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Google’s New Phone: Not Revolutionary

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MOUNTAIN VIEW, California (Reuters) – Google Inc took the wraps off a new smartphone that it will sell directly to consumers, aiming to boost its position in the emerging mobile Internet market by exerting greater control over the new generation of Web-surfing devices.

The sleek touchscreen phone, dubbed the Nexus One, is Google’s boldest foray outside its traditional Internet home turf and represents the first time the 11-year-old company will sell a consumer electronics device bearing its well-known brand.

But analysts say the phone is not as revolutionary in design as Apple Inc’s iPhone was. Tech websites and forums gave Google favorable reviews but also noted the new phone was not that different from others in the market that run Google’s Android software, such as Motorola’s Droid.

The Nexus One ships immediately and exclusively from Google’s online store for $179 with a two-year contract from Deutsche Telekom’s T-Mobile USA, or $529 without a service plan.

The more expensive unlocked phone, analysts say, is priced too high to dramatically alter the relationship between carriers and hardware vendors in which wireless service providers have traditionally controlled handset distribution in the U.S.

It “wasn’t the game-changer people thought it could be,” Canaccord Adams analyst Jeff Rath said. Google could have shaken up the industry by offering the device for free, but instead chose more traditional pricing, he said.

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Executives said the phone could be profitable for Google, though analysts are not forecasting a revenue windfall in the short term.

But the move, which Google announced at a press event at its Mountain View, California headquarters on Tuesday, raises the stakes in the fast-growing smartphone business which it entered two years ago by developing the free Android software for smartphones made by other companies.

The highly anticipated Nexus One, which Google designed in close collaboration with hardware maker HTC, could provide Google with a viable challenge to the iPhone and Research in Motion’s BlackBerry.

Google’s decision to sell its own Google-branded phones is “a sea change in terms of Google now owning the customer, making the carrier a little bit less relevant to the conversation and maintaining more control over the hardware and software experience because they realize they’re competing with players like Apple and the iPhone,” said Michael Gartenberg, vice president of strategy and analysis at market research firm Interpret.

The Nexus One is the first of a variety of smartphones that Google said were in the pipeline as the company seeks to expand its reach from the PC to the mobile world and ensure its online products and ads get prominent placement on a new breed of wireless Internet devices.

Executives said that in the spring Google will sell phones that use Verizon Wireless’s network in the United States and Vodafone’s in Europe. Verizon Wireless is a joint venture between Verizon Communications and Vodafone.


According to Forrester research, 17 percent of U.S. mobile phone users had smartphones at the end of 2009, up from 11 percent a year earlier.

Investors are taking a wait-and-see view on Google’s first effort to sell a hardware product directly to consumers.

Google’s stock has risen about 7 percent since the start of December, setting a 52-week high of $629.51 on Monday. But analysts say that was driven by improvements in its core business of Internet search advertising, rather than the prospect of tapping a new pool of revenue selling smartphones.

Its shares closed 0.44 percent down at $623.99.

Google executives declined to provide financial targets for the new phone, though Vice President of Engineering Andy Rubin said the company would not lose money by selling the phone.

By selling the phone directly to consumers, Rubin said that Google would be able to cut out extra retailing costs and ultimately deliver phones with lower price tags.

“There’s a lot of people in the value chain who don’t need to be there,” said Rubin. “And then prices can go down, iteration can happen quicker, distribution can be wider.”

Some analysts were positive on Google’s effort to continue to establish the Android as a popular operating system for smartphones and wireless devices.

“It will help them keep consistency for Android platform,” said Jim McGregor, Chief Technology Strategist for In-Stat.

The new phone helps Google “get their partners all on developing a single platform that applications can be developed on.”

The Nexus One is 11.5 millimeters (0.5 inch) thick and weighs 130 grams (4.6 ounces) — which executives said was lighter than a Swiss Army knife and no thicker than a No. 2 pencil.

The phone will feature a 3.7-inch (9.4 centimeter) touchscreen display. It will run the 2.1 version of the Android operating system and feature OLED display technology, a trackball for user interface control, an accelerometer chip, and a 5 megapixel camera.

Forrester analyst Charles Golvin said the Nexus One was an impressive looking device, even if it doesn’t represent the kind of “quantum leap” forward in terms of technology as the iPhone did when it was first released in 2007.

Google worked closely with HTC to develop its phone, which uses a 1 gigahertz Snapdragon processor from Qualcomm Inc.

Motorola, which is banking on the Android system to power a new generation of smartphones to revitalize a flagging business, said it welcomed the competition. Co-Chief Executive Sanjay Jha told Google’s audience he did not see the Nexus One as a threat, but as an expansion of the market.

Copyright 2009 Reuters. Click for restrictions.

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