The device has basically no profit for google
Citation? Not trying to be flippant, but I'm not sure how we know that?
Citation? Not trying to be flippant, but I'm not sure how we know that?
I think there are good reasons to think that there might be little to no profit. High-end phones usually have around a $200 parts cost. Then it costs money to assemble it, transport it from Asia, transport it to a user's doorstep or store, package it, write the drivers for it, test it, design it, license the IP for everything from GSM to ActiveSync and H.264. You need to build in a cushion to handle returns that you then can't sell as new, a cushion to handle warranty repair, a cushion to handle tech support. Heck, Forrester Research estimates that a call to tech support costs them $33. Whether these costs are being paid by Google or LG isn't really important, just that they exist as costs.
It's somewhat hard to see the Nexus 4 doing better than scraping by. Now, Google might be counting on selling these to lower-cost customers via a low-cost chain. Maybe they're direct shipping from Asia and keeping very few on hand and assuming that the techies they sell to will make few tech requests and the only warrantee service they'll need to provide will be when something is actually truly wrong.
I guess it's hard for us to see the profit there. You're right that there's nothing we can cite. Ultimately, it will be interesting to see whether Google keeps this up for many years. Right now, Samsung's GS3 international seems to go for $550. There doesn't seem much compelling about it over the Nexus 4. The HTC One X seems in the same range. Google has been known to underestimate costs like tech support (and simply offer poor support). I think it's possible that Google is underestimating some of the costs here.
Google also is looking to push an agenda. That's wonderful for us as consumers. Anytime a company is looking to push something other than their profits is an opportunity for us to get a good deal - like when a company would rather be popular than profitable. Really, I think what we're really talking about is LG's profit on the Nexus 4 - I don't think it's Google's profit that we're debating, but I have no citation for that either. Google's agenda is to get as many people as possible with smartphones that they can make money off of via search and other things. I wish I could find it, but there was someone from the Android team who had said that Google was trying to prove that a high-end phone could be sold at this price point. The Android team member also noted that people at Motorola disagreed.
Ultimately, here people can have a positive disagreement (one where we disagree because we lack the data that would end the disagreement). Still, the smartphone market has been decently competitive in the Android arena and we've seen many high-end devices being sold nowhere near that price point. In fact, Samsung, HTC, and even LG itself are selling the devices at much higher prices. Heck, T-Mobile is selling the Nexus 4 for more than $500 off-contract. Did LG offer Google a certain number of Nexus 4s on the cheap so Google could prove it's point in exchange for being able to leverage the Nexus brand outside of Google Play at higher prices?
I'd love to think that Google is making a ton of profit on these devices. It would mean that I'd get cool toys much cheaper in the future. Given that Samsung, HTC, and even LG itself can't seem to match that price (or even within $150 of that price), it casts doubt. We'll see over the coming months and maybe Google will be more open. In the meantime, we lack good data and that saddens me because I like data.
Another important point is that - just like with gaming consoles - the money is not just in the hardware unit but in the app market. This gives Google yet another advantage when compared to other Android phone providers.
But I would go as far as saying that Google has had (and will have) only a limited stock on Nexus 4 just to make sure it isn't stepping on the toes of other manufacturers in the Android ecosystem.
They've made their point with Nexus 4 to make iPhone 5 look over-priced and lacking in many features (articles claiming innovation is happening elsewhere have been appearing all the time now). They've also stolen at least some of the thunder of Nokia's new Lumia 920, which has been selling surprisingly well if the first reports are correct.
So, what it seems to me is that Google has done a brilliant move: launch a product everyone is talking about instead of iPhone 5 and the Windows phones but keep the stocks small enough so that it won't really cannibalize its partners' market.
1- How about the Nexus 7. it sells for 200 $, built by another vendor. There are no carriers in that equation, is it also being sold at a loss or near break-even ?
2- How big of a margin do you need before you deem a business profitable. AAPL has margins in the 40~45%, I don't know about Samsung but the've just released quarterly results indicating record profits. if a business operates at 7% profit margins, would you describe them as pursuing a loss leader strategy ? countless public companies are doing just fine with those margins. What if it's just high time in this stabilizing/ somewhat mature business for the very fat operating margins to come down.
3- the 649 $ price point makes it impossible to have competition because nobody (or very few) would pay that for a handset, thus the carrier/ subsidy model longevity. WHAT IF that 299/349 $ price is just the sweet spot that is needed to unleash true competition between devices without the interference of carriers & Google were simply blindsided by the success of the Nexus 4.
4-How about the fact that the Nexus devices come without skinning. don't underestimate the cost that goes into that exercise (however misguided, in my opinion.) It also indirectly lowers the cost of the device by putting less pressure on choosing (powerful) hardware components sue to the extra-lean nature of the OS.
The Nexus 7 is sold at cost according to Google.
Reportedly break even. It is not surprising that a mobile phone costs more (in the same way that for a very long time, a laptop cost more than an equivalent desktop+screen: less forgiving constrains make a more expensive product).
> How big of a margin do you need before you deem a business profitable.
positive. Really, that's what profitable means: positive profit, regardless of percentage.
> if a business operates at 7% profit margins, would you describe them as pursuing a loss leader strategy ?
Loss leader has some gray areas, but basically: If something is sold at below-marginal-cost: (bill of materials + cost of assembly + cost of shipping + cost of support), then it is a loss leader, otherwise it is usually not considered one. The uncertainty comes from R&D cost attribution, which is subjective.
> the 649 $ price point makes it impossible to have competition because nobody (or very few) would pay that for a handset, thus the carrier/ subsidy model longevity
And yet, most of Europe manages that easily. You have to revise your axioms, as they are inconsistent with evidence.
> How about the fact that the Nexus devices come without skinning. don't underestimate the cost that goes into that exercise
Ok, what's the price you'd put on that? $1M would be super generous in my opinion, which would translate to a couple of dollars per device in the long run for the likes of Samsung or LG.
What's the % of smartphones in Europe that are sold at full price ? Please.
> Ok, what's the price you'd put on that? $1M would be super generous in my opinion
That's a laughable number. That's the cost of 8 senior Devs per year. Samsung has hundreds of people working on their skins.
Most, in some countries all. Many of them come with a loan (so you pay $200 upfront for a $600 phone, and then $30/month for 20 months) , but unlike in the US, it's a line item; you can pay it upfront and not suffer any disadvantage. (I've tried to pay for me iphone with verizon upfront; it would have been $400-$500 more than on a 2-year plan).
> That's a laughable number. That's the cost of 8 senior Devs per year. Samsung has hundreds of people working on their skins.
Well, they should be more efficient then. There's no reason it would take so much man power.
>Well, they should be more efficient then. There's no reason it would take so much man power.
or you could be more thoughtful instead of throwing completely made-up numbers just to support some wild assertion of yours.
Then you should look up the definition of subsidy in the dictionary, and don't rest so quickly. That's exactly like saying that if you pay for it upfront with a credit card (in the US) then you aren't really paying upfront, because you didn't put any money down at that point (and might not in a year, depending on how you manage your credit).
Last I checked (which was a couple of years ago), in Germany, the UK, Finland and few other countries that aren't the US, you didn't pay less if you signed up for two years in advance - in some cases (Finland, I think, and recently also Israel) it's actually against the law to do so.
> or you could be more thoughtful instead of throwing completely made-up numbers just to support some wild assertion of yours.
I've managed projects that are somewhat comparable. I had three designers doing skin design for branded apps, and they were spewing very high quality skins at the rate of 1 skin / 1 week / 1 designer. Now, that was only the graphic design. I'm aware that samsung/HTC skins also involve lots of functionality "skinning", and they cover a lot more than the few different screens/modalities of those apps (10 or so per app). However, If they have hundreds of people doing these skins, they ARE being inefficient.
(And you know what? They can afford to be, they don't need to be as picky as I was hiring people. But that does not mean they can't do that at a small percent of the budget they actually have. A few hundred people is ALL of the Google Android team ("default skin", apps, kernel, drivers, userspace, testing, integration, security, ...). It can't find numbers right now, but it was 200 in 2010.
2-you've managed 3 designers for an app or a website & you extrapolate on the basis of that experience to ballpark the effort needed to build an Android skin ? I'm done arguing with you. Look, the fact that you've mentioned the 1 Mil $ number leaves me highly doubtful of any (meaningful) real life experience budgeting for software projects. the average corporate cost for a corp project I've worked on is in the double digits (Mil) & we're talking basic internal-facing enterprise apps.
We were at, yes, the Nexus 4 is a great device. Can we at least agree about that ?
Yes. However ...
1 - No, you don't get to redefine terms how you want. You're entitled to your own opinion, but not to your own definitions or your own facts.
Loss leader is mostly well defined (and no, it's not "7% profit" or whatever it is you asked). Similarly, subsidy is well defined - it is a lower price than cost. And there's a huge difference between an ETF and a loan. There is a very simple test:
Get a two year plan at verizon (or at&t). Use phone. Note cost.
Get same phone and equivalent plan without commitment (paying for phone up-front, and month-to-month). Use phone exactly the same. Note cost. The first one is always cheaper with at&t and verizon (though not with t-mobile)
Do same in Europe, with e.g. vodaphone, three, etc. And note that - up to financing, costs are the same (and you can get comparable financing from a bank).
2 - I actually haven't used any android skin, because everyone I know uses either plain Android or CM (don't have android myself). But from looking it up in e.g. http://us.gizmodo.com/5921220/every-major-android-skin-compa... , it seems that actually my experience (which was a Win95/Win98 client, with tens of thousands of installs, and pervasive skinning, back in 99-2001) is extremely relevant.
Please enlighten me, because from what I can tell, an android skin is comparable to an enlightenment/gtk/thunderbird skin, plus 4-5 app customizations (people, calendar, notification, maybe a few more). That can totally be done in under $1M. Actually, under $200K if managed properly.
And I'm totally unimpressed by the multimillion cost at enterprises; I know it's there, and I know I've replaced such multimillion dollar projects with hundreds-of-thousands dollar projects that performed better (and were still very lucrative). I've also bought better hardware at 10% of the price than some enterprises I've worked with. They do NOT optimize for cost; they optimize for CYA.
I've also helped a friend run a VLSI design project that got working tape-outs of a designed-from-scratch processor, all costs included, for $200K in 2005. Everyone you'll ask will tell you that it's impossible. And they'd all be right in their respective frame of mind -- but would be wrong in the real world (http://www.reghardware.com/2012/05/03/unsung_heroes_of_tech_... is enlightening, although our project was not as commercially successful)
You might have spent too much time in the enterprise business to realize just how inefficient it is on that front. I probably have more real life experience running and budgeting software (and other) projects than you do: I've done many scales and many environments, software and hardware, not just "corporate and double digit (mil)".