Google Phone Unlikely to Be Game-Changer

Other manufacturers have proven that the cost to make a high-tech phone is too high without a subsidy from a wireless company. Phones like the Apple iPhone and the Motorola Droid are pricey at $200 to $300 with a two-year service contract. Without the contract, they jump to about $600. Assuming that the Google Nexus One will have similarly high-tech components, selling the phone without a provider subsidy would prove difficult.

Some have suggested that Google, the king of digital ad placement, could subsidize the cost of the phone by selling advertising space in the phone's operating system, which would solve the cost problem and offer super-advanced functionality to advertisers. Users would have to decide whether the prospect of an ad-filled phone is worth the freedom of forgoing a long-term cell-phone contract.

The phone market has seen a glut of new phones released this year, yet none have dethroned the iPhone as king of the smart phone. While Google's Android operating system is a fan favorite, there's nothing to suggest that a Google device running Android will be anything better than the Motorola Droid or any other competitor. As more smart phones are sold every day, the market for potential customers shrinks as the standard two-year contract locks up newcomers.

The Nexus One very well may be an innovative and slick phone, but in this fragmented market, don't expect a phenomenon that leads to a sea change in the industry. It's still the iPhone and then everything else.