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Comment by eli | Hacker News Reader

...according to a rumor posted in a comment on another blog.

I'd say there's basically no chance of this being accurate. Otherwise, I'd buy a case of phones and resell them for parts. They surely cost at least $300 to produce just in parts.

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Sounds pretty believable and reasonable to me (except for launch date).

Do you have further info on why the phone will cost about $300 to build? In comparison, the iPhone 3GS allegedly has BOM of $178. http://www.isuppli.com/News/Pages/iPhone-3G-S-Carries-178-96...

Curious here: who would buy the "parts"? It'll cost you a lot just to disassemble the phone.

I don't put a ton of faith in iSuppli, but regardless my point is that it is unlikely anyone would sell a device at a loss--and $99 would surely be a loss, yes?--without any obvious way to recoup that money.

Making an open source mobile OS isn't a great way to make money either. Google sees mobile as critical to long-term success and is spending money to make big inroads. If they spend a billion dollars and get 20,000,000 new people as Google mobile users that may be a coup in the future. Hell, they spent more than that for YouTube.

How much are you willing to pay to put the brakes on your competitor and to catch up fast?

$100 per customer now to prevent them from locking into the iPhone isn't quite so ludicrous if you also have a long-term strategy to get that money back (and then some) using the advertising in the shipped google services.

Besides, you have a war chest for just such things... but instead of spending it on acquisitions you can use it to help buy customers, they become happy with you too.

I'm not really familiar with the subject, but if Google uses their profit from online advertising to get people to use their phones (by selling them cheaper than "possible"), wouldn't that be the same as Microsoft putting ie in Windows? So what do the anti-competition laws say about this?

No - as far as I understand it, the issue with IE wasn't that Microsoft used profits from Windows to give away IE, it's that they used a monopoly product (Windows) to give an unfair advantage to IE (out-of-the-box distribution not accessible to their competitors).

Google doesn't have a monopoly in mobile phones, so the anti-competition laws probably wouldn't affect them much.

Actually, the potential issue would be whether they are using profits from one monopoly (search) to undercut competition in another competitive market (mobile phones). A guest post at TechCrunch actually had a good overview of the ways Google might face antitrust action:

http://www.techcrunch.com/2009/03/01/what-an-antitrust-case-...

If this is Google's strategy, then they are becoming more like Microsoft every day.

As long as I have the ability to completely remove Google's version of Android, and put on a custom version of my own, I'm not that concerned with the rest.

As I mentioned in a previous comment, they know they'll make tremendous amounts of money from mobile search, and app sales (if/when they pick up for android).

Over a year, everyone with android will probably have supplied Google with hundreds of dollars of mobile search revenue.

If the Gphone sells for a low price, and in very high quantities, they will probably lose for every one sold, but will make much more per user than the $100-200 lost on production.

It also means more sticky users in the long run, popularizing android and turning more people towards google. More apps would be developed, other android phones will presumably sell more (unless the contrary happens, in which case it is the Gphone that sells, which means even more money for Google).

I wonder, how many thousands of mobile ads would I have to click on to generate $100 for Google?

true, you don't have to click them: every website you visit on android that has Google ads on it, or YouTube (more ads) would generate revenue to Google just by visiting it. Plus, some ads run for over $20+ per click, out of which Google surely makes a nice chunk out of, which means that, by these parameters combined, you don't really have to click many ads to generate $100 for Google.

I reckon that over the course of a year (the average length of time at which users change their phones), you'd generate Google more (if not much more) than $100 in explicit and implicit revenue.

But every website you visit on iPhone that has Google ads on it, or YouTube generates the same amount of revenue to Google. Right?

I mean, it's one thing if their big competitor here was Microsoft or, in other words, Bing. But iPhone already uses Google by default.

True, but how does that change the situation? More phones means more revenue and more users. That's probably what they're looking at when thinking about subsidizing the handset.

You don't have to click ads, they pay by impression too.

Not sure about this, but I don't think Google takes a cut from Android Market app sales (unless you count the cut that Google Checkout gets, since a lot of apps are sold through that service). Can somebody who's got an Android app in the market weigh in on this?

I assume Google makes a cut from those too. It wouldn't be hard to imagine that those who consume many apps over a period of time might also contribute towards covering for the subsidy.

If you think about it Google's entire business model operates this way. How much do you pay for GMail, YouTube, Search, etc? $0 yet Google has to spend $X per user to provide and maintain the service, pay the bandwidth bills, pay the engineers, etc. They're recouping all that money and a ridiculous amount of profit on advertising. I don't think it's too far out of the realm of possibility they would extend this model to hardware in selected markets where they are pretty late to the game (as a platform provider) If this is indeed Google's strategy we will see subsidized Chrome OS based net books next year also.

2007 average monthly revenue per user at google was $53. add this to the fact the the mobile phone is very important in many areas(for example: location , mobile-web , mobile-tv) , $100 subsidization don't seem like a very large investment.

Where did you get that monthly revenue figure?

"Overall revenue was $5.94 billion for the period ending September 30, an increase of 7 percent compared to the third quarter of 2008."

Just a quick math. Assuming there are about 300mil frequent users of google (i.e more than the occasional search) in the western world. If 4.5 billions came from them, that would be about $15 per user per quarter, so about $60 per year.

Assuming that the google phone user is going to be one of these heavy users, if mobile user are worth $60 per year, then a $100 subsidy doesn't sound that bad, but still, very far fetched.

People would be buying them in droves, and using them in china/india/whatever developing country you think, and there is no way google would be making $60 per year from them.

What I don't believe at all is the 29/mo data plan. There is no way att or t-mobile will put up with this. Remember, the device has to connect to something, otherwise it is just an ipod with wifi.

The other alternative is wimax. Their network would be perfect for something like this, but they are not nation wide yet.

My bet is that android 2.1 will have wimax support.

Adding unlimited data to a voice plan on T-Mobile currently costs $30, so not totally out of the question. AT&T currently charges quite a bit more.

Mobile WiMAX is still a long ways off.

The difference is that you would only have the data plan and your voice calls would go over the data network, and not the call network (IIRC, they use different bands to transmit/receive). So these people would immediately be 'high bandwidth users.'

That sounds very high without a solid source.

For that to be an annual number, however, sounds pretty reasonable, especially given Google's asking price for an annual ad-free Google Apps subscription: $50.

> ... my point is that it is unlikely anyone would sell a device at a loss ...

Playstation 3, Xbox 360 . . . or are we just talking cell phones here?

Google's source of revenue isn't just selling the phone, similarly Microsoft and Sony's source of revenue wasn't from selling the console. It's all about selling the content and getting people to keep coming back for it.

Perhaps a $99 phone would be absurd for a state of the art smartphone, however making a loss wouldn't be absurd when google is making money off of every search you make, every youtube video you watch and submit.

Parts alone are probably closer to $200, but $300 is a more realistic break-even point when you add in manufacturing costs, all the shipping that has to take place, and the fixed engineering costs.

Also worth noting, while Apple prices theirs higher because they make money on the actual handset, Google makes money on every smartphone that gets into the hands of a user from the ad revenue.

Get enough smartphones into the hands of users and Google will see their revenues increase from the increased viewing of ads. So they needn't sell the phone at such a high margin to make a profit.

I'd say there's basically no chance of this being accurate. Otherwise, I'd buy a case of phones and resell them for parts. They surely cost at least $300 to produce just in parts.

Hmm, the iPhone 3GS teardown is only supposed to be ~ $175. I haven't seen any reason to suspect that the Nexus One is more expensive hardware.

Not to mention that whoever posted this clearly doesn't understand Google Voice (hint: it's not a VoIP endpoint)

Sure it is - you just use POTS to access it right now. I wouldn't get too caught up in product details, when there is no technical reason to prevent it.

And Google just bought Gizmo, which is a Voip endpoint. It already had some Google Voice integration, presumably it'll have more when they relaunch.

Where are you getting the $300 figure from? Also, elsewhere in this discussion you say "Yet the iPhone costs more than twice that" (ie >$400, [1]). iSuppli estimates the cost to be $180 including manufacturing and "other" parts[2]. This is very much in line with Apple's typical margins. Apple doesn't sell commodity products so it's no surprise that they could be netting 50% margins (see [3] for iPod cost information). I work in the electronic components industry. The component costs quoted by iSuppli are credible. Companies like Samsung and Apple are able to negotiate very low prices for components from their suppliers. The suppliers are willing to offer components at lower prices and hence sacrifice their profit margins for a couple of reasons: (a) Apple and Samsung buy in large volume (b) Apple and Samsung will always be around. Offering the best prices now is a foot in the door for future business with them

[1] http://news.ycombinator.com/item?id=996710

[2] http://gigaom.com/2009/12/09/who-is-getting-rich-off-the-iph...

[3] http://www.businessweek.com/technology/content/sep2005/tc200...

You know the ps3 cost in excess of 800 to manufacture at launch, and sold for around 400. The us army/navy, forgot which, bought a bunch of ps3s to harvest the cell processor. But that doesn't mean that's what most people do. Xbox Also cost more to produce, but I haven't heard of anyone selling it's parts.

Yeah I was about to write about this. Those consoles were sold at a loss because they could make up the difference and then some on game sales (through licensing or however that works).

The qestion then becomes how would Google monetize these phone users? Do they listen to our phone calls or text messages and send us even more targeted ads? Are they looking to monetize voice communication they way they did email?

In order to sell at a loss they have to be making it up somewhere.

It wasn't just game sales. Bill Gates has seen the need and value of a PC underneath everyones TV since at least 1995. Set top box software. Web TV. Etc. Xbox is the next step in that strategy. Sony saw the same thing.

And this is no different, I don't think. Google sees value in putting accessibility to its services in everyones pockets.

Really? The iPod touch is $199. Cell radios really aren't that expensive.

The best estimates still only put production costs of an iPhone 3GS @ $178.96 1

The rumor isn't so crazy if you remember that google's most general mission is to get people online and using the web and looking at their ads.

You can guarantee that they know roughly how much ad revenue the average smart-phone using individual brings to them and therefore they could justify bringing a phone to market at cost or even below.

1 http://gigaom.com/2009/12/09/who-is-getting-rich-off-the-iph...

Remember when Google announced that they were starting a free email service with a ridiculously large 1 gigabyte disk quota for everybody? They announced it on April 1, and everybody assumed it was a particularly implausible joke. How we laughed! And then it turned out to be real.

Keep your skepticism shields up, of course, but this sounds like it could happen.

Best estimate, yes. But it's also the only public estimate.

Yet the iPhone costs more than twice that.

And the ADP1 (an unlocked G1) has relatively modest specs compared to this new phone and costs $400 from Google. I don't think that's because Google is trying to make a mint by sticking it to developers.

Virtually all new HTC smartphones retail in the $400-600 range. I don't think HTC is making a fortune off them.

Because apple is pretty greedy, and the iPhone has a camera.

Apple is setting a price that millions of people are willing to pay. I wouldn't call that greed.

Just because they're selling at market price, it doesn't mean that they're not greedy. If they were a bit less greedy, they'd rather have more users for a lower price, which in the long run can actually result in the same revenue. But then I'd get into the luxury brands theory/subject, but meh.

What would you call greed, then?

Setting a price that's more than what your product is worth in the marketplace.

You can always spot real 'greed' because it's always self-defeating in the end.

For a decent phone you need to add: radio subsystem, bluetooth, camera.

Along with these you get problems of heat dissipation, short battery life, long certification process with carriers around the world and god knows what.

It doesn't matter: Google knows it will make good money from mobile search, and if the offer those phones at a market-shattering price, in which the will sell it in volumes, they will more than make up for what they lost in the first place.

They're reportedly unlocked, but still each require a $30/mo, 24 month T-Mobile data contract.

You'd have to make quite a bit on those parts to cover the subscription costs.

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