Chris Brogan’s post on Blogs as Loss Leaders inspired me to write this post. Ironically he got his idea from Chris Voss. Basically Voss was explaining that his blog was a loss leader, because it didn’t exactly earn revenue. But the flip side is that it leads to other things that can earn money and possibly at a higher rate.
Photo by Steve Snodgrass
To better understand what a loss leader is; imagine a supermarket selling sugar or milk at less than cost to draw customers into the store. Now scale this formula up about 1000 times and you have Wal-Mart. That’s just one example, but you should know that loss leaders are as old as retail and some companies just use them better than others. So why do I think Google’s Nexus One was a loss leader?
Nexus One as a Loss Leader
Before the Nexus One was delivered to the world, what were your options if you wanted an Android phone? Well, let’s take a walk down memory lane:
- G1 (T-Mobile) – Released October 22, 2008
- myTouch 3G (T-Mobile) – Released August 5, 2009
- HTC Hero (Sprint) – Released October 11, 2009
- Motorola CLIQ (T-Mobile) – Released November 2, 2009
- Samsung Moment – Released November 1, 2009
- Motorola Droid (Verizon) – Released November 6, 2009
- Droid Eris – Released November 6, 2009
- Samsung Behold 2 – Released November 18, 2009
Out of all of these phones only 3 stand out: the G1, myTouch 3G and Motorola Droid (the fastest selling android phone). And of those 3, only the Motorola Droid was pushing the upper limits for smartphones when it was released.
So what is my point? Back in 2009, rumors were going around that Google wasn’t happy with current lineup of Android devices. This may have prompted them to build a “What-If” phone. So January 5, 2010 the Nexus One was born – with a little help from HTC.
Jumping back to the present and with Google essentially ending Nexus One’s life, some have said that Nexus One was a failure due to low sales. Mainly due to the much criticized direct sell method by Google. Sure sales weren’t at the level a major release smartphone should have been, but Google didn’t make a great effort either. I am sure that T-Mobile offered to carry the Nexus One in their retail stores. The Nexus One could’ve had 3 times the sales if T-Mobile sold it in their stores.
I don’t believe selling millions of phones was Google’s primary goal. Their goal may have been more of a large scale market research / development project. Their audience wasn’t exactly customers only but technology geeks, developers and manufacturers. It’s not like Google couldn’t afford to go ahead with a possible project like this. They seem to buy a new company every month.
In my humble opinion the Nexus One was more of an effort to push phone manufacturers (HTC, Motorola, Samsung and LG) and carriers (T-Mobile, Verizon and Sprint. AT&T doesn’t count: see iPhone) forward with Android. Once the Nexus One was released, the passion mobile developers had for Android was definitely known; possibly causing the Android OS to be more attractive to the manufacturers stated above.
Another good reason why Google released the Nexus One may have been to alert these same manufacturers that Google could enter the market with an excellent phone. Mainly a warning shot. There is no greater motivator than the bottom line.
Loss for Gain
So did Google achieve the goal of loss for gain? If you look at the recent stats, I would say yes.
Back on June 23, 2010 Google posted the following to their Official Blog:
Every day 160,000 Android-powered devices are activated — that’s nearly two devices every second, used for the first time by people from New York to New Zealand.
Android started with one simple idea: Provide a powerful, open mobile platform to drive faster innovation for the benefit of consumers. This idea has come to life around the world. Today, there are 60 compatible Android devices, delivered via a global partnership network of 21 OEMs and 59 carriers in 49 countries. The volume and variety of Android devices continues to exceed even our most optimistic expectations. In some instances, Android devices are selling faster than they can be manufactured.
“Selling faster than they can be manufactured” – Any company in the world would love to say they couldn’t make enough of their product to keep up with demand. Also the Android OS is no longer limited to just smartphones. You will soon see a version of the Android OS on tablets, netbooks, laptops, and tons of other mobile devices in the coming months.
You may be thinking right now that Google didn’t lose much since they charged $529 per phone. That would be true if retail price and cost to design, develop, manufacture, and bring to market were equal. The fact is most companies take an initial loss on a new product for future gains; when cost goes down due to economies of scale. Essentially the more you produce the cheaper it becomes to make a product. Also new methods for faster manufacturing and cheaper come into place over time.
So considering the Nexus One was only on the market for about 6 months, means that Google may have taken a large financial loss. But that was worth the loss if the gain was increased market share and large brand recognition, which Android has currently.
Droid Incredible by HTC
After the release of the Nexus One, take a look at the 2010 Android Phones:
- Motorola Backflip
- HTC Aria
- Dell Aero
- HTC Evo
- HTC Droid Incredible
- HTC myTouch 3G Slide
- Samsung Behold II
- Motorola Droid X
- Motorola Droid 2
What do you think? Was the Nexus One an overall winner for Google?
