Google's direct-to-consumer strategy not off to a good start

Google is offering a test of whether an outside player can offer mobile phones directly to the consumer. So far, its effort doesn't look impressive.

Last week, the search giant unveiled the HTC-built Nexus One, making it available directly from Google on a hosted website for either $529 unlocked or $179 tied to a contract with T-Mobile USA. The goal: Establishing a new direct-to-consumer sales channel to sell mobile phones, multimedia content, Android Market applications and accessories.

But Google's move doesn't seem well thought out. No direct customer support from Google by phone is available, and users have to wait up to three days to get their Nexus One questions answered via email, the company acknowledged. T-Mobile is helpless because Google is the only one selling the device. Ridiculous.

Some readers emailed me to say they couldn't even buy the phone online because the server was too busy. One reader said he was told online that he didn't meet the credit requirements to have a T-Mobile account. He then called T-Mobile to confirm that indeed his credit was good, but T-Mobile couldn't help him with that product. He gave up buying the phone. There are plenty of other complaints on Nexus One user forums detailing how people were bounced between HTC and T-Mobile for help.

Moreover, T-Mobile and Google have acknowledged that some Nexus One users are having trouble connecting to T-Mobile's 3G network or are fluctuating between its 3G and EDGE network. T-Mobile said it is investigating the issue.

I also question whether consumers really want to buy the Nexus One unlocked for $529 when their only other network option is AT&T's EDGE network (the Nexus One doesn't support AT&T's 3G frequencies). Would you rather use what Google calls a "superphone" on T-Mobile's HSPA 7.2 network or AT&T Mobility's slower EDGE network, which averages about 100 Kbps? Of course, there may be customers who simply want the freedom of a no-contract option on T-Mobile. (But operators already offer unsubsidized versions of phones with few takers.)

A couple of other unsavory pieces: Since the phone is being marketed online, customers cannot physically touch the device before purchasing it. However, according to Google and T-Mobile's terms of service, if a customer buys the Nexus One and cancels the service within 120 days, they will be hit with $550 in early termination fees--$350 from Google and $200 from T-Mobile.

Will Google succeed with its direct-to-consumer model? The Nexus One is an impressive device, but it isn't that much of a must-have to ignore these shortcomings. If Google believes it simply can be a mobile device merchandiser over the Internet, it is in for a rude awakening. It has to put more skin in the game. Is that a path it is prepared to take? Google's Andy Rubin reminded us that the company's primary business is advertising, not retailing.

Interestingly, Rubin, director of mobile platforms, said that over time the company thinks it will be able to lower the cost of devices and service plans because it doesn't have the outside marketing costs and merchandising costs operators have. I'm not quite sure how the company believes it will be able to drive down the cost of service plans unless it throws an advertising element in there or adopts an MVNO strategy. Perhaps it believes it can create enough competition to drive down service plans.

Google is certainly one of the right players to get this direct-to-consumer model moving, but you have to wonder if the idea won't get mired down in logistics that Google doesn't want to play in. --Lynnette