Google phone could upend mobile space with ads

Wed Jan 6 2010, 17:05 PM

The launch of Google’s own-brand mobile phone and its commitment to bringing more branded devices to the market could spark an ad revolution in the mobile space, according to analysts. With the Nexus One, Google is launching its own web store, allowing users to buy the device independently of any major phone retailer or mobile provider. Analysts say the firm may employ advertising to extract revenue from its handset, and may revolutionise the mobile space in the process.

"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," says Ovum research fellow Jonathan Yarmis. The analyst claims the launch should be viewed in the context of Google's pending USD750m acquisition of AdMob.

"Their 'sweet spot' is advertising and the ability to monetise user behaviour,” says Yarmis. “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." 

According to this analysis, there is a clear distinction between Google and Apple. The iPhone maker produces its devices in-house, using its own facilities, and has traditionally relied on carrier subsidies. However, reports that Apple is buying mobile ad firm Quattro for around USD275m could lead to even closer competition with its emerging rival.

Speaking to StrategyEye, Gartner analyst Carolina Milanesi says: "I think in time advertising has a role to play. Today we see advertisers that are subsidising services, but I do believe that in time you could have advertising subsidising hardware." She also claims that online channels, such as the Google store, could play a bigger role in the future.

Google would not comment on future products or business-model plans. But at the Nexus One launch event, Google's VP of engineering reportedly said: "Before you can revolutionise the world you have to have a mechanism in place in which you are selling products."

Commenting to StrategyEye, a press spokesperson says: "The Nexus One is the first in a series of Google-branded devices we hope to bring to market with a variety of manufacturers." The name Nexus One was trademarked by Google in the US on December 10, leading to speculation that a Nexus Two device may soon appear, developed by a different, non-exclusive manufacturing partner.  

According to a VentureBeat report, Google's VP of Product Management, Mario Queiroz, says: "We could very well do a Nexus Two with Motorola," adding that Google is "working as quickly as possible".

Motorola's Droid handset, which launched in November, was the first to use version 2.0 of the Google Android software and, until the appearance of the Nexus One, was hyped as the most likely Android-based iPhone killer.