January 08, 2010 11:27
Internet giant Google has jumped into the mobile phone market with the introduction this week of its first handset. Called the Nexus One, the phone is manufactured by a Taiwanese company and runs Google's own Android operating system. It is optimized to utilize Google applications and services like map navigation, e-mail, address book and Youtube. It also has superior voice-recognition capabilities that enable easy voice dialing, Internet and map search functions, and allows users to link to their Twitter and Facebook pages.
Until now customers have been able to purchase cell phones only through mobile service providers. When they switch providers they have to buy a new phone, as phones have built-in locks that enable them to work with only the specified network. Handset subsidies are offered, but they must commit to a contract that requires them to use the service for a certain period. Google is changing all this and is selling its phone itself. The Nexus One has no built-in lock, allowing users to choose whichever service they like.
Since it doesn't come with a subsidy, the Nexus One is more expensive than phones sold by mobile operators, but the price should go down as sales increase. Google has said it will not profit from sales of the phone. Rather, its strategy is to sell as many phones as cheaply as possible and make money from ads on its Internet search engine and other services.
This is expected to change the very landscape of the mobile communications industry. The days of mobile operators controlling prices will likely come to an end soon. With customers able to freely choose the cheapest service, telecom companies will see their role shrink to mere suppliers of cellular networks and their profits drop accordingly. As companies like Apple and Google expand into the handset market with their own software, existing handset manufacturers will see their powers diminish as well. In 2009 Samsung and LG Electronics boosted their shares of the global cell phone market to the 30-percent level for the first time and pulled in record earnings. But they account for no more than 5 percent of the world smartphone market. They may be riding high now, but there is no telling when they might be knocked out of the saddle. The only way to survive is to innovate, innovate, and innovate.
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