The latest rumors have Google’s Nexus One selling for $530 unlocked/unsubsidized, or $180 locked/subsidized. I’m going to disagree with TechCrunch’s opinion on this – that being Nexus One still matters. It won’t. And here’s why:

If this rumor is true, what’s the upside to buying an unlocked/unsubsidized Nexus One – spending more money up front, and then get ripped off for the same prices subsidized users pay for service plans? Who calls that a bargain?

Wait, let’s backtrack – just to make sure we all get it. We should all know that AT&T bought the iPhone you are now carrying for something like $599 from Apple. Let’s hope they got a better price buying in bulk – say, $450. But, AT&T prices this unit at $199 up-front. AT&T’s got to make up that balance ($250) somewhere. So, AT&T (and all the other US carriers) prices its monthly services higher and locks you into a 24 month contract to assure it can make that subsidy back.

Here’s the problem: Can the owner of a shiny new Nexus One walk into TMobile and say: “I’d like a voice plan with texting and data, please, and I am willing to pay $49.99/month because I am bringing my own phone”? NNNNNOOOOOOOOOOOOOOO!!! When you go to AT&T or TMobile, there is no price break for bringing your own phone.

PS: Is there anyone from AT&T’s or TMobile’s pricing/retailing division reading this blog? If so, please correct me if I am wrong!

If Google really wants to change the world, Google needs to break this model. And the way Google can do that is to swap-in it’s own ad-supported model for the hardware subsidy. That’s how Google makes its money now on the rest of its services.

There are three steps to making this work:

1. Google reaches an agreement with (either or both of) AT&T and/or TMobile (the US GSM carriers) whereby purchasers of the Nexus One get special pricing on wireless service plans since Google is handling all aspects of delivery and servicing of the device. It’s perfectly conceivable that a monthly price of $39.99 for unlimited calling, texting and data could be achieved.

2. Google prices the Nexus One at $250 (roughly the cost of manufacturing, direct delivery, and on-going customer support) and makes it available only via its own website.

3. Google reaches agreement with its advertisers to specially-target Nexus One owners, using both location data from the phone and the information Google collects from the usage of its on-phone applications. Google could charge higher placement rates for these ads and, in so doing, make additional profit from each phone.

Here’s a bonus Google could offer buyers of the Nexus One: price the Nexus One at $499 and guarantee that purchasers will never see advertisements in Google applications (or in applications serving ads via AdMob, Google’s mobile advertising subsidiary) for the life of the phone. There are not many who would take such an offer, but having such an offer makes it clear that these devices are expensive – and further that the subsidy mechanism (ad delivery) compromises the user’s experience.

In sum, I don’t believe users would benefit from buying a high-priced, unsubsidized Nexus One phone, only to be price-gouged by the wireless carriers when they have to pay subsidy rates for their monthly service plan. I see only a very tiny percentage of users – those who want carrier freedom (no long term contract) – as paying the higher price. Instead, Google really needs to change the way users think about consuming telecom services.

Future post: Why’s Google’s not adding Google Voice into this mix is a complete mystery.