Ads To Offset Cost of Unlocked Google Phone?

CWmike writes "Google isn't talking publicly about reported plans to sell a powerful Android-based smartphone called the Nexus One directly to consumers next year, but the idea is already raising eyebrows with analysts. The chief concern is that selling an unlocked phone directly to consumers, probably online, could be twice as expensive as buying one through a carrier. The unlocked approach has largely failed in the US, with the world's biggest phone manufacturer, Nokia, doing poorly with the concept. Nokia recently announced that its two direct-sales stores in Chicago and New York will close early next year, while online sales of unlocked devices will continue. Conceivably, Google could offer its phone at a price comparable to a subsidized phone from a carrier — as long as customers agree to receive mobile ads on the devices. Since advertising is central to Google's revenue model, that approach might make some sense, analysts said. 'Google doesn't want to be in the phone business or the mobile carrier business, so this must be about something else, and that's the advertising business, since Google is in the business of selling ads,' said Kevin Burden, an analyst at ABI Research. In one mobile advertising model being tested in Germany, users agree to receive a certain number of ads on their phones to reduce their monthly cellular and texting rates, although reducing the up-front cost of the actual device is relatively novel. Reinforcing the idea of using mobile advertising with direct sales of unlocked phones, Google bought AdMob in November."

It's cheaper to buy straight from manufacturer

[iamapizza]

AFAIK (in the UK at least), with a contract, you're paying x per month, and you're tied in for a contract of usually about 18 months. That 18x comes out to more than the cost of the phone. For example, look at the HTC Magic from Vodafone [vodafone.co.uk] Total: 720 GBP which is obviously more than the cost of the phone. Or am I missing something that's US-specific?

Phone cost subsidies

[gehrehmee]

I look at telecom subsidation of phone costs as a small loan. Can't/won't buy the phone with your own cash up-front? We'll loan you that money, and you pay it back a little bit every month on your bill. This breaks down because if you buy a plan without getting subsidized, you pay a higher price per month for your phone service (ie, the same monthly payment, but with none of it going to a loan repayment).

The workaround for this: If I sign up for a 3-year contract, you can either give me a cheaper monthly rate, OR give me a phone-up front, OR give me a cash bonus upfront, approximately the same amount the subsidy would cost. That way I can take that cash and buy whatever I want with it (if it happens to be a smart phone, awesome).

THIS breaks down because the telecom wants to have absolute control over what I can and can't do on their network, and won't budge to give up any leeway there. I don't have a workaround for that one yet :)

Re:It's cheaper to buy straight from manufacturer

[Anonymous Coward]

Try T-Mobile. They just rolled out discounted month to month rates if you have your own phone.

Smaller is not cheaper

[SuperKendall]

these are cheap, mass produced, underpowered devices using yesterday's technology for the most part. why do they cost $600?

Because even "yesterdays technology" costs a lot to produce when you have to shrink it by a factor of 10 and at the same time make it use far less power.

Re:Is there a niche for this?

[Toonol]

The $20 cell phone appeals to the poor, elderly and disabled. Not the most promising market for the advertiser.

One of the reasons the poor are poor is because they ARE a prime target, and sucker for, advertising. I'll throw out Blue Hippo as an example: http://arstechnica.com/tech-policy/news/2009/11/like-taking-candy-computers-from-a-baby-the-poor.ars [arstechnica.com].