Is it game over for Google's direct-to-consumer Nexus One plans?

Lynnette LunaA lot can happen in nearly four months. Just ask Google.

When Google introduced its high-end Nexus One Android-based smartphone complete with a direct-to-consumer sales strategy in January, it promised to reshape consumers' smartphone perceptions and fundamentally change the way handsets are purchased--a change that involved bypassing the operator altogether and challenging its own Android licensee handset vendors in the market.

Fast forward to the beginning of May, and you have to wonder if this direct-to-consumer model is already falling by the wayside. Aside from the early technical and customer support bugs, sales have come in significantly lower than expected because of basically no marketing efforts on behalf of Google and lukewarm operator support.  

Goldman Sachs was forced to swallow its pride in March when it cut sales projections for the Nexus One by 70 percent. It had initially expected 3.5 million devices to be sold in 2010. A report in mid-March from mobile analytics firm Flurry said Google had sold around 135,000 Nexus One units. Other estimates put that number at 500,000. Google, however, has declared the business as a profitable one, likely because it has put very few resources behind the effort.

However, it may be moves by two of the world's largest mobile operators--Verizon Wireless (NYSE: VZ) and Vodafone--that could put the nail in the coffin of Google's direct-to-consumer effort.

Late last week, Google revealed on its blog that it no longer planned to sell a version of the smartphone--long promised to debut in the spring--for use on Verizon Wireless' network. Instead, Google urged customers to buy the new HTC Droid Incredible from Verizon, which went on sale on Friday. Google described the Incredible as a cousin of the Nexus One that includes most of the same features.

In Europe, Vodafone has wrestled control away from Google. After delaying the launch of the Nexus One in key European markets, Vodafone will debut the phone this month, but through its own channels and under its own brand--not Google's online store. France's SFR is expected to do the same.

It appears Google's direct-to-consumer approach is dead in Europe. As other operators around the world witness Google backing down, the strategy could unravel with major operators elsewhere.

Google is currently selling the Nexus One for $529 unlocked on AT&T Mobility (NYSE: T) and T-Mobile USA's 3G networks. T-Mobile is the only operator that subsidizes the device for $179 when purchased with a contract. A Nexus One capable of operating on Sprint Nextel's CDMA network is also expected.

And the Nexus One, which was a very impressive device back in January, is losing its luster as vendors rapidly come out with 1 GHz devices that are just as impressive. Verizon's HTC Incredible sports most of the same features and runs over what is regarded as a better user interface, HTC's Sense, which now runs on all of HTC's high-end phones. Vodafone already has the HTC Desire. Interestingly, HTC was happy to build the Nexus One to use it as a platform for its own smartphones, and it is now leveraging that expertise to develop devices that are better than the Nexus One. Motorola (NASDAQ: MOT) certainly isn't sitting still as it aims for a big follow-up to the Droid. These are the types of devices getting all of the attention from operators.

With Google now backing down from its direct-to-consumer approach in Europe, you have to wonder what the point is anymore. This was supposed to be another tool for opening up the mobile Internet worldwide. Google is now in the same class as handset vendors, which, by the way, have attempted their own direct-to-consumer plays with mediocre success.

So you have to wonder if Google is going to expand its direct-to-consumer plans like it has previously indicated by selling more devices and widening its distribution--all with little to no marketing. It's a hard sell for a company that, well, just isn't Apple. --Lynnette

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