The business model vs high-priced device story

Ovum has released notes that offers insight into the upcoming Google phone currently dubbed Nexus One. Research Fellow, Jonathan Yarmis says: “The biggest question for me (concerning a Google phone) is the business model.”

His comments come on the back of more solid news that there is indeed a Google phone in the making. Photos of Nexus One have been making its usual rounds of the tech news outlets on the Web and if the more over-zealous ones are to be believed, the phone might go to market as early as this month. (Yes, January, 2010).

Yarmis adds: “Google clearly is not going to sell this merely as an unlocked, unsubsidised phone at commensurate high price point (i.e., over US$500).  More disruptive than the phone itself is likely to be how they approach the business model.  Will they offer subsidised pricing via some advertising mechanism?  If so, that could change the relationship between handset manufacturers, carriers, the platform owner and the customer.”

The note also explains that while Google isn’t immune from an ecosystem going awry just because it doesn’t impose licensing fees on handset manufacturers, who also use the Android OS.

“Google has to walk a thin line between offering its own device and supporting the needs of handset manufacturers and carriers who are ultimately critical to the overall platform’s success.  Thus, this in no way kills the Motorola Droid or HTC offerings.  In fact, HTC is indicated to be the manufacturer of the Google-branded phone and is likely to offer any and all of the technical capabilities on its own devices.”

Yarmis also notes that the device lacked carrier subsidies, and could also be significant for adoption in emerging markets. This is due to the Google phone being a GSM device and thus likely to have more significance outside the US  ”…where GSM is the near-ubiquitous standard and where consumers are more used to the notion of acquiring phones independent of their carrier.”

Especially if Google has some innovative subsidy plans to come, emerging markets seems to be the obvious segment to target.

But there is a bigger picture to all this. Yarmis draws attention to the fact that all this should be viewed in the context of Google’s US$750 million AdMob aquisition.

“Their “sweet spot” is advertising and the ability to monetise user behavior.  This to me is the business model story.  Selling a high-priced device is not very interesting.  Selling a device that’s subsidised by being an advertising platform as compared to being subsidised by a carrier is the news here.”