What Google’s Nexus One Can Teach Us about E-Commerce

The Nexus One might be Google’s most extraordinary flop yet.

The phone itself was great, with excellent hardware and functionality, but the e-commerce strategy Google attempted to employ failed miserably, with their online store closing less than eight months after opening.

But as with any great success or failure, a lot can be learned by studying what they did. There’s plenty to study too, given the intense media coverage the Nexus One got from the time it was announced until after the store closed last month.

Here are some important lessons Google has offered through their own process of trial and error.

Excellent Customer Service at Launch is Vital

When the Nexus One (N1) came out, Google only offered customer support online, primarily through their user forums and online knowledge base. There was no phone number or other contact method available. It was the same system they offered for most of their products, and it seemed to be working fine, so they figured, "Why change it?"

But most of those products didn’t cost $530.

When you’re using a free app, or even one that costs $50-$100 per year, you may be content with only email tech support or live chat. But you’re going to shell out 10 times that amount, you want the ability to talk to a live person.

Besides, what are you supposed to do if your phone breaks down? You don’t want to wait two or three days for someone to get back to you by e-mail or in the forums. You want to call somebody and take care of the problem right now.

They tried to fix the problem and deliver phone service a month later, but it was too late. A lot of potential customers had already bought a different phone or lost faith in the N1.

And who knows how many millions it cost them?

A Big Brand Doesn’t Solve Everything

The N1 was released in the beginning of January of 2010. At that time, the first really big, mainstream Android-based phones (the Motorola Droid and the HTC Eris) had only been out for two months.

Sure, there had been other phones running on Android prior to that, but they hadn’t gained much market share. Your average smartphone consumer still hadn’t heard of Android.

Google seemed to believe it didn’t matter. They assumed the strength of the Google brand would be enough to make the sale, that people would buy something just because it was from Google.

But it wasn’t true. In the early days, Android was still a relatively techie platform and most people weren’t even aware Google had anything to do with it.

Without the name recognition Android now has, they were fighting an uphill battle. Combined with their poor initial customer service and support strategy, it was just too much doubt for a lot of consumers to overcome.

You Shouldn’t Revolutionize Everything

Always the revolutionary company, Google openly claimed they wanted to reinvent the way cell phones are sold.

They wanted to eliminate distributors. They wanted to end the tyranny of long-term contracts. They wanted to bring cell phones directly to the consumer.

There was only one problem: without subsidies from carriers, the unlocked version of the phone was over $500. There was only one mobile carrier in the U.S., T-Mobile, that offered any kind of discount.

And that made the phone look expensive.

We don’t view smartphones as being worth $500+, because we rarely pay that much for them. We’re used to signing contracts with carriers and getting subsidies, which make the phones much cheaper.

What Google was trying to do was definitely revolutionary, but the problem was the customer couldn’t find a benefit. In fact, from the view of many customers, the new system was inferior to the old one. They were having to pay a lot more for the phone.

What about Other Expensive Smartphones?

I’m sure some will argue that the unsubsidized price of the N1 couldn’t have hurt its sales that much. After all, the original iPhone was priced at $499 or $599, depending on the storage capacity. And that sold just fine.

The big difference here comes down to reputation.

Google obviously has as much name recognition as Apple (probably more in some circles), but they’d been associated with a hardware release before. Sure, they had hundreds of millions of users worldwide, but those were users of free and low-cost products.

Apple, on the other hand, had a proven track record of both hardware and software releases. They had a fan base that was used to paying premium prices for their products and had no problem doing so. Apple was able to leverage this to overcome the high initial price of the iPhone.

The other thing Apple had going for it with the original iPhone was how revolutionary it was. Previous touch screen phones hadn’t worked very well, and none of them had the functionality of the iPhone. Plus, it looked and felt like a premium product, which helped it justify the higher price tag.

The Nexus One, while a great phone, didn’t have the name recognition and wasn’t that revolutionary. It had the best hardware of any Android phone released to date, but besides being more powerful, the overall package just wasn’t that different from the Android phones already out there..

What Could They Have Done Differently?

There are a number of things Google could have done differently that would have greatly increased the chances for success of the N1.

The first would have been building up more recognition for the Android platform prior to trying such a radical strategy. With more name recognition, the N1 would have been starting from a much stronger position and would have had an easier time gaining market share.

A better-thought-out customer service strategy also would have been a big help. Google has a long history of offering primarily web-based support, but that doesn’t carry over well to such an expensive product, as they found out. If they’d offered phone support from day one, they likely would have had more success.

They should’ve also paid more attention to the pricing preferences of their customers. Sure, most people would prefer an unlocked phone, but only a tiny fraction of them are willing to pay double or triple for their phone to get it. If they’d offered partnerships with mobile carriers from the beginning, things might have turned out quite differently.

Is Google Doomed for Failure with Cell Phones?

I don’t think so.

If there’s anything we’ve come to expect from Google, it’s that they learn from their failures as much as anyone else. I wouldn’t be surprised if they make another attempt in the future with a revised sales startegy that addresses the issues covered here. Maybe they’ll even attempt to revolutionize a different part of the industry.

But what do you think?

Have other insights into what Google could have done to make their online N1 store more successful? Anything else they did wrong? Are there features you’d like to see?

Share your thoughts in the comments!

  1. I think the title of this blogpost is way off. It should be something like: “What the N1 tells us about Google’s arrogance”. Yes, I agree nice phone/platform, crappy or non-existent customer service. On the other hand, I think Google was testing a design concept that will not work as long as Apple, RIM and other major smartphone makers allow the carriers to subsidize the purchase cost by signing up to overpriced two year service contracts. This model works nicely overseas but cannot here in the US as the carriers still are in the drivers seat. Now if Apple offered an unlocked version of the iPhone, that would move the balance of power over to the handset makers, and allow for the Google N1s to have a better chance at success. Until then, 2 year contracts will remain the center of the smartphone universe, much to my disdain.

  2. This is a great write-up and good information that Google should’ve used. I wanted to make some corrections in what you stated. You said that Google did not provide support via phone and only relied on forums and online knowledge base. This is incorrect, Google did have a toll-free number which owners can call to get phone support. I for one used it twice to confirm several pieces of information including Canadian Wireless carrier APN settings which I could use as well as information about warranty status and updates.

    Cheers!

    • Cameron Chapman Aug 09, 2010 at 10:01 am

      Google added toll free phone support about a month after the N1 was launched, because their original plan of offering only online support wasn’t working well. When the N1 first launched, though, online support was the only thing offered by Google. HTC and T-Mobile both offered their regular phone support for hardware and calling plan issues/questions from the launch date.

  3. You would be spot on with your analysis, if Google’s goal was to create a new sales channel and sell a ton of N1s.

    However, it wasn’t.

    As you mentioned, when the Nexus One first came out the only Android phones of note were the Motorola Droid and the HTC Eris, two woefully underpowered phones. Had the N1 not come out, we would still likely be at that level. Google released the N1 as a reference model to get manufacturers to up their game, and judging by the Droid X and the EVO, they succeeded.

    While their online store is now closed, the N1 is still available to developers, who know that it will get the earliest updates and be free from carrier modifications.

  4. Cameron,

    I just want to extend one point you mentioned about Google only offering online support that had been working fine for other services.

    Not quiet true. There is growing frustration and displeasure with Google’s form of support.

    For several reasons:

    1: If you have a problem, you can;t actually get in touch directly with anyone at Google to fix the problem straightaway. You have to wait until some anonymous person who hopefully knows what they are doing gives you an answer.

    And a lot of the time you simply don’t get a solution.

    2: For some services, you can speak to “:Authorized consultants” but their rate is around $250 an hour, which may seem expensive when all you want is for the service to work.

    Given that hundreds of thousands of people have experienced this poor level of customer service, it’s probably no wonder many people were leery of buying a high value product from Google, ‘cos Google has consistently demonstrated that it just doesn’t get customer service.

    Google is already being called the new Microsoft because of this.

    It is a victim of it’s own lack of care for it’s customers.

    • Cameron Chapman Aug 09, 2010 at 5:47 pm

      Those are good points. With a free service, people don’t necessarily expect spectacular customer service. But the instant money is exchanged, those expectations change. Google (and all companies) need to anticipate what level of customer service their customers will expect from them and then prepare accordingly.

  5. John Sullivan Aug 09, 2010 at 5:59 pm

    Great article… your other articles are great as well! I just recently started getting your emails. Now I am looking forward to them. Good stuff, not just pushing your product, but giving me something worthwhile to read and improve on. I really appreciate that, keep up the great work!

  6. There’s a fine price point that’s talked about in terms of ecommerce and price points. $500 is def. Not it. I think it’s around the 75 dollar mark if I recall.

  7. “A Big Brand Doesn’t Solve Everything”. For me this is the key point. Google assumed that it doesn’t matter but in the end it did. Even Apple can have failure so assumptions should be made very carefully..

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