Saturday, January 23, 2010

Nexus One: First round, not the ballgame

After all the speculation and hype surrounding the launch of Google's first smartphone, the Nexus One, has come the reality: According to Flurry, which measures usage of smartphone applications, only about 20,000 Nexus Ones were sold in the first week. In my opinion, this is because customers have to purchase the phone directly from Google, even if they buy the subsidized T-Mobile version; it's not available in stores. Google's "the buck stops somewhere else" customer support plan is drawing criticism: For hardware problems, customers have to contact HTC, for software problems, Google, and for network problems, T-Mobile. Mobile subscribers are used to getting all their support from the carrier, and they expect Google to fill that role, but they're coming away frustrated and disappointed.

One one level, it appears that Google didn't think out the launch of the Nexus One very well. However, I believe that Google wants to become a mobile carrier, not just a supplier of software, services and advertising. The question is: What kind of a carrier does Google want to be?

They're probably not going to want to buy an existing carrier; that would be too expensive and carry too much baggage. Nor would they want to become a MVNO (mobile virtual network operator); at least in the U.S., no one has been successful reselling one of the major wireless carrier's services. Their best choice, and I think the one they're pursuing, is a combination of broadcast television bandwidth and the "white space" between television channels.

The FCC, which earlier was saying that it was likely to force broadcasters to give up bandwidth for broadband services, has now backed down and asked for voluntary participation. If broadcasters can see a financial upside to ceding bandwidth, they're much less likely to continue to fight proposals to use the white space between channels as well, for which they would have gotten nothing. By assembling bandwidth from existing television stations while using white space for other markets, Google and other companies could build broadband data services to rival the major mobile operators.

Google wouldn't even have to build out the network itself; it could invest in a company that plans to do it and reserve a portion of that company's bandwidth for itself. Once the network goes live, Google could sell its own wireless data service, probably at a fraction of the price of the major carriers, and offer voice as a VoIP service (which makes sense, given Google's acquisition of Gizmo5, a VoIP provider, last year.) Merging Google Voice and Gizmo5 would enable Google to offer a robust voice service without the massive infrastructure of the big mobile operators.

Once Google gets all of this in place, its own phones will work primarily on its network. It might offer dual-network versions that work on GSM or CDMA networks in the areas where Google doesn't have its own service, just as Sprint sells adapters and routers that connect to Clearwire's WiMax network where it's available and Sprint's own 3G network where it isn't.

The best way to look at the Nexus One is as the first step in a much longer-term strategy, and its customer service problems as "teething pains" on the way to becoming a mobile carrier.
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