Google Shifts into Online Retailing

Google Inc.'s (GOOG) Nexus One marks more than the company's entrance into mobile phones: It propels the Internet search engine into online retailing for the first time.

Google yesterday started selling the Nexus One, a phone manufactured by HTC Corp. that uses the Android mobile operating system. The Mountain View, California-based company will also offer other devices that use Android, such as phones from Motorola Inc. (MOT)

By selling directly, Google can forge closer ties to consumers, potentially allowing the company to offer other products and services in the future, said Will Stofega, an analyst at Framingham, Massachusetts-based research firm IDC. Offering a range of Android phones may also spur the development of applications for the software as Google tries to catch up with Apple Inc. (AAPL)

"Once they hold the customer relationship, the opportunity to make money off this relationship increases exponentially," Stofega said.

Nexus One will be carried by T-Mobile USA, the U.S. mobile-phone division of Deutsche Telekom AG. The device will be available on Verizon Wireless later this year. The phone is also available without a contract (VZ).

Motorola, which already sells phones based on Google's Android, isn't concerned about Google's plan for online commerce, co-Chief Executive Officer Sanjay Jha said at Google's event.

Marketplace Expansion"We just see this as another way of getting to consumers," Jha said. "I don't see this as a threat; this is potentially an expansion of the marketplace."

Google fell $2.76 to $623.99 yesterday in Nasdaq Stock Market trading. The shares doubled last year.

Michael Burton, an analyst at New York-based FBN Securities, said handset vendors and Google itself may gain additional exposure for Android phones.

"Google knows that it needs to dramatically increase the number of devices running Android to encourage more active development of applications—in addition, any consumer excitement around this phone launch is likely going to augment the growing awareness of Android as a real competitor to the Apple ecosystem," Burton wrote in a research note.

Google said its store is designed to encourage adoption of the Android operating system and benefit wireless carriers that support the Nexus One.

One challenge for Google may be providing customer service to buyers who are having problems with their phones, Stofega said. "There's going to be a learning curve here," he said.

Google said yesterday that it's in talks to get other carriers onto its site.

Big Winners"We hope that by partnering with us in offering the Nexus One and future phones from Google, operators will be able to drive even more customers to their network and will be able of offer their customers another innovative Android device," said Katie Watson, Google spokeswoman.

"Many people who go to buy the Nexus phone will be able to look at other phones as well," from other manufacturers and carriers, said Julien Blin, an analyst at Los Angeles-based JBB Research, which covers the telecommunications industry. "The big winner here is Android and Google."

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