Following Logitech's launch of its Revue yesterday, the first Google TV product to hit the market, a consistent theme in many of the reviews has been that the $300 price point is too high. Indeed, I called this out as the first big "con" of the Revue in my review (no pun) yesterday. The price point is surely mandated by the bill of materials (i.e. the Intel Atom processor, 4 GB of memory, etc.) plus Logitech's margin expectations.
However, if Google is seriously committed to Google TV, it should put its money where its mouth is to drive initial adoption. One compelling way to do so would be to offer a $150 rebate on the first 1 million Google TVs purchased, effectively reducing the price of the Revue to $149 (Sony's prices are still not known for sure). A $149 price point is in the ballpark of other connected devices like Roku, Apple TV, boxee, etc and would immediately draw attention.
If 100% of the rebates were redeemed, Google would be on the hook for $150 million. That may seem like a lot of money, but remember Google generated nearly $2.4 billion in operating profit last quarter, on $6.8 billion of revenue. It has over $10 billion cash on its balance sheet and at today's close is valued at almost $170 billion. If any company could afford a $150 million rebate offer, it's surely Google. However, in reality, the tab would be far less than $150 million because of "breakage" - i.e. the high propensity of buyers failing to actually redeem their rebate offers. Breakage rates vary widely, but this "tax on the disorganized," is in the range of 2-80%. No doubt the higher the rebate offer, the lower the breakage rate.
Regardless of true breakage, rebates are an incredibly effective tool to catalyze demand and have been used notably with smartphones. Smartphone rebates work because carriers are in effect subsidizing handset manufacturers' costs and margin requirements out of profits generated through data plans and 2-year contracts, which in turn reduce marketing/retention expenses. Google would be following the same model, subsidizing CE partners' margins out of incremental revenues it expects to drive from increased ad sales on searches made within Google TV. Of course because those revenues don't yet exist, in effect Google would be financing the rebate from its massive liquidity.
A different way to think about the rebate would be that Google is making a smart investment in the living room, an incredibly strategic area. This is what Google is doing in mobile, with Android, by giving it away for free to handset manufacturers. It's been a hugely successful strategy as Android smartphones are now outpacing iPhone sales. Another example of Google showing a willingness to invest/subsidize is YouTube, for which it not only forked out $1.6 billion (granted, in stock), but has stood by even as YouTube has lost hundreds of millions (billions?) over the last several years. Lastly, not to be forgotten is the fact that Google is in a steel cage match with Apple in the consumer digital market and must not miss any opportunity to invest wisely to drive adoption of its technology.
Google TV is a newfangled product at a premium price relative to other less feature-rich connected devices like Roku, Apple TV, boxee, etc. Google needs evangelists who will rave about and demo it to their friends and enthusiastically spread the word ("mavens" in Malcolm Gladwell's "Tipping Point" terminology). Google also needs to curry favor with developers who will create the next generation of TV-based apps that will further prove in Google TV's value, and differentiate it from the crowded field. Those developers will only take interest as they see a big and growing addressable audience taking shape. Finally, Google must demonstrate emphatically that Google TV is not just another of its little experiments that it tosses out there to see if the market will accept it.
True, short-term promotions sometimes yield only short-term success. That could be the case with this type of rebate on only 1 million units, and what might be required is a more sustained rebate effort. If Google were to pursue this, it must be now, as these devices launch, not later, if/when sales are lagging and a rebate offer would be perceived as a desperate act to shore up a failed product.
If Google really believes Google TV is the device to reinvent TV, then it mustn't be shy about what it spends to succeed. Relying solely on the coolness of Google TV will not be enough to succeed where many others have failed in the past.
VideoNuze is the authoritative online source for original analysis and news aggregation focused on the burgeoning online video industry. Founded in 2007 by Will Richmond, a 20-year veteran of the broadband, cable TV, content and technology industries, VideoNuze is read by executive-level decision-makers who need to get beyond the standard headlines and achieve a deep understanding of online video’s disruptive impact.