The mobile operators have finally had their say and the equilibrium is restored. Google's announcement that they are going to withdraw selling the Nexus One through their own online channel and instead work with 'partners' in expanding presence vindicates the risky nature of their decision that I had alluded to a few months back. While getting US consumers to part with full unsubsidized rates was a challenge in itself, I believe the larger issue that forced Google's hand in this case has been its handset partners and the pressure from carriers such as Verizon.
Take the case of HTC. The Taiwanese vendor has been one of the most active promoters of Android, given its lack of a clear identity in the Windows Mobile days when it moved from being an Original Design Manufacturer to a full-fledged smartphone vendor. HTC's business potential is severely impacted if some of the best phones that it makes are restricted only to a channel that does not subsidize the cost of the handset. Moreover, by coining marketing phrases such as "Superphones" Google made it all the more tough for HTC to sell its other high-end smartphones to carriers willing to pick the subsidy tag.
For the ecosystem, Google's decision to go on its own clearly had larger implications over trust. Carriers were concerned that Google with its unsubsidized channel could potentially attract the high-ARPU customers who were then free to choose their own operator; not the most ideal of scenarios for carriers that historically were used to exerting extreme control over their consumers, through low entry and high exit barriers.
For Google as well, the channel wasn't without its more than adequate share of challenges. I reckon other than all the issues around managing partners in the Android ecosystem, Google also woke up to the fact that customer support in an important expense item. The initial wave of complaints against the device and its limited support options forced Google to come up with telephonic support one month into the launch.
While Google may have retreated from its online store, I don't believe it is the end of the road when it comes to Google's attempts to disrupt traditional channels. For those channels exert far too much control over the overall mobile ecosystem in the US and some other European countries. And controlled ecosystems are a ticking waiting-for-disruptor bomb. I believe Google's results with its online channel are not indicative of their future, but are an important milestone as these markets move to a more equitable and customer-centric model.