Can Google Sell -- and Market -- a Smartphone?

Brought to you by Rita Chang

NEW YORK (AdAge.com) -- Google can be counted on to spark a storm of buzz as only a few brands can. But can the internet search giant distribute, market and support hardware?

By many accounts, the Google-branded Nexus One smartphone is set to launch early January, although Google has been mum on how, exactly, it will distribute it. If reports are true, the search giant will sell a phone subsidized by a wireless carrier, probably T-Mobile, as well as a full-priced model without cell service. Google will sell the phone directly to consumers through Google.com/phone and buyers must have a Google checkout account, according to the terms of sale document obtained by Engadget.

Either way, it's a radical departure for an internet advertising company built on search terms and text ads to enter the low-margin, cut-throat hardware business. It would also land the search behemoth squarely on Apple's turf and ratchet up the rivalry between them, as they already compete on browsers and desktop and mobile operating systems.

Of course Google has none of Apple's chops in marketing, retail and customer support, and its product would have a long way to go to catch the iPhone. But, analysts and partners say, don't put it past Google to draw on its rich arsenal of brand power and sheer will to disrupt and experiment.

Obstacles abound
There's a laundry list of obstacles that Google needs to overcome, from convincing consumers that buying an unsubsidized phone is in their interest to not upsetting its telecom partners.

"It is arguable that Google can do an e-tail strategy; it is arguable that they have the marketing might in their brand to pull it off," said Philippe Winthrop, a Strategy Analystics analyst. "All these things are plausible, the question is, 'Can they all come together?'"

Carriers, not handset makers, dominate the wireless industry as they dictate device features and then support them with gargantuan marketing budgets. It's hard to believe that even cash-rich Google would replicate those budgets, given that big media buys and marketing blitzes are absent in its DNA.

Brand power, not marketing dollars
For Google, mass consumer marketing means a button on its search home page for a day or two, as it did for T-Mobile's G1 last year and, more recently, for Verizon's Droid. While the most-visited web page in the world is a powerful platform, it's hard to compare it to Verizon and AT&T, the nation's second- and third-largest advertisers, which collectively spent $6.8 billion on advertising in 2008, according to TNS Media Intelligence. (Sprint Nextel, the nation's 18th-largest advertiser, spent $1.5 billion.)

That's not to say the company is beyond hitting the airwaves to plug a product, having placed its first TV ads to showcase its web browser, Chrome, on TV networks that allow Google to sell their inventory via Google TV Ads. These aren't big buys, however, and analysts say if Google was serious about selling phones in mass quantities to consumers directly, it would have to quickly ramp up its consumer-marketing efforts.

"To move a phone like this, they'll have to solve the marketing problem and Google sucks in marketing -- it's not their core competency," said Rob Enderle, principal of the Enderle Group.

Google's best weapon is its brand; its moves are widely followed, and any notable mention of the company gets the tech and investing worlds excited and riled up. The hype behind the Nexus One is already at fever pitch among tech circles.

Retail distribution and support
As a software company that gives away its services, Google lacks the distribution channel and support infrastructure to deal with complex hardware.

"The big unknown is what Google would do to get retail support," said Forrester analyst Charles Golvin. "They really need relationships with someone like Best Buy who can get the phone into the hands of consumers."

Best Buy already has a retail partnership with Google to demo and install Google apps on smartphones, and it might not be a big stretch for the companies to expand that relationship. There are also online outlets such as Amazon and Wirefly that wouldn't pass up a chance to sell the widely buzzed phone that's been built up to be an iPhone killer.

Google might be a newcomer to consumer support, but it must have had some practice supporting paying customers; after all, Google has to field queries from the city of Los Angeles, which recently signed a multi-year, $7.2 million deal with the software company to use its enterprise apps.

The more likely possibility is that T-Mobile would support the phone, as carriers, not handset makers, typically provide that service in the U.S.

Unlocked phones
If indeed Google were to circumvent the wireless carriers and sell the phones unlocked -- meaning that consumers can sign with any wireless carrier -- it would have a big hurdle to clear in persuading consumers to buy the phone, which could cost closer to $500 than the $200 consumers are used to paying for high-end smartphones with a two-year service contract from a wireless provider. Those multi-year carrier plans that keep users tethered to carriers subsidize the actual cost of the phones.

For consumers, buying an unsubsidized, unlocked phone means they can upgrade their devices, switch carriers at will and without penalty, and access cheaper service plans as they own the devices outright and owe no subsidies to the carrier. To persuade American consumers to switch to unlocked phones, however, Google would have to succeed where companies like Nokia have failed.

"We're not trained to buy unsubsidized phones in masses, and there's no way for Google to viably subsidize this phone," said wireless analyst Chetan Sharma.

Presently, there are legions of people, albeit on the fringes, rooting for a vendor to break the stranglehold that carriers wield in the business. As the ecosystem evolves to become a more open one where carriers don't get to dictate the user experience, Google's initiative could gain steam in the blogosphere.

"You'll have to explain the benefits of an unlocked phone to people, but Google is very viral. It went from a meaningless word to being a verb in our vernacular. Google has the marketing might and virality," Mr. Winthrop said.

Among the carriers, T-Mobile appears prepared for the Google phone because it has a service plan made just for unsubsidized handsets.

Delicate balance
Of course, Google runs the risk of upsetting its partners as it tries to compete against them. Google's goal, after all, is to popularize the Android platform to further its ad-serving ambitions by encouraging more handset makers to adopt the software.

"For Google, getting Android distributed and scale and reach are what's important," noted John Jackson, VP-research at CCS Insight. "If Google were to compete directly with Android licensees, it would be doing a profound disservice."

But Google may have the upper hand, as handset makers face few viable alternatives besides Android, which, as a highly customizable operating system, allows operators and handset makers to differentiate their wares. Symbian is being retooled as its owner, Nokia, tries to make it open-sourced.

Windows Mobile is a nonstarter: Until the Windows 7 mobile-operating system ships, handset makers are minimizing their exposure to Microsoft's software.