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How Google Can Disrupt the American Mobile Phone Market with the Nexus One…and Three Reasons Why it Won't

Google has the opportunity to turn the American phone mobile market on its head with the Nexus One. If it chooses to sell the phone directly to consumers at a price that's close to cost, it would truly disrupt the current American model. When the iPhone 3GS first came out, iSuppli estimated its manufacturing cost to be about $180. So let's say Google sold the Nexus One for $199 - that would be killer! American customers would be getting a high-end phone that's unlocked for a bargain price. Compare that to the costs of other premium unlocked phones, which cost upwards of $500.

Why would Google do this? Well, there are a few reasons. By inflating the installed base, Google could sell more Android apps. The company gets a cut of every app sold through the Android Marketplace. More importantly, it has the opportunity to serve more mobile ads. Remember, at the end of the day Google makes the vast majority of its money selling advertising. If more people are using Android browsers and products that serve mobile ads, the more money Google will make. So in a way, it would selling the Nexus One at cost would be similar to the old razor-and-blade model. Google practically gives away the razor and will make way more money selling the blades.

Having said that (Curb Your Enthusiasm!), there are several reasons why Google will probably not follow this model.

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