What is going on with the Nexus 4? *Updated*

Since the Nexus 4 became available and then promptly sold out on the Play store a few weeks ago, thousands of customers have been waiting for their orders to be delivered and even more have been waiting just for the opportunity to place an order. Anyone who listened to this weeks podcast will know how annoyed Ravi is regarding the whole debacle and it seems he’s not the only one.

Heres the thing, the Nexus 4 is available elsewhere but at a much greater price. At first we assumed this was networks looking to profit from customers but it fast became apparent that this was going to be the general rule of thumb regarding retailer availability. The Nexus 4 is available from O2, Three and Carphone Warehouse all at a higher price than the Play store. Now the way I see it, there are a few explanations for this.

1) LG is selling the Nexus 4’s to retailers and the retailers are just adding their usual markups and Google is adding none and selling it at wholesale. If this is the case then thats fine.

2) LG is selling it to retailers for more than they are selling it to Google. If this is happening then, depending on how that deal has occurred, it could come under scrutiny. Generally speaking it isn’t strictly legal to do this but there are ways and means around it.

3) Google is selling them with a discount. This too could also come under scrutiny. Google does not make its money in hardware sales, it makes them in Ad revenue and so Google would be using profits from one area (Ads) to gain advantage in another (retailing). This could then be seen as anti competitive as it would have an adverse affect on other retailers.

4) Google is selling them at cost but in small numbers, so as not to anger retail partners and carriers by “stealing” potential customers .

A race to the bottom might seem like its the best thing in the eyes of the consumer because you get cheap products, but not every company has huge cash reserves like Google and Apple which means companies like HTC and Nokia would quickly go out of business as they wouldn’t be able to make a competing product at similar prices whilst making a profit. Which would ultimately result in a 2 horse race.

So heres my prediction. Number 4 is the most likely scenario. Google needs to keep retailers and carriers onside, as without them, Android fails. 4) allows Google to still sell the devices to developers and geeks but in small volume, allowing the carriers and retail partners to still sell the majority of units at the higher price. This will continue for at least a few months until demand dies down to a point where the small numbers Google adds to its inventory will be enough to satisfy demand.

I could of course be completely wrong.

Update: After speaking to a couple of sources at a major UK retailer they have confirmed to me that “The wholesale price of the Nexus 4 is higher than what Google are retailing it for on the Play Store” when pushed on this one source explained that they have had no issues ordering new stock and that the Nexus 4 doesn’t seem to be any more constrained than any other high end device excluding the iPhone.