updated 11:22 pm EST, Sun November 17, 2013
Google Play store pricing aimed at driving Android platform domination
Further evidence that Google subsidizes the cost of the Nexus 5 smartphone has emerged after the official off- and on-contract pricing for the popular Android handset was made public in Australia today. LG and Telstra have partnered to launch the Nexus 5 on the carrier's 4G LTE network with off-contract pricing listed at $696 and other retailers at $699 beginning late November for the 16GB model. The same handset is available to Australian customers through the Google Play online store at just $399, a price difference of $300. Australian customers have the option of purchasing the 32GB model through Google Play for just $49 more. As a point of comparison, the iPhone 5s retails from $869 outright in Australia.
While the Australian outright pricing is clearly designed to encourage customers on to Telstra's two-year plans, which start at $60 plus monthly handset repayments of $9, it does highlight that Google has adopted particularly aggressive pricing strategy for the Nexus 5 through its online stores, strongly suggesting that Google is indeed underwriting the price of the handset as has been widely speculated. Even if it is not subsidizing the Nexus 5, Google has already acknowledged that it does not sell the Nexus 5 to generate a profit. Google already gives away its Android operating system to any manufacturer who wants to install it on their devices free of charge, however, the actual retail pricing of the Nexus 5 suggests that Google is gambling on a long term strategy designed to drive Android handset adoption.
Google's longer term play with Android and the low-cost pricing structure of its Nexus devices through the Google Play store, is clearly aimed at widespread market adoption in order to push its ad-supported services into the hands of as many customers as possible. Recent market share figures show that Google's strategy is paying dividends from a market share perspective showing that it has achieved a global market share of over 80 percent. However, this dominance has as yet failed to deliver Google any financial return for its aggressive investment in the mobile platform, with its Android division running at a considerable loss.
Despite the relatively high upfront cost of the iPhone, Apple remains the dominant smartphone maker from a profit perspective, with its iPhone range continuing to dominate the profits generated by the global smartphone market, despite owning only 13 percent of the global smartphone market by comparison. The only Android handset maker to make substantial financial gains from Google's mobile operating system is Samsung, which dominates the Android handset market and profit share. However, as Google becomes increasingly dominant in the mobile space, it is possible that it could alter the advertising model on Android handsets to more aggressively push advertisements and services to customers, helping it to recoup its considerable investment in the open source platform.