don't have to click them: every website you visit on android that has Google ads on it, or YouTube (more ads) would generate revenue to Google just by visiting it. Plus, some ads run for over $20+ per click, out of which Google surely makes a nice chunk out of, which means that, by these parameters combined, you don't really have to click many ads to generate $100 for Google.
I reckon that over the course of a year (the average length of time at which users change their phones), you'd generate Google more (if not much more) than $100 in explicit and implicit revenue.
True, but how does that change the situation? More phones means more revenue and more users. That's probably what they're looking at when thinking about subsidizing the handset.
Not sure about this, but I don't think Google takes a cut from Android Market app sales (unless you count the cut that Google Checkout gets, since a lot of apps are sold through that service). Can somebody who's got an Android app in the market weigh in on this?
I assume Google makes a cut from those too. It wouldn't be hard to imagine that those who consume many apps over a period of time might also contribute towards covering for the subsidy.
If you think about it Google's entire business model operates this way. How much do you pay for GMail, YouTube, Search, etc? $0 yet Google has to spend $X per user to provide and maintain the service, pay the bandwidth bills, pay the engineers, etc. They're recouping all that money and a ridiculous amount of profit on advertising. I don't think it's too far out of the realm of possibility they would extend this model to hardware in selected markets where they are pretty late to the game (as a platform provider) If this is indeed Google's strategy we will see subsidized Chrome OS based net books next year also.
2007 average monthly revenue per user at google was $53.
add this to the fact the the mobile phone is very important in many areas(for example: location , mobile-web , mobile-tv) , $100 subsidization don't seem like a very large investment.
"Overall revenue was $5.94 billion for the period ending September 30, an increase of 7 percent compared to the third quarter of 2008."
Just a quick math. Assuming there are about 300mil frequent users of google (i.e more than the occasional search) in the western world. If 4.5 billions came from them, that would be about $15 per user per quarter, so about $60 per year.
Assuming that the google phone user is going to be one of these heavy users, if mobile user are worth $60 per year, then a $100 subsidy doesn't sound that bad, but still, very far fetched.
People would be buying them in droves, and using them in china/india/whatever developing country you think, and there is no way google would be making $60 per year from them.
What I don't believe at all is the 29/mo data plan. There is no way att or t-mobile will put up with this. Remember, the device has to connect to something, otherwise it is just an ipod with wifi.
The other alternative is wimax. Their network would be perfect for something like this, but they are not nation wide yet.
My bet is that android 2.1 will have wimax support.
The difference is that you would only have the data plan and your voice calls would go over the data network, and not the call network (IIRC, they use different bands to transmit/receive). So these people would immediately be 'high bandwidth users.'
For that to be an annual number, however, sounds pretty reasonable, especially given Google's asking price for an annual ad-free Google Apps subscription: $50.
> ... my point is that it is unlikely anyone would sell a device at a loss ...
Playstation 3, Xbox 360 . . . or are we just talking cell phones here?
Google's source of revenue isn't just selling the phone, similarly Microsoft and Sony's source of revenue wasn't from selling the console. It's all about selling the content and getting people to keep coming back for it.
Perhaps a $99 phone would be absurd for a state of the art smartphone, however making a loss wouldn't be absurd when google is making money off of every search you make, every youtube video you watch and submit.
