Is Google subsidizing the Nexus 5? T-Mobile seems to think so

November 8, 2013

Google Nexus 5 drop test aa

After announcing that its Nexus 5 costs $100 more than what Google charges for the handset, T-Mobile said that it doesn’t make a profit on Nexus 5 sales, suggesting that Google is quietly subsidizing the device.

The T-Mobile Nexus 5 (16GB model) costs $450 – comprised of a down payment of $42 and 24 monthly installments of $17 each – which is precisely $100 more than what Google is selling the device for in the Play Store.

But T-Mobile is not pocketing the extra $100, CNET says, after having talked to a representative of the carrier. T-Mobile customers will apparently pay the full price of the handset, while those buyers that get it from the Google Play Store will get it cheaper.

When announcing the handset, Google did not mention anything about a subsidy, and while it may be questionable, it does sort of make sense.

After all, just because Google is willing to sell the handset starting at $349 doesn’t mean that LG is also interested in selling a handset with flagship specs for anything less than a flagship price.

At the end of the day, LG only makes money off the Nexus 5 by selling it either together with Google or with carrier partners. But Google can further profit after Nexus sales from the content it sells through the Google Play Store and the related advertising revenue it generates from Google services users.

That’s probably even more so when you add in the better tailored ads that can be served to those users that trust Google with a lot of information, such as Google Now users on Android devices such as the Nexus 5.

So in theory, Google may end up making up for any losses caused by such subsidies.

But would Google subsidize it for $100? The answer to the question doesn’t really matter. What’s clear is that the Nexus 5 is getting plenty of attention from interested buyers, which is good news for Google and its products.

This also doesn’t mean that everyone else has to sell it for the same price, T-Mobile included, and it’s up to the consumer to choose where to buy the handset from.

We’ll remind you that the Nexus 4 also happened to be cheaper in the Play Store than in carrier stores. Does that mean that Google subsidized the Nexus 4 as well? Does it really matter?

Comments

  • RiverdALIEN

    No way to know for sure. Just pay less and tell whoever charges more to suck it

  • qwerty

    Who cares, the business model works… ask Amazon.

  • Soto

    Costs more to make? Almost want to get it before the jack up the price.

  • Christian Lindqvist

    499€ for the 16GB modell in Finland that’s like $670 :-( not possible to buy it from Google play over here:’(

    • Simon_K

      You can import it from UK with a freight forwarding service. :)

  • APai

    does T-mobile include a $100 “promotional charges” that it wants to count as additional expense and not as profit ? play store in India costs the same (dollar conversion + additional duty/ taxes that the Indian govt. has imposed on imports)

  • David M Whittley

    As Christian wrote. In Scandinavia it costs approx. $670 US! Daylight robbery. It wasn’t until I realised how cheap this phone was acrosss the ocean that I understood the attraction to the Nexus range.

  • sam

    One thing to consider. When paying for a phone on contract you enter a lease agreement (here in NZ anyway). A lease usually has an establishment fee and finance which would probably be higher than the 100 dollar difference hence them not making money on the hardware however they will still make money on the phone plan ie data calls and txt. If we consider the above to be true then it nullifies your notion that Google is subsidizing the device. Google will make money on the hardware, consider the average profit margin on a Samsung s4, margins are just tighter on the nexus range.

  • needa

    lol. google is taking a cut on profit margins, maybe. i say that because they are splitting with lg. but there is no way in hell they are subsidizing. the screen will cost $75. and that might be a stretch. its seventy five bucks for the gs4 screen. the snap 800 is gonna be $25-$27. but they save a ton of money on the uber cheap speakers, audio amp, lack of shielding, radios, plastic frame, mics, cheap build, etc.

    now to put things into perspective. the moto x is sold to carriers for $350 (thats the same price you know). which is built with the highest quality parts they could find. designed so well that there is only one screw, and one piece of tape, holding the ‘solid as a rock’ phone together. the 4.7″ 720p rgb screen is $60, and the s4 pro is $20-$22. wolfson mics, top of the line 9v audio amp, a speaker that pics up metal parts, steel frame, EMI shields on everything possible, along with it being built in america for, i think, $12 more than what it costs to build in china.

    with that in mind… why would anybody with half a brain think google is subsidizing the price of the nexus? nakka please. after all, does it really matter? well yah it does. cause ill have to listen to peeps swear up and down that they do subsidize for another couple of years thanks to this blog. years of people swearing up and down that they have a high quality device for $350.

    for once i would like to see a tech site step up to the plate and tell it like it is. rather than being completely enamored with a phone that is barely worth the money they spent on it, when comparing it to other phones on the market.
    /end trans.

    • filaos

      So true.

    • SOMFW

      Partially Correct.
      Your premise is right but your Numbers are retail consumer numbers. they don’t pay $75 for a screen when they are buying lots of 100K+

  • Xavi Pous

    Take the money that you will waste in publicity and discount it from the product, then let the people make the publicity for you.

  • utilitybelt

    Looks like I’m waiting to get it straight from google. 16GB isn’t enough.

  • Sluma

    T-mobile and all other carriers are full of crap. The clearly are trying to make a profit off of the phone which is fine, they have every right to do so. However don’t lie to us!!

  • Noel

    The cost of making the devices parts and labor might be around $300…I’m not sure what the guys at Ifixit.com came up with as the cost. So Google buying hundred of thousands of units gets a break but I doubt they are making any profit selling such a high caliber device for $350 and $400. They may make a little profit on the 32GB model cos I don’t think the extra 16GB cost $50. I will prefare them to make a 32GB and 64GB model with a massive battery 3000 to 3500mAh and charge $450 to $500 for it. The next Nexus has to be designed around a massive battery…the other specs have have reached a point where they can remain the same.

  • Cecil

    They definitely are subsidizing it. But honestly, why? What are they trying to accomplish? Beats me, they already have the marketshare. I thought the nexus line was the push the limits of android, I wish they just made a device without compromises. My .02.

  • SOMFW

    the N5 is not “Subsidized” in the common meaning of the word – IE, it doesn’t cost $650 and they are selling it for $350.
    What Googlerola is doing is selling it near cost, Instead of being greedy pigs like everyone else and marking it up $300 to $400.
    Depending on whose numbers you use and believe, it costs anywhere between $150 and $250 to make a current smartphone. Lets assume the high end and say it costs LG $249 to make ( it doesn’t) and lest assume They want all the profit ($349- $249 =$100) That means Google is selling them for cost ( they aren’t) – Not a subsidy, Just good business. The real number is probably $200 or less to build it, LG makes a quick $100 and Google pockets the rest. How does this factor in for T-Mobile? It’s simple, they don’t want to make $50 on a phone so they add %100 or more to the price! Bottom Line – it is not being subsidized just sold closer to cost than the other greedy Carriers and OEM’s. The real argument and question is here is why does the Developer Edition Moto-X cost so much? ($550 to $650) Google owns Motorola, they could use the same numbers and be profitable and sell boatloads of their already out of date flagship./ Instead of playing the same old game of slowly dropping the price until its 1 penny on contract in about 8 months.
    At worst the Moto-X should be selling right now, off contract from Google, the stores or the carriers for $349 or less!

  • bk201

    Samsung did the same with Galaxy Nexus GSM before Play Devices appeared. Months later, same device appeared for half the price I got mine. That’s what I get for being an early adopter.

  • Fidelator

    It costs Samsung about $250 to make a base model Note 3, the Nexus 5 is cheaper to manufacture, the device is NOT being sold at a loss, it’s crippled so that they don’t screw their business partners but they could have put in a better camera and a better speaker and they still wouldn’t be losing money, not that I complain as the value for the price is unmatched regardless of those 2 problems.

  • googlecadoodle

    There is no point for t-mobile or any other carrier to sell a good cheap phone with a lower margin that everyone will buy… because they will only sell those lower margin phones(speaking from retail experience). This is not business sense, since carriers have a monopoly (you are not choosing between 1000′s of carriers you are choosing from less than 5). So they sell it for more to make it less attractive, and force you compare it to other more profitable models to give you the illusion of choice.
    As for Google, this is very smart, profitable and a strategic business decision. Because only they can make this happen and they did. HTC could easily make a better phone for the same money and sell even more than google. But they cant, because carriers wont let them and they don’t have their own distribution power like google does, as to make it viable you need to sell a lot of them and not just a few.

  • GNewt

    Most of these comments are coming from users who are not seeing the whole production cost picture. When you say x phone costs y dollars to make, you leave out the most expensive component: research and development. That’s where more money is spent than anywhere else. Software and new features and design don’t come for free. Google is subsidizing the Nexus 5.