Here's The Big Reason Why Google Will Make And Sell Its Own Phones

android secret shhh

Photo: Dylan Love

An interesting stat came out in the Oracle-Google trial today: in 2009 and 2010, Google’s revenue from Android was far smaller than its internal projections.You can see details in the slide below, which Oracle got admitted as evidence.

The big reason for the shortfall was that direct to consumer (DTC) revenue was much smaller than expected — $125 million short of expectations in the first five months of 2010, and an estimated $445 million short for the year.

Originally, Google sold the Nexus One directly to consumers through its Web store, allowing them to choose their own carrier.

But Google changed direction in May after sales were low. At the time, Google boss Andy Rubin wrote “it’s clear that many customers like a hands-on experience before buying a phone, and they also want a wide range of service plans to chose from.”

So it didn’t work. But if it had, Google would have made a lot more money from Android.

Nexus One DTC sales were supposed to account for $561 million in revenue. But after Google changed course, it lowered its forecast to $115 million in revenue.

Cancelling the DTC model also killed margins for Android. Google originally expected to lose $38 million on Android in 2010. After cancelling the DTC model, Google predicted it would lose $113 million.

In other words, the failure of the Nexus One direct-to-consumer model cost Google almost $450 million in lost revenue and $75 million in lost profits.

Flash forward two years. Just yesterday, Google announced that it would begin selling the new Samsung Galaxy Nexus through Google Play, its new online store.

Google is also buying Motorola, and sources tell us that Google wants to follow the Apple model of making and selling its own phones.

Of course they will. In addition to solving a bunch of other problems — like ending fragmentation and helping to push other Google services — the business opportunity is too big to ignore.

Just ask Apple.

Google might fail again, but it has to try.

Here’s the chart. DTC is “direct to consumer.”

google slide deck 5

Photo: via The Verge

 

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