At the beginning of the year, Supply Chain Matters commented on Google’s direct entry into the smartphone market by announcing the Nexus One phone, which was to be sold in an ‘unlocked state, available for use by consumers who would activate the phone with any wireless mobile telecommunications carrier of choice. We contexted Google’s market entry as an attempt to disinter mediate existing smartphone distribution and selling channels. We also questioned whether a significant number of consumers would be willing to pay in excess of $500 in order to procure an independent phone.  From the get go, Google experienced multiple issues related to consumer difficulties in purchasing and activating phones.  Questions were also raised on the deployment of a worldwide order channel and on consumer’s ability to easily obtain service, and contract manufacturer HTC was placed in a rather challenging position to be able to support all of these needs  from Google.

In May, Google announced that it was shutting down its worldwide Internet ordering site and would sell the Nexus One in Europe utilizing the channel of wireless provider Vodafone. Speculation from industry analysts was that Google had sold just 135,000 phones at that point.  We commented that Google’s ill conceived product marketing strategy coupled with a not well thought out supply chain fulfillment and channel partner strategy had all come home to roost.  We also stated that Google needed to invest in the processes, capabilities and people who understand all the tenets of responsive global supply chain management vs. just being disruptive for the sake of making a statement.

To close out this experiment, Google has now quietly announced via its Nexus One blog that it is discontinuing the Nexus One altogether, except for a few select markets. Google notes that customer support will still be available for current Nexus One customers. Nexus One will continue to be sold by partners including Vodafone in Europe, KT in Korea, and possibly others based on local market conditions.  The experiment of smartphone independence has come to an end, at least for now.

Perhaps this entire episode should be characterized as Google meets the reality of creating conflict in channel marketing and distribution, along with the realities of a web-based worldwide order fulfillment capability. The intent was noble, but the execution was not.

Another lesson in that age-old and tested principle, “the devil is in the details”.

Bob Ferrari

At the beginning of January, Supply Chain Matters commented on certain signs of supply chain structural changes that were being attempted by noted disruptors Google and Walmart. We specifically observed how Google, having muscled its way into branded smartphones announced that it planned to sell such phones directly to consumers, bypassing major carriers and electronics retailers.  By establishing an online store, Google planned to offer an ‘unlocked version’ of its Nexus One phone for $529 which consumers could purchase and later enable with a wireless carrier of choice.

From the get go, Google experienced multiple issues related to consumer difficulties in purchasing and activating phones.  Google’s worldwide contract manufacturer, HTC of Taiwan, was also placed in a rather difficult position to attempt to support worldwide fulfillment and returns generated from online store purchases.  Now, nearly four months later, the initial results of this attempted disintermediation are presenting themselves.  A recent Financial Times article, Google backtracks on phone strategy, (free preview sign-up or subscription required) indicates that the company has decided to sell the Nexus One in Europe through mobile operators rather than its online store. A Google spokesperson notes: “We have decided that the best and fastest way to get Nexus One into the hands of European consumers is through our partners.” The article further quotes industry analysts as noting that the wireless carriers can make or break a device, and Google is not an exception. One analyst speculated that Google sold just 135,000 units in the first 64 days.  Google is of course, refusing to disclose any sales numbers.

In a related development,  a posting on SiliconValley.com notes that Google indicated that it is dropping plans to produce a version of its Nexus One smartphone for Verizon Wireless, the U.S.’s largest mobile carrier. A Google spokesperson noted that the new Droid Incredible, a smartphone Verizon will begin offering this week with the same Android operating system and made by the same manufacturer as the Nexus One, made production of a Nexus One for Verizon superfluous.

In our view, Google’s ill conceived product marketing strategy coupled with a not well thought out supply chain fulfillment and channel partner strategy have all come home to roost.  I suppose it would not shock readers if I described Google as “arrogant” but attempting to go it alone in worldwide distribution and marketing of smartphones tips arrogance to a new dimension.  Google needs to invest in people who understand all the tenets of responsive global supply chain management vs. just being disruptive for the sake of making a statement.

Bob Ferrari

No sooner has 2010 begun and we find evidence of large industry influencers embarking on the first steps toward what could ultimately become significant disintermediation and power change within industry supply chains.

This week’s two significant evidence points were a Wal-Mart announcement related to how it intends to cut additional billions of dollars of costs from its supply chain, and Google‘s announcement concerning its newly launched Nexus One smartphone.

Significant supply chain implications tend to always start with Wal-Mart, since its initiatives often cascade to other industries related to consumer goods.  According to a Financial Times article, (promotional free sign-up account may be required) the retail giant intends to combine its store purchasing efforts across major geographic boundaries.  The effort is described as a plan to consolidate global sourcing of supplier purchases by going supplier direct rather than utilizing third-party procurement companies or suppliers.  Wal-Mart plans to leverage purchase volumes for global distribution to its stores, rather than a current country-by-country approach.  The report notes that Wal-Mart has already established four global merchandising procurement centers for clothing and general goods, and is in the early process of shifting to global-wide direct purchasing of fresh fruit and vegetables, starting with North America.

Google, well known for its disruptive tendencies, who has of late muscled its way into branded smartphones, announced this week that it plans to sell phones directly to consumers, bypassing major wireless carriers and electronics retailers.  By establishing its own online store, Google will offer an “unlocked version” of its new Nexus One phone for $529, which consumers can directly purchase and later enable with a wireless carrier of choice that supports Google’s wireless technology.  Of course, there will be options to purchase “subsidized” Nexus phones, starting with a $199 plan offered by T-Mobile, but the initial blogsphere consensus is that Google’s intent is to ultimately challenge the traditional mobile phone distribution model through wireless carriers. One of the better initial analyses comes from Renay San Miguel in an Ecommerce Times article, What’s Behind Google’s Strange Nexus One Sales Strategy?

I’m sure that Supply Chain Matters readers can provide more than enough commentary regarding the pros and cons related to either of these noted initiatives. 

In the Wal-Mart case, there can be comments related to the overall risk of global-level procurement, risk related to consistency of quality, adherence to governmental inspection standards for fruits and vegetables, or responsive processes in the event of a product recall.  What happens for instance if a salmonella infected fruit or vegetable needs to be backward traced through the supply chain? Will Wal-Mart assume primary risk as the primary purchaser and distributor of goods?

In the case of Google, we can certainly debate the success or reward factors of any upstart who attempts to alienate the existing distribution thinking or network realities.  How will consumers be able to test-drive a phone, where does one go to repair or return a phone after you literally own that phone, and will global consumers be willing to shell out a large initial sum of money in order to avoid being locked into a specific carrier’s plan? Most important of all, how or who will Google partner with to deploy a worldwide order fulfillment network that can rival the likes of Amazon or Apple?

And let us certainly not forget a mention of what happens to all of the people employed by current intermediaries, since they represent the consumers of each of these vendors’ products in the long term. 

Many industry observers can point to the fact that major economic downturns, such as the recent global-wide recession, can often lead to new industry disrupters, companies who ride the recovery in an entirely different business model.   The first week of January 2010 should be referenced as the initial thrusts from two global giants to again be industry disrupters.  There will likely be others who follow, and time will tell how successful these efforts will become, or how disruptive they actually turn out to be.

We will no doubt have frequent updates during the year.  In the meantime, chime in with your own comments on how do you view these announcements?

 Bob Ferrari