

What Will Google Learn From the Nexus 4 Selling Out? - rainmaker23
http://www.fool.com/investing/general/2012/11/23/what-will-google-learn-from-the-nexus-4-debacle.aspx

======
Daishiman
Author evidently does not understand that the Nexus line is and has always
been used as a benchmark of the capabilities of Android and as an incentive
for hardware partners to keep up with the reference series.

If Google actually wanted to make money off hardware at this point they have
the economic means to do it. It is evidently no their goal.

~~~
aufreak3
If selling the hardware is profitable for Google, I'd guess they'd go all out
to make it happen .... which makes me think that _Google_ is subsidizing the
Nexus line and hence the inventory problems.

Edit: A corollary would be that T-mobile maybe telling the truth about the
$300 discount.

~~~
JVIDEL
Given current costs its possible that the N4 is being sold at cost rather than
at a loss, but again this is a halo phone meant to show how good Android can
be, just like car companies launch halo supercars that are hardly profitable
but make the brand stand out more.

------
jph
Google's smart about this: the Nexus 4 proves that a solid, capable, up to
date Android phone sells well; this shows the way for all the Android
ecosystem partners.

~~~
nilsbunger
The device has basically no profit for google, so it doesn't show a way
forward for any device manufacturers. In fact, it probably scares companies
like Samsung if google starts making a real dent in the market with 0-margin
phones.

~~~
enjo
_The device has basically no profit for google_

Citation? Not trying to be flippant, but I'm not sure how we know that?

~~~
mdasen
I'm not the OP, but: I don't think we know that. Companies like to play with
their cards close to their chest. Similarly, we'll likely never get a cost
breakdown on Google Fiber - something that would be immensely useful in
conversations about the viability of gigabit fiber. But I digress.

I think there are good reasons to think that there might be little to no
profit. High-end phones usually have around a $200 parts cost. Then it costs
money to assemble it, transport it from Asia, transport it to a user's
doorstep or store, package it, write the drivers for it, test it, design it,
license the IP for everything from GSM to ActiveSync and H.264. You need to
build in a cushion to handle returns that you then can't sell as new, a
cushion to handle warranty repair, a cushion to handle tech support. Heck,
Forrester Research estimates that a call to tech support costs them $33.
Whether these costs are being paid by Google or LG isn't really important,
just that they exist as costs.

It's somewhat hard to see the Nexus 4 doing better than scraping by. Now,
Google might be counting on selling these to lower-cost customers via a low-
cost chain. Maybe they're direct shipping from Asia and keeping very few on
hand and assuming that the techies they sell to will make few tech requests
and the only warrantee service they'll need to provide will be when something
is actually truly wrong.

I guess it's hard for us to see the profit there. You're right that there's
nothing we can cite. Ultimately, it will be interesting to see whether Google
keeps this up for many years. Right now, Samsung's GS3 international seems to
go for $550. There doesn't seem much compelling about it over the Nexus 4. The
HTC One X seems in the same range. Google has been known to underestimate
costs like tech support (and simply offer poor support). I think it's possible
that Google is underestimating some of the costs here.

Google also is looking to push an agenda. That's wonderful for us as
consumers. Anytime a company is looking to push something other than their
profits is an opportunity for us to get a good deal - like when a company
would rather be popular than profitable. Really, I think what we're really
talking about is LG's profit on the Nexus 4 - I don't think it's Google's
profit that we're debating, but I have no citation for that either. Google's
agenda is to get as many people as possible with smartphones that they can
make money off of via search and other things. I wish I could find it, but
there was someone from the Android team who had said that Google was trying to
prove that a high-end phone could be sold at this price point. The Android
team member also noted that people at Motorola disagreed.

Ultimately, here people can have a positive disagreement (one where we
disagree because we lack the data that would end the disagreement). Still, the
smartphone market has been decently competitive in the Android arena and we've
seen many high-end devices being sold nowhere near that price point. In fact,
Samsung, HTC, and even LG itself are selling the devices at much higher
prices. Heck, T-Mobile is selling the Nexus 4 for more than $500 off-contract.
Did LG offer Google a certain number of Nexus 4s on the cheap so Google could
prove it's point in exchange for being able to leverage the Nexus brand
outside of Google Play at higher prices?

I'd love to think that Google is making a ton of profit on these devices. It
would mean that I'd get cool toys much cheaper in the future. Given that
Samsung, HTC, and even LG itself can't seem to match that price (or even
within $150 of that price), it casts doubt. We'll see over the coming months
and maybe Google will be more open. In the meantime, we lack good data and
that saddens me because I like data.

~~~
sami36
you're making a whole lot of assumptions there. I'm not sure all of them pass
the test of reality.

1- How about the Nexus 7. it sells for 200 $, built by another vendor. There
are no carriers in that equation, is it also being sold at a loss or near
break-even ?

2- How big of a margin do you need before you deem a business profitable. AAPL
has margins in the 40~45%, I don't know about Samsung but the've just released
quarterly results indicating record profits. if a business operates at 7%
profit margins, would you describe them as pursuing a loss leader strategy ?
countless public companies are doing just fine with those margins. What if
it's just high time in this stabilizing/ somewhat mature business for the very
fat operating margins to come down.

3- the 649 $ price point makes it impossible to have competition because
nobody (or very few) would pay that for a handset, thus the carrier/ subsidy
model longevity. WHAT IF that 299/349 $ price is just the sweet spot that is
needed to unleash true competition between devices without the interference of
carriers & Google were simply blindsided by the success of the Nexus 4.

4-How about the fact that the Nexus devices come without skinning. don't
underestimate the cost that goes into that exercise (however misguided, in my
opinion.) It also indirectly lowers the cost of the device by putting less
pressure on choosing (powerful) hardware components sue to the extra-lean
nature of the OS.

~~~
beagle3
> 1- How about the Nexus 7, is it also being sold at a loss or near break-even
> ?

Reportedly break even. It is not surprising that a mobile phone costs more (in
the same way that for a very long time, a laptop cost more than an equivalent
desktop+screen: less forgiving constrains make a more expensive product).

> How big of a margin do you need before you deem a business profitable.

positive. Really, that's what profitable means: positive profit, regardless of
percentage.

> if a business operates at 7% profit margins, would you describe them as
> pursuing a loss leader strategy ?

Loss leader has some gray areas, but basically: If something is sold at below-
marginal-cost: (bill of materials + cost of assembly + cost of shipping + cost
of support), then it is a loss leader, otherwise it is usually not considered
one. The uncertainty comes from R&D cost attribution, which is subjective.

> the 649 $ price point makes it impossible to have competition because nobody
> (or very few) would pay that for a handset, thus the carrier/ subsidy model
> longevity

And yet, most of Europe manages that easily. You have to revise your axioms,
as they are inconsistent with evidence.

> How about the fact that the Nexus devices come without skinning. don't
> underestimate the cost that goes into that exercise

Ok, what's the price you'd put on that? $1M would be super generous in my
opinion, which would translate to a couple of dollars per device in the long
run for the likes of Samsung or LG.

~~~
sami36
>And yet, most of Europe manages that easily. You have to revise your axioms,
as they are inconsistent with evidence.

What's the % of smartphones in Europe that are sold at full price ? Please.

> Ok, what's the price you'd put on that? $1M would be super generous in my
> opinion

That's a laughable number. That's the cost of 8 senior Devs per year. Samsung
has hundreds of people working on their skins.

~~~
beagle3
> What's the % of smartphones in Europe that are sold at full price ? Please.

Most, in some countries all. Many of them come with a loan (so you pay $200
upfront for a $600 phone, and then $30/month for 20 months) , but unlike in
the US, it's a line item; you can pay it upfront and not suffer any
disadvantage. (I've tried to pay for me iphone with verizon upfront; it would
have been $400-$500 more than on a 2-year plan).

> That's a laughable number. That's the cost of 8 senior Devs per year.
> Samsung has hundreds of people working on their skins.

Well, they should be more efficient then. There's no reason it would take so
much man power.

~~~
sami36
>".. with a loan..." I rest my case. that still obscures the full price of a
transaction. interest is involved, different payment plans are presented,
repayment modalities are different. That does not comport with your earlier
claim that Europe does it without subsidies.

>Well, they should be more efficient then. There's no reason it would take so
much man power.

or you could be more thoughtful instead of throwing completely made-up numbers
just to support some wild assertion of yours.

~~~
beagle3
> I rest my case. that still obscures the full price of a transaction.
> interest is involved, different payment plans are presented, repayment
> modalities are different. That does not comport with your earlier claim that
> Europe does it without subsidies.

Then you should look up the definition of subsidy in the dictionary, and don't
rest so quickly. That's exactly like saying that if you pay for it upfront
with a credit card (in the US) then you aren't really paying upfront, because
you didn't put any money down at that point (and might not in a year,
depending on how you manage your credit).

Last I checked (which was a couple of years ago), in Germany, the UK, Finland
and few other countries that aren't the US, you didn't pay less if you signed
up for two years in advance - in some cases (Finland, I think, and recently
also Israel) it's actually against the law to do so.

> or you could be more thoughtful instead of throwing completely made-up
> numbers just to support some wild assertion of yours.

I've managed projects that are somewhat comparable. I had three designers
doing skin design for branded apps, and they were spewing very high quality
skins at the rate of 1 skin / 1 week / 1 designer. Now, that was only the
graphic design. I'm aware that samsung/HTC skins also involve lots of
functionality "skinning", and they cover a lot more than the few different
screens/modalities of those apps (10 or so per app). However, If they have
hundreds of people doing these skins, they ARE being inefficient.

(And you know what? They can afford to be, they don't need to be as picky as I
was hiring people. But that does not mean they can't do that at a small
percent of the budget they actually have. A few hundred people is ALL of the
Google Android team ("default skin", apps, kernel, drivers, userspace,
testing, integration, security, ...). It can't find numbers right now, but it
was 200 in 2010.

~~~
sami36
1- at this point, you're just arguing semantics. Whether the subsidy takes the
form of a loan or an ETF, it's all the same.

2-you've managed 3 designers for an app or a website & you extrapolate on the
basis of that experience to ballpark the effort needed to build an Android
skin ? I'm done arguing with you. Look, the fact that you've mentioned the 1
Mil $ number leaves me highly doubtful of any (meaningful) real life
experience budgeting for software projects. the average corporate cost for a
corp project I've worked on is in the double digits (Mil) & we're talking
basic internal-facing enterprise apps.

We were at, yes, the Nexus 4 is a great device. Can we at least agree about
that ?

~~~
beagle3
> We were at, yes, the Nexus 4 is a great device. Can we at least agree about
> that ?

Yes. However ...

1 - No, you don't get to redefine terms how you want. You're entitled to your
own opinion, but not to your own definitions or your own facts.

Loss leader is mostly well defined (and no, it's not "7% profit" or whatever
it is you asked). Similarly, subsidy is well defined - it is a lower price
than cost. And there's a huge difference between an ETF and a loan. There is a
very simple test:

Get a two year plan at verizon (or at&t). Use phone. Note cost.

Get same phone and equivalent plan without commitment (paying for phone up-
front, and month-to-month). Use phone exactly the same. Note cost. The first
one is always cheaper with at&t and verizon (though not with t-mobile)

Do same in Europe, with e.g. vodaphone, three, etc. And note that - up to
financing, costs are the same (and you can get comparable financing from a
bank).

2 - I actually haven't used any android skin, because everyone I know uses
either plain Android or CM (don't have android myself). But from looking it up
in e.g. [http://us.gizmodo.com/5921220/every-major-android-skin-
compa...](http://us.gizmodo.com/5921220/every-major-android-skin-compared) ,
it seems that actually my experience (which was a Win95/Win98 client, with
tens of thousands of installs, and pervasive skinning, back in 99-2001) is
extremely relevant.

Please enlighten me, because from what I can tell, an android skin is
comparable to an enlightenment/gtk/thunderbird skin, plus 4-5 app
customizations (people, calendar, notification, maybe a few more). That can
totally be done in under $1M. Actually, under $200K if managed properly.

And I'm totally unimpressed by the multimillion cost at enterprises; I know
it's there, and I know I've replaced such multimillion dollar projects with
hundreds-of-thousands dollar projects that performed better (and were still
very lucrative). I've also bought better hardware at 10% of the price than
some enterprises I've worked with. They do NOT optimize for cost; they
optimize for CYA.

I've also helped a friend run a VLSI design project that got working tape-outs
of a designed-from-scratch processor, all costs included, for $200K in 2005.
Everyone you'll ask will tell you that it's impossible. And they'd all be
right in their respective frame of mind -- but would be wrong in the real
world
([http://www.reghardware.com/2012/05/03/unsung_heroes_of_tech_...](http://www.reghardware.com/2012/05/03/unsung_heroes_of_tech_arm_creators_sophie_wilson_and_steve_furber/print.html)
is enlightening, although our project was not as commercially successful)

You might have spent too much time in the enterprise business to realize just
how inefficient it is on that front. I probably have more real life experience
running and budgeting software (and other) projects than you do: I've done
many scales and many environments, software and hardware, not just "corporate
and double digit (mil)".

------
snogglethorpe
there was a nexus 4 debacle?

[EDIT: the HN headline has now been changed, so my comment seems a bit odd
now, but the article headline, and the original HN headline, is/was "What Will
Google Learn From the Nexus 4 Debacle?"]

~~~
alanctgardner2
As someone who ended up on the three-week backorder list, there was quite a
debacle. Mostly around Google's inability to communicate, both internally and
externally. Their staff is inconsistent at best about anything beyond toeing
the party line, which is "they'll ship when they ship". Because they aren't
communicating with backordered users, and they're not providing any way to
pre-order, they've completely blown this holiday shopping season (just as the
article predicts). The Apple way through this would be to berate us for being
impatient, but at least they'd be talking. And they'd certainly be taking
emails and cash now for phones later.

~~~
micampe
_> The Apple way through this would be to berate us for being impatient, but
at least they'd be talking. And they'd certainly be taking emails and cash now
for phones later._

When you order something from Apple you get charged only when it ships.

~~~
alanctgardner2
Yes, but you capture credit card information. Google has restricted their
runway of guaranteed sales to the end of the month. Once they charge everyone
on backorder's credit card, then they need to go through another cataclysmic
round of sales. Rather than keeping the system open, giving realistic
estimates and letting people hand over credit card details ahead of time.

------
Tichy
A friend of mine is desperately waiting for a 27'' iMac to become available.
You can't order those from Apple yet. So Apple is not necessarily doing it
smarter than Google. Probably they simply can project when iPhone 5s will be
available again, whereas they can't project availability of iMacs, and Google
can't project availability of significant numbers of N4s.

I suppose it is a fine line to walk: you could of course always accept orders
and just queue them indefinitely. But after a certain period of time, people
who have ordered and don't get anything might feel even more angry than people
who can't order to begin with.

------
mark_integerdsv
Full disclosure: I'm not really that interested in stuff like this so I've not
even dug around looking for this but what is the _number_ of phones that sold
out?

It just feels like shoddy journalism and more sensationalist nonsense in the
Apple/Android fiasco.

So, _how many units?_

Seriously: they could have sold 10 of these things thus far and everything I
have bothered to read on the topic would still be technically correct.

The fact that they are not making money on Android is cold comfort for those
of us who bought into the promise of free ad supported hardware and calls that
was the initial vision for Android. Instead of that massively disruptive brave
new future we have a slew of, let's face it: shittyarse phones that look like
they came with a Happy Meal and a stupid patent war.

Apple are no angels here but Google: you lied. Make good on that promise or
shut up. Oh, and thanks for partnering with providers and screwing us on Net
Neutrality in the process too...

~~~
orangecat
_The fact that they are not making money on Android is cold comfort for those
of us who bought into the promise of free ad supported hardware and calls that
was the initial vision for Android._

When did Google or anyone else ever promise that?

------
nikster
I think Google probably knew its target market - Americans tech savy enough to
know about locked/unlocked phones and subsidized/unsubsidized prices. That's
not too many people - but to those people the Nexus 4 is incredible value.

What I think they didn't anticipate is that there'd be a huge demand world-
wide. In other places where phones are sold unsubsidized, coming in with the
Nexus4 is like christmas and easter on the same day, unbelievable value, and
surely there's a buck to be made selling this phone at a slight markup on
those places. The iPhone grey market shows that great numbers will move even
if the profit is only $100 per phone.

------
lazydon
Anybody aware when will nexus 4 be available again for purchase? All I saw
last was an official Google+ update that mentioned 3-4 weeks. (yes, whatever
Google tried to do with limited stocks in first batch worked on me)

------
zalew
> well, there won't be a Black Friday bump in Nexus 4 sales. The darn thing
> sold out on Thanksgiving instead.

oh noes. is it like the movie industry, where the only thing that matters is
the opening day?

------
georgehaake
Nice hardware. So is my Galaxy Nexus. I am pretty darn attached to that phone.

~~~
trimbo
Me too. I'm seriously considering the Nexus 4 but I'm not sure I want to give
up the awesome saturation of AMOLED on my GN.

------
romnempire
uh, cheap thing sell good?

------
michaelnovati
limiting supply to cause extra hype? that it works! except nintendo's been
doing it for years

~~~
whatusername
Only in the US. In Australia and the rest of the world -- after the first
month or 2 you could go and buy a dozen wii's in any store.

