Venture capitalist Rebecca Lynn thinks Google will use its acquisition of Motorola to give away free Android phones:
I acknowledge the arguments that Google’s bill of materials on smartphones, perhaps in the hundreds-of-dollars range, would be too big a subsidy to absorb — at this present time. That cost is increasingly decreasing. If Google is betting on a future that is mobile-centric, this is a bet that’s worth taking.
If we’re talking free as in “no-contract free”, keep in mind that most estimates of Google’s search revenue per Android user are in the range of $6-10 per year. So if you figure people keep their phones for two or three years, these giveaway phones would have to cost — what? — maybe $10 or $20 in order for Google to turn a profit?
If Google uses its monopoly in search to leverage its movement into a new market, allowing it to give away products for free, well, that sounds an awful lot like Microsoft and Internet Explorer.
The problem is that decreasing costs are for old technology. By the time it decreases to get the costs down so low, no one wants it.
There are Android cell phones being sold in Africa for hardly anything but they are very slow and based on almost obsolete technology.
To get the cutting edge or even blunt edge technology, costs will still be high.