Much a'twitter today about a possible Google phone — not just another Android "with Google" phone like the various existing models from HTC, Motorola, and Samsung, but a phone solely branded and sold by Google. TechCrunch has reported that the phone will be made by HTC and sold unlocked (that is, direct to consumers rather than through operator channels) beginning in January 2010.
Will the phone be sold at full retail price, or will it be subsidized?
- They would be counting on advertising revenue to repay the cost. Mobile operators can subsidize phones because they repay the cost in service fees, locked in for one or two years by the accompanying contract commitment. Not being a service provider, Google would have to rely on revenue from advertisers to justify the subsidy. Considering that subscribers with high-end phones typically pay $70-$80 per month and that even after two years this doesn't pay off the subsidy (according to a letter from Verizon Wireless to All Things D), that's a lot of ad revenue even if Google's operating costs are lower than the operators'.
- This model would upend carriers' current modus operandi and 'loyalty' model. While carriers express mixed feelings about subsidies, phones are their primary tool for attracting and retaining subscribers, and service contracts are how they initially secure customer loyalty (or, at least, commitment). If subscribers can get a cutting-edge handset from Google, shop for the best plan, and take that handset to another provider as soon as a better service offer comes out, carriers will have to re-think what loyalty means.
Such disruptions would clearly be good for customers, since few actually want to make a long term contract commitment and more choice in service will promote competition and more price options. This will be even more true in the long term as operators converge to a single network technology (LTE).