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How is Google able to sell the Nexus 4 for Such a Low Price? Subsidizing?

November 4, 2012 - Written By Alexander Maxham

We wondered this back when Google announced the Nexus 7 at Google I/O this past summer, and we are wondering it again. How on earth can Google sell a phone with these kind of spec’s for under $400? Back in June, Google announced the Nexus 7, it’s first Nexus tablet which was a quad-core Tegra 3, with a great display (not the best) starting at just $199. It stunned the world and turned the Tablet market upside down. It even forced Apple into the 7″ tablet market, although they failed miserably. Last week Google announced the Nexus 4, which has the powerful Snapdragon S4 Pro quad-core processor which just wipes the floor with the Tegra 3 in the Nexus 7. Along with a stunning display, an 8MP camera and so much more. But the biggest shocker was, the price. Just $299 for the 8GB unlocked from the Play Store! How can Google sell it so cheap?

Well let’s take you back to June, when the Nexus 7 was released. We were able to find out that the Nexus 7 costs about $152 to produce, therefore they’d be getting about $47 in profit per tablet (were using the $199 version in this example). Why is Google selling it so cheaply? They are marketing it as a consumption device. They are just like Amazon and want to make money off of you buying apps, music, movies, games, magazines and everything else available in the Play Store.

Now onto the Nexus 4. Like we said above it’s running on some high quality hardware. Typical Android phones with the Snapdragon S4 Pro processor will run around $500 unlocked. Yet Google is selling it for $299-349 unlocked. How? Well it looks like they are doing the same thing with the LG manufactured Nexus 4 as they did with the ASUS manufactured Nexus 7, marketing it as a consumption device. Google would rather you buy TV show episodes, movies and music from the Play Store than make you spend more on hardware. Which actually makes a lot of sense. You’re most likely to continue spending money in the Play Store, which means repeat business. Especially if users can find what they want in the Play Store.

It appears that retail stores aren’t making much if anything off of selling the Nexus 4. Which would explain the jump in prices we’ve seen from T-Mobile, Carphone Warehouse and other retail stores around the world. At T-Mobile, you can get the Nexus 4 for $199 on contract. But if you want to be on the value plan, you’ll be paying an extra $15/month for the Nexus 4 for the next 20 months. Adding another $300 to the price of the device. For a grand total of $499. Might as well just buy the device unlocked from Google, right?

So you should definitely buy from Google. Unless you want to pay hundreds of extra dollars towards the device, which I’m sure many of you don’t. It makes sense though, the Nexus 4 is a cloud consumption device. And no, Google is not subsidizing the Nexus 4, if they were, how would it work with it being unlocked and you can choose any GSM compatible carrier? Thoughts?