The Great Google Gamble: Does traffic equal customers?

We’re only one week into the Google Phone retail experience but it is already looking like its going to be one of those Harvard Business School Case studies in years to come. 

Andy Rubin, senior director of mobile platforms at Google, may well think Android is “the next most important platform in the world” and will “revolutionise” the way mobiles work. But what about the Nexus One SmartPhone? Is this going to prove to be another Google game changer? Or, are we witnessing a spectacular miscalculation of what the Mobile Phone market is all about? 

Here was a Smart Phone that was going to break down the Barriers to Entry in the Mobile Telecommunications industry and redefine the industry value chain. One week in how is the revolution looking on the ground? 

On the up side we have this report from TechCrunch reporting what the Nexus One can do for Google’s Market Value if it becomes the next iPhone. 

“Trefis estimates that Google is making a $231 gross profit on each phone…[So] if two thirds of Apple’s market share can be attributed to the iPhone (as estimated by Trefis), it doesn’t seem like a stretch to think that Nexus One can become 9 percent of Google’s”  – Can The Nexus One Add $20 Billion To Google’s Market Value? 

The Sydney Morning Herald also published these cost estimates in real cost of Google phone and the iPhone this morning revealing the difference in materials between the two smart phones to be negligible (i.e. $US174 vs. $US178.96) 

At a more mundane level VentureBeat have produced an excellent chart demonstrating just how poorly the Nexus has performed in its first week compared to the first week sales of the Apple iPhone and the Droid. 

“The Google Nexus One sold an estimated 20,000 units in its first week, according to market analytics firm Flurry. In comparison the Droid sold 250,000 and the iPhone 1.6 Million.” 

That’s 80:1 in favour of Apple. So it looks like round one is with Apple. What about round 2? What will we see in 6 Months or a year from now? 

Good question. 

Here’s Google’s take on what makes the Nexus One sticky for customers 

“This new purchasing model Google has created for the Nexus One puts the company at the center of the experience. People who purchase the Nexus One think of themselves as Google customers. Rubin says, “What we’ve done here is to offer a mobile platform where people don’t have to worry about the plumbing.” “

- CNet CES: Google building a Nexus One for enterprise 

The question is do Google actually have customers? If you use their free search engine are you really a customer or a statistical blip in the daily ebb and flow of web traffic? 

With a Telco you have a relationship and a service contract. At this stage Google’s web traffic aren’t customers. They are potential customers. They are not real customers until they have bought the phone.

The problem is, as VentureBeat points out, having real in-store representatives to let you touch and feel a phone may turn out to be a competitive advantage for the Telcos after all. 

The other factor working against Google is of course Churn. Customers need to be coming out of their plan before they are ready to upgrade to a new Smart Phone. Unless you are in the market offering incentives to jump ship early you will only catch new customers when their existing plan finishes – and that’s only if you get there before the Telco resigns them up on a new plan.

As I pointed out in The Mobile Google Experience the risk is Google may be fundamentally wrong in assuming that the Handset is the hook that will build a successful mobile communications platform. The real hook to winning sustainable market share in Telco land is customer service. After all customer service is what Telco’s do badly. The message for Google is you are not going to secure market share if you offer a lower level of customer service than the Telcos. 

So how are they performing on the customer service front? 

“Walt notes reports about people unhappy the customer service Google is providing for the Nexus One; there is only e-mail customer service, and no phone support. Rubin concedes that there is no phone support and that there is sometimes a three-day delay in response time. “We have to get better at customer service,” he says, adding that for launch, they are doing great. “

- CNet CES: Google building a Nexus One for enterprise  

“Days after Google started selling the Nexus One exclusively through its Web site, IDG News Service noticed that Nexus One support forums were flooded with questions, complaints, and more than one rant about distribution and technical problems. It’s always hard to tell the size and scope of a problem from Internet message boards, but comments were flying in at an astonishing rate: almost one a minute around midday Pacific on Friday.” 

As one poster put it, “Welcome to direct sales, Google!” 

- CNet Nexus One a test of Google’s customer service 

“Google’s celebrated algorithms may power the Web’s most popular search engine, but they have not yet been programmed to answer a call when a customer has a problem.”

- The New York Times Hey Google, Anybody Home?

So the next question is can Google resolve the customer service issues? 

Good question. After all customer service is a cultural thing. It defines the retail experience for the customer. This is a new experience for both Google and the customer. After all Google have never had any “real” customers before… just traffic. 

So what happens if they don’t resolve the customer service issue? Obviously the Nexus One won’t survive. But that brings about a bigger question. What happens if the Nexus One fails? What does this do for the Google Brand?

“For Google to succeed in selling phones under its name, it must rely on the strength and reputation of the Google brand to appeal to both business and consumers. Selling the phone itself could be a more risky move, however. Only recently Nokia closed several stores worldwide in recognition of the fact that customers wanted price deals and not just handsets.” – Marketing Week Is Nexus One the next big one? 

It works both ways. 

If Google fails to sell large numbers of the Nexus One then what does it say about customer loyalty to the Google Brand compared to the Apple “Lovemark”. Even more interestingly what does it say about Google, and by extension the Internet, as a direct market and advertising platform? 

After all if they can’t turn all that online traffic into “real world” sales who can?

The Nexus One isn’t just another line extension to the Google Search Engine. It’s a brand new market and that’s why if they don’t make it work I suspect we’ll be seeing MBA’s in the future reading up on case studies on How Apple got it right and Gooogle…?

Forget Freemium. Tomorrow we’ll be talking Me-mium >>

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