When Google announced the Galaxy S4 “Google Edition” phone at I/O last week, people in the audience didn’t really know how to respond to that, and that has probably a lot more to do with their expectations than what the phone should really cost.
I think Google make a mistake last year when they priced the Nexus 4 at $300, for several reasons. One of them is that the low price caused a huge demand that they didn’t expect, which made it so the Nexus 4 was mostly out of stock for the first 4 months or so, after launch. This was obviously a missed opportunity for Google, because if they priced the Nexus 4 so low so they can sell a lot of them, they clearly failed in that, because they weren’t actually prepared to sell a lot of them.
The second mistake was that the phone was $300 only in US. Outside of US, it cost pretty much the same as you’d expect such a phone to cost – around double that price, or even more if you take into account the VAT and other taxes in European countries. So then the “cheap” Nexus 4 was only really targeted at Americans. But for a phone targeted at Americans, it didn’t even have LTE. So again, a pretty confusing strategy here.
The third mistake, and probably the most damaging one, is that they taught people to expect devices that are like 80% of the quality/specs of a “high-end” device, but for 50% of the price. So of course that when Google announced what was basically another “Nexus”, most of them were pretty “shocked” that it actually cost as much as the same phone from Samsung with Nature UX UI costs (the regular S4).
The regular unlocked Galaxy S4 costs the same $650, and considering Google changed nothing in the hardware, but just the software, there was no reason to believe the Galaxy S4 Nexus would cost any less, unless you were expecting Google to subsidize it. But that’s a really poor strategy for Google in the long term, because it sets people’s expectations that they can only ever buy “cheap” hardware from Google.
Google bought Motorola, and they will need to turn that company into a profitable division of theirs soon. They can’t continue to sell hardware for almost half the price of what it’s worth. Otherwise they’ll never make any money on hardware, and I do think Google intends to become a full hardware company, too, and make not just profitable Android devices, but also Google Glasses, Chromebooks and so on.
Plus, I really want Google to make the best devices they can possibly make, even if they cost $800 unlocked – as long as they are mind-blowing. If they keep having to think about the price all the time, they will have to compromise in a lot of places. That’s also one of the reasons why although the Nexus 4 was extremely good value for the money, you couldn’t easily say “it’s the best phone out there”, at least not in terms of hardware. Google should be able to make the best phone out there, with no sacrifices to cut costs.