Can Google really drive smartphone prices down? How would that change the industry?

November 15, 2013

Friday Debate aa (1)

In this edition of the Friday Debate, we discuss Google’s smartphone pricing strategy. Many industry watchers think that Google is deliberately trying to drive smartphone prices down, to make them available to more users. With more people able to to enjoy a high-quality mobile experience, Google wins indirectly, by extending the base of users that access its services and feed its moneymaking ad business.

But can Google really drive smartphone prices down? The Moto G and the Nexus 5 are great devices for the money, but how long can Google keep selling at cost? Will the Moto G change anything in the mid-range market? Will Samsung even feel the pinch?

Join us in the discussion, vote in our poll, and sound off in the comments!

Darcy LaCouvee

Great technology at a low price — what’s not to love?

It takes years to build a brand that’s loved and appreciated by consumers, and Motorola still enjoys a very positive one. Phones do not cost $650 to make. The BOM (Build of materials) of even the highest end devices rarely exceeds $300, so what gives?

With Motorola’s brand equity as solid as it is, and with Google backing it to cover its marketing and development costs, it enjoys a uniquely advantageous position relative to current market players. As the Nexus series of devices have shown us – good technology that’s high quality and a joy to use doesn’t necessarily have to come with a ridiculous price tag.

I think it’s a wise approach, and one that could do very well for them. What’s more is that it will put tremendous downward pressure on market incumbents and force them to alter their approach to offer more compelling devices at ever improved prices.

And let’s face it, there’s a lot of factors working behind the scenes to make this a reality. Economies of scale have made 1080p displays, decent quad core SoC’s, RAM, and batteries all a fraction of once they use to cost to manufacture. The specs war never occurred to those that never considered it. Fundamentally, all people care about is a good experience. And now it doesn’t have to cost hundreds upon hundreds of dollars. Shake it up.

Robert Triggs

The Nexus 5 is certainly an attractive product at the top end, and the Moto G seems to be an equally impressive product aimed at the middle of the market. There’s very little competition at the Moto G’s price point, the hardware is great value for money, so this could be the start of a new race to the middle, providing that consumers take to Motorola’s new handset.

With Google’s backing, Motorola is in an excellent position to take on the big players, and perhaps this is the product that could do it. A high profile launch of a mid-range product is quite rare, so no doubt other manufactures will be watching closely to see how consumers and the wider industry react. If the Moto G proves to be a success, I won’t be surprised if we start seeing a greater focus on price and competitive features, rather than just top of the line specs.

But a shift towards more competitive pricing shouldn’t be surprising when we look at the smartphone industry over the past few years. The statistics suggest that we’ve started to see saturation at the top-end of the market, there are now a huge range of products available but with only incremental improvements over the past generation.

Mobile technology is now very competitive at lower price points as well, so it’s only a matter of time before other manufacturers start to pay more attention to their mid-range customers and products. We could certainly see some sustained pressure on prices in the longer term as OEMs try to increase their market share outside of the stagnating premium end of the market, and I’m all for it.

Bogdan Petrovan

I think that the Moto G (and to a smaller extent the Nexus program) may be for Google weapons to keep Samsung in check. The Korean giant made no secret of its ambitions to provide an alternative platform to Android. It invests billions in software R&D right now, and sooner or later, it will want a return from that investment. Perhaps the Moto G is meant to fuel the growth of Android outside of Samsung’s influence.

On first blush, driving prices down would be beneficial for users, but we have to consider that pricing wars can kill industries or at best stop them in their tracks. When no one is making any serious money out of a business, there’s no reason to strive to beat competitors or to innovate. Moreover, getting caught in a downward spiral could prove fatal for some Android makers. Already, profits in the mobile industry are in the hands of just two players, Samsung and Apple. Having Google dynamite the mid-range market with a device that sells for just a little more than its manufacturing costs could be the straw that broke the camel’s back for companies like HTC. Some would say that it’s just natural selection, but I think diversity is one of the strengths that have made Android what it is today, and that the ecosystem would be poorer without the small players.

If Google does indeed plan to shake the industry up (and not just position itself better against Samsung), it could be a huge transformation, for everyone in and outside of the Android ecosystem. It would take huge resources and determination to change an entire industry, but we’re talking about the company that is responsible for Fiber, self-driving cars, Glass, and Project Loon. One thing’s for sure – interesting times lie ahead.

Andrew Grush

$180 for an unlocked smartphone with a quad-core processor and high-quality build? That’s absolutely crazy.

Motorola (and Google) have really outdone themselves with the Moto G, and I truly believe that this is the beginning of change in the mobile industry.

By providing a mid-range handset in a low-cost package, Motorola is sending a clear message that low-cost doesn’t have to mean junk hardware. The big question now is whether Motorola has the global brand power to spread this message.

Having Google’s expertise and marketing dollars will certainly help Motorola’s efforts with the Moto G, but there are still going to be folks that purchase a budget Samsung or LG device simply because they have positive associations with another brand. Of course few revolutions happen overnight.

I believe that the creation of the Nexus line was the first step in a plan to change the industry, and the Moto G is simply the next step. It’s hard to say where Google will go from here, but I suspect the next few years will be very interesting.

As for who’s threatened by Google’s move with the Moto G and the Nexus series? Samsung clearly has the most to lose.

The Korean giant not only rules the high-end Android universe, but it has pretty firm control over the budget market with a nearly countless number of devices spread across various markets across the globe.

You might wonder though, why does Google need to push ahead with devices like the Nexus and Moto G? After all, couldn’t they just sit back and let their Google services expand through the growth of manufacturers like Samsung? They could, but they also risk the power of letting manufacturers have too much control over the Android ecosystem.

Like Bogdan, I agree that the Moto G (and even the Nexus line) is at least partially a way to keep Samsung and other manufacturers in line.

Beyond that, I also feel that Google is trying to improve the reputation of Android in the low-end market. There are likely a ton of folks that go out a buy a Android handset for $100 – $250 outright and automatically assume that such a device properly represents the Android ecosystem and all it has to offer.

Trust me, a single-core 800MHz handset with 512MB of RAM and Android 4.0 (or older) doesn’t give these people a good impression. What then happens is they save up more money, and flee to a rival ecosystem — like Apple.

The Moto G could certainly change the way budget Android users feel going forward, but that’s only if brands like Samsung and LG follow suit by pushing down costs a bit and attempting to deliver more bang for less buck.

What do YOU think?

Join us in the comments and vote in our poll.

Do you think Google can drive down smartphone prices?

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Comments

  • mumusen

    Very well comments by all. Loved the article.

  • NeedName

    Many countries do not have subsidized phones, thus quality Android devices in those markets right now is a big deal. Furthermore, when LTE is the standard it will be much easier to use a device on a wider range of carriers in the USA and other LTE countries. . . which will push those countries toward unlocked devices as the norm, and no way is the average person paying $600 every other year for a phone.

    Finally, google’s cash cow in this fight isn’t the hardware or the OS, it’s getting people online and mining those users for cash, thus they are one of the few companies that can afford to sell at near zero profit margins, IMO.

  • vespa

    though I doubt we’ll seeing any < $500 flagship (non-contract) phone from Samsung, Apple, or Nokia any soon.

    smartphone prices are getting crazier these days

    • NeedName

      I doubt we’ll be seeing cheap “flagship” devices anytime soon either (other than a Nexus), however, the “good enough” specs will increase each year, and right now the “good enough” specs for a low price device like the Moto G can give a decent experience. Next year what will a $179 unlocked second gen Moto G look like? That’s the exciting part — next year should bring some pretty good “mid range” devices.

  • Shark Bait

    I’m sure they can, the nexus program is amazing and the moto g looks good. Once they build their brand, with those prices they will do well.

    The mobile industry will be better off for it!

    • TjaldidTjaldid

      not currently sure maybe after the Moto line has been out for a little while otherwise the nexus phones have been out for some time.

    • On a Clear Day

      Google is playing with fire and allowing itself to do things not because they should but simply because they have more money almost than God and can.

      As humans – and this follows for all organizations comprised of humans – we have two ways we can choose to come to grips (or not) with our experience as such. We can use our free will to try to force the world to bend to our will or intelligently, selectively look around, analyze the why fors and what nots of our reality (be it ever so small in comparison to the vastness of reality in fact) and do our best to configure a way of dealing with the world on both a macro and micro basis in a way that “goes with the flow” of The Force. To the extent that our thinking processes and the actions that proceed therefrom mimic and synchronize with the underlying intent of the universe and its innate, incorruptible and eternal truth(s) our actions will bear pleasant or bitter fruit.

      Google, if it is trying to force down prices by selling the Nexus 5 at cost simply because it can and because it thinks it will give it more “control” is making a serious mistake – not unlike that of Apple with its control freak culture and ecosystem, and by doing so straying from what made it a powerhouse seemingly that can do no wrong.

      There is no way to make an approach that is fundamentally flawed because it is a deliberate, negative, willful attempt to manipulate on the micro level ultimately translate positively into a sustainable, self-perpetuating stratagem on the macro level. The world, the reality, The Force is way to powerful, immeasurable and unfathomable by the limited consciousnesses of any one or any collection of humans – even if they have more money almost than God.

      • mr lips

        i cant be bothered reading that, mate

      • nishantsirohi123

        you been having too much twinkies havent you

  • Jivester

    The Moto X feedback was exactly the result of Google’s Nexus line driving down the “should be cost” of premium smartphones. All I heard when it was released was that “it should be priced like the nexus.” That drove mecrazy at the time because at that time I owned a moto x and thought it was by far the best phone I had owned that was non-nexus. Now perhaps I am grateful for those responses because it shows that the consumer mentality is shifting to expect lower priced phones (at least from Google) which will hopefully apply pressure to the larger market.

    • Jimbo

      No. Or at least not entirely true. Do you think people would have complained about the cost of the Moto X if it had top of the range specs? This has nothing to do with Moto X is still fast etc. It has lower specs, it should cost less.
      Do people say the Note 3 should cost the same as a nexus? or the xperia z1?

      • Jivester

        But it didn’t really have lower specs. It’s processor was a year old architecture but had major update to it, plus this years GPU plus two extra cores. The screen has the same ppi as the iPhone. It has all the latest radios. Advanced hardware and a10 mp cam. How is that lower specs? I really think that people thought Google owned it so it should come cheaper.

        • APai

          yeah, $100 less would have made a huge impact. but they priced it way beyond its *low sounding* specs.

  • dandroid13

    “Trust me, a single-core 800MHz handset with 512MB of RAM and Android 4.0 (or older) doesn’t give these people a good impression. What then happens is they save up more money, and flee to a rival ecosystem — like Apple.”
    This. I know a few gus who changed to iOS because of poor first experience with Android. I also don’t think Nexus will ever be the average Joe phone and I don’t understand why you are trying to make it feel that Samsung is the bad guy here, I hope they can learn from Google.

  • rebirthofcool

    Google just did it with the introduction of Moto G with it’s price vs specs feature killed the midrange Android smartphones

  • Oli72

    Already doing it. Great job Google.

  • VicMatson

    “$180 for an unlocked smartphone with a quad-core processor and high-quality build? That’s absolutely crazy”

    So whats crazy, Google makes money on adverts, not by selling phones! Samsung and Apple have been raping the willing for years, but now that prepay has gone wild, we might just see nature take it’s course.

  • Data

    I think the Moto G is an incredible device but I dont think it’ll change the market in the short term simply because there are thousands of low end devices out there and not everyone cares about specs. Im glad Google has made it available in many countries and hope they market the the phone a lot.

  • vpbalu

    This is why Samsung is working on Tizen as a second alternative to Andriod keeping in mind Google’s Motorola acquisition. Even if it is zero direct profit from Moto device sales, Google will still make a lot of money from each device sold through Play store and services which will make up the profit. This will be continuous generation of money unlike sale of devices which will be an one time profit. The Moto G will not bring the price of smartphones down but will have a small hit on mid range Android phones sales from other OEM’s including Samsung. But once Google makes Moto G a successful one, it will definitely keep releasing low cost high spec phones to take on Samsung(which it fears will take a complete control of Android market)

  • Grman Rodriguez

    They could if they wanted to. They are not even selling the device or making any publicity to it. It’s only on select countries and elsewere it’s expensive. If they made an effort on promoting and selling the device, rather than just show off Android on it, they could have something going on

  • jasxgamer

    Honestly, it’s not about Google make a trend to cut down the cost of smartphone, it’s just about the other brand selling their phone for such a high price!
    look at that Note 3, its not worth 750 USD at all, the so-call flagship phone 2013 bring the trend for expensive phone!

    • sfasljkas

      the note 3 is the best phone right now and with that base 32 g memory the price is reasonable

  • Tuấn Ankh

    The high end phones will keep having high end price, and the price won’t go down. There are always people who show off there wealth through their phones. A $600-$1000 phone is important for them, lol. (I know quite a few of those people)
    But yeah, those high end phones with high end price will need to have a lot of extra gimmicks in order to stand out (Samsung is already on that).

  • APai

    disruption is good in the industry, for far too long samsung ruled the mid range market with crappy products, so we really could do well with some competition

  • Kettzy

    With moto G, google might have a small impact on manufacturer like samsung; but a huge impact on small scale OEMs (particularly chinese). Some of the firms might even shut down or get sold at price of peanuts.

  • anis
  • z1george

    If Google really wanted to disrupt , for fraction of marketing millions wasted on the G, could basically get a good chinese OEM to make the Nexus4 (2013) and sell it online in 140 countries for 199$.
    If Samsung tries to fork its S-apps store, Google could do it next year , with the Nexus5 with opening the store worldwide. Good luck to Samsung selling 700$ Tizen devices.

    • DEX

      you forgot samsung owns 95% of the android marketshare, if they shift to tizen, consumers will not even notice a difference in the overlays, android may fall as people jump to tizen, and loses to IOS

      , rather it is google and the other smaller OEMS that have to worry, THATS WHY the moto G is here, to diverse android away from samsung

  • arcwindz

    Hmm, if we’re talking about the us market, yes
    Globally? Not yet, in a lot of country the so called cheap price of nexus line doesn’t really exist. Now let’s hope google bring device play store to all country :)

  • abazigal

    To me, this is bad for everyone but Google.

    Google is about the only company who can afford to subsidise the prices of their mobile devices because they expect to earn it all back eventually in the form of advertising revenue.

    Other manufacturers enjoy no such benefit. The only way they can lower prices is by using cheaper materials and skimping on areas like build quality or innovation (by slashing their R&D budget). Which is precisely what we should be trying to discourage.

    Plus, I disagree with what Darcy said. True, phones don’t cost $650 to make, but that doesn’t mean they ought to be sold at cost either. R&D costs money. Shipping costs money. A phone is so much more than just a bunch of parts bolted together. To claim a phone (or any other product) is overpriced simply by looking at the difference between cost price and selling price is too naive and myopic.

    Rather, the correct question to ask should be “Do you feel this $650 smartphone is value for its price tag?” If so, then buy it. If not, then don’t buy it.

    All in all, I firmly believe in getting what you pay for. You want a good product, be prepared to pay a fair amount for it.

    • neiljay6

      This makes the most sense to me.

    • Jake

      Good points

    • jasxgamer

      agree.

      at least that shamsung crappy Note3 piece of crap is not worth 750 at all,
      garbage craftsmanship bad quality battery sell such a high price!

      • abazigal

        I won’t go there. Samsung’s devices have a large enough following that I am sure there are people who find value in their phones and are willing to fork out the higher asking price because they believe it offers them a degree of utility which other phones cannot provide.

        I myself am deeply invested in the Apple ecosystem. What makes me feel that Apple products are worth their higher price tags? They bear all the costs of maintaining their own services without the benefit of advertising to subsidise. Just think – Google earns every time someone uses Google Maps; Apple doesn’t earn a cent this way. They design their own hardware, processors and IOS – the result is a device that looks great and runs smoothly and stably. All this costs money, which has to be factored into the final asking price of their devices. I love what Apple has done with their offerings and choose to vote with my wallet.

        Also, the issue I see is that many smartphone manufacturers are already operating on razor thin margins. I don’t see how forcing them to further lower their profits would help them at all.

        To me, it’s a lose-lose scenario either way. Smaller companies simply lack the resources to invest in sufficiently differentiating Android or their hardware, so they can only compete on price. Google’s actions would serve only to drive them out of business.

        • David Avila

          Apple earns also by selling you apps, music (speaking of iTunes Radio BTW)…
          The thing is that Google earns that much money that they can afford to run on some loses in the Hardware department, and as you say, they recover from people using Google services every day, so it is a great business for them since Android centers on Google services, many manufacturers like Samsung also have their own stores, so they also see profit with those apps they sell outside Google

    • AbbyZFresh

      Here’s the problem, that would mean they would make less net profit with all that subsidizing they’re doing. They won’t continue growing as fast as they should be if they continue this Amazon-like model of selling and revenue recently.

  • Jake

    An excellent read. Thank you, guys.

  • Gator352

    Google is doing this purely for profit. The more Android devices in peoples hands equals more profits from advertising. Google, of coarse, is an advertising company that doesn’t see selling devices as their main interest, but as a means to carry their main interest. By selling their devices cheap and off contract, gets their interest out in mass without the need to deal with the carriers. They’re letting the consumer do that on their own.
    I bet Google is gearing up to offer their own cell service. I now it sounds far-fetched but it sounds plausible.

    • AbbyZFresh

      Opening up a wireless service is very expensive and time consuming. Look how many years it took At&t and Verizon to establish themselves to the massive coverage they have today since their debut.

      Plus Fiber isn’t even available outside of a few neighborhoods. Google Wireless is never going to happen in my opinion.

  • takpro

    In my opinion, smartphones will follow the path of the PC. It will come to the point where consumers won’t care if it takes one millionth of a second to perform a function or two, one millionths. When we reach that point, there will be price pressure, Google or no Google.

    Most consumers, like myself, are not concerned about having the latest GPU. Although I bought a Nexus 5, it was for the value, not specs. I will be switching to T-Mo as soon as my contract with AT&T is complete.

    I’m grateful that there is already price pressure. WOW! Think what could happen if Google bought T-MO.

    Neophyte prediction: In 10 years Android and Windows Phone will own 95% of the global mobile market.

    Takpro

  • Thats right

    They sure can, they make a huge margin on new smartphone, if I remember right, the Galaxy Note 3 which is an expensive phone to manufacture only costs 200-300 each but they are selling them at 700-800 around 400% profit, Google selling a nexus 5 which costs around 100-200 to make and are selling for 300 which is good for consumers, the extra $100 for the note 3 shouldnt pass as $400 extra to consumers.

  • Froggy

    For $130 you can not beat the Haier W910. It’s a Galaxy S2 on steroids. Quad-core 1.5Ghz. 720p Gorilla 2 screen. Water proof. 8mp cam. 1gb RAM. 8gb ROM with Micro SD. Android 4.0. I am always surprised to never see that great phone in any mid range comparisons.

  • CJ456

    Consumers vote with their wallets. At the end is them who decide if they want phones with ridiculous price tags or good phones at great prices. The problem is that most people are stuck in 2009 when Android was buggy and laggy. Apple fans (and of course Apple itself) take advantage of this (even if they know this is not true anyore). This will be a hard and long process but I think Google must help boost other OEM’s sales, as they are the main ones who can stop Samsung from taking too much control of the Android ecosystem.

  • nishantsirohi123

    About time it happens
    the pointlessly expensive apple devices need to end. This was the idea behind android in the first place and the ideology of going open source
    They are launching affordable yet great devices, this ultimately is a victory for the consumers
    and please if you are planning to launch the Moto G in the developing markets, please include the Expandable memory option or at least 32 GB internal memory