Carriers Gain Control of Google’s Nexus One

The new distribution model that seemed so scary for wireless service providers when first launched has proven to have no teeth. Google Inc. has announced via blog post (natch) that it is pulling the plug on its direct-to-consumer online store for the Nexus One Android device, with U.S. availability of the handset drawing to a close. It fought the carriers, and the carriers won. Such is the nature of competition.

Google said that it received its final shipment of Nexus One phones and boarding up the windows once those are gone, though it will continue to offer customer support for existing device owners. And, interestingly, the Nexus One will still be offered through carrier partners overseas, including Vodafone in Europe, KT in Korea, and possibly others based on local market conditions. T-Mobile USA, the one cellco that got fully on board with the Nexus One and its model, was not listed as a partner, indicating that U.S. consumers will be, for now, out of luck.

The Nexus One, Googles first self-branded handset based on its Android platform, launched in January and shook up established carrier distribution models by launching with a Google-run online store. Customers would buy the phone directly from Google and then choose a wireless plan a la carte, also through the website. The idea was to offer a consumer-friendly, open-access type of shopping experience, all delivered through the high-margin, low-overhead medium of the Web, in a fashion that allowed Google to cultivate the primary relationship with the customer, rather than the carrier, along with a higher percentage of handset profit. The move resulted in much analysis as to Googles intentions and the relative merits of circumventing established carrier models. So why is Google now throwing in the towel on its effort, a scant seven months after launch? And why is the U.S. distribution of the handset not going forward?

To the first question, the storefront lacked options. U.S. consumers can buy an unlocked phone for $529 and run it on AT&T Inc.s network or another GSM network overseas; or, customers could purchase a $179 T-Mobile version with a two-year contract. Sprint-Nextel and Verizon Wireless both planned to join the storefront once a CDMA version because available, but both quietly backed away from the vision. That gave users very little to choose from, and had the effect of essentially making the storefront into a T-Mobile outlet with no ability for users to compare handset options; T-Mobile after all already has a stable of other Android devices for its users to choose from.

There was also a marketing issue. Potential users casting around for a new smartphone cant turn on a television or read the news without running into marketing for competitive Android devices, like the Droid series from Verizon and T-Mobiles own HTC gadgets, plus other smartphone bigwigs like the iPhone. Even the much-maligned Palm Pre and the Palm Pixi got more brand awareness love thanks to Sprints television commercials. Google offered some PR and a tasteful link underneath its search bar on the home page, which clearly wasnt enough to drive much traffic to the storefront. And no storefront traffic = small sales numbers.

Three, it had burned its bridges. Back in May, Google said the plan was to take down the website “once we have increased the availability of Nexus One devices in stores.” The problem is, Google didnt manage to expand its partner distribution strategy as much as it would have liked. Thats likely because by the time it realized the mistake in cutting carriers out of the fulfillment chain, the Tier 1s had decided on other flagship phones  Sprint’s Evo 4G and Verizon’s Droid Incredible and Droid X to spend their efforts on, particularly considering that the Nexus One is considered a flop. Even though the reason for that flop is a lack of good distribution, not the device itself, it still carries a taint.

Google CEO Eric Schmidt confirmed in early July that there will be no Google Nexus Two device, suggesting that this marks the end of Googles foray into the handset biz, though of course the Android armys ranks continue to swell thanks to the licensing of Googles Android OS.

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