Google's Next Nexus Move

Once upon a time, Google's (Nasdaq: GOOG  ) Nexus0branded devices were single children, coming to market one at a time as flagship Android smartphones. Those days are gone.

It all started with the Nexus One, launched in 2010 as Google's first foray into direct hardware sales to consumers. The device was built by HTC and set the stage for its subsequent brethren. Samsung has built both of the following Nexus devices -- the Nexus S later in 2010 and the Galaxy Nexus in 2011.

Nexus smartphones. Source: Google.

Nexus smartphones. Source: Google.

The first Nexus One's launch didn't go so well, with customer-service missteps that the search giant simply wasn't accustomed to, as it had never dipped its toe into direct sales. That was more than two years ago, so Big G has since wised up in this department.

Say "cheese!"
With the introduction of the Nexus 7 and Nexus Q this week, it's now a bona fide family affair. Here's how they look for their family portrait.

Nexus devices. Source: Google.

Nexus devices. Source: Google.

They may look nice all lined up together like that, but there are some pretty important distinctions within that have bearing on Google's overall strategic direction.

The Galaxy Nexus smartphone is more of a collaboration between Samsung and Google. Samsung earns a gross margin on the device itself, which is sold through various outlets including wireless carrier partners.

For now, the Nexus 7 and Nexus Q are being sold directly from Google, and it's the one having the devices built and sold. Asus manufactures the Nexus 7, but its role here is akin to other third-party contract manufacturers instead of traditional hardware OEMs, since the tablet is sold at cost. The Nexus Q is unambiguously a first-party device, with Google tapping a domestic contract manufacturer located in Silicon Valley, which is one contributing factor to its lofty price point.

Effectively, this means that Google's Nexus brand is becoming more of a first-party hardware product family, with two out of three devices under the search giant's multicolored umbrella. That's significant, because Microsoft (Nasdaq: MSFT  ) similarly just jumped into first-party hardware with its Surface tablet.

Both Google and Microsoft are trying their hand at a more integrated approach, which increases the likelihood that we'll see Google tap its new Motorola subsidiary for some integrated devices.

What to expect when you're expecting
This family might not be complete quite yet, as Google allegedly has another one on the way. There's no official due date quite yet, but Digitimes is reporting that Big G is working on a 10-inch tablet to follow up the 7-incher just unveiled. If it follows the same naming scheme, it'd probably be called the Nexus 10. The publication's sources say that Google will get 10-inch display panels from AU Optronics (NYSE: AUO  ) and Wintek.

If the rumblings turn out true, then the Nexus family would grow to four, and presumably a 10-inch Nexus tablet would be aimed at Apple's (Nasdaq: AAPL  ) iPad and Microsoft's Surface, much like how the Nexus 7 has its sights set on Amazon.com's (Nasdaq: AMZN  ) 7-inch Kindle Fire at the same price point.

We could very well be witnessing the beginning of a momentous strategic shift for Google, bolstering first-party hardware offerings in a move beyond the usual fare of collaboration with hardware OEMs. With the recent events, including the closing of the Motorola acquisition, it's easy to imagine Google building up its Nexus family to include first-party flagship Android devices with upgrade cadences in the coming years.

The wonder years
For Microsoft and Google alike, the next few years will be strategically definitive as they pursue integrated approaches akin to Apple's. Both will naturally continue a heavy focus on software and service offerings, but they've clearly expressed interest in deeper hardware and software integration, which is particularly tough to balance with the open models that have helped them gain tremendous market share in the PC and smartphone markets, respectively.

Buckle up. It's going to be a wild ride.

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Fool contributor Evan Niu owns shares of Amazon.com and Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft, Apple, Amazon.com, and Google. Motley Fool newsletter services have recommended buying shares of Microsoft, Apple, Amazon.com, and Google and creating bull call spread positions in Apple and Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.
 


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