There's nothing unusual about getting a free regularly cell phone with a two year service agreement. Getting a smartphone is a little less usual. When it's Best Buy (BBY) giving away a Google (GOOG) Nexus S, made by Samsung, you have to wonder who's making what on the deal.
You also have to wonder whether the Android versus Apple (AAPL) iPhone competition stats have any real meaning. Granted, even Apple has a low end model. But free? Maybe Best Buy gets a great deal from AT&T (T), T-Mobile, and Sprint (S), the three carriers for which the phone is available. Perhaps the retailer has a lot of inventory on its hands. Maybe Samsung is partly underwriting the promotion. Or Google might even be planning a third Nexus and wants the current version out of the way. But however you slice it, maybe such promotions help make Android look stronger than actually is.
Although technically not free -- you still pay tax and any fees from the carrier -- the phone normally retails for $100-$150 with a two-year activation or $530 without a contract. There have also been other Nexus S sales before. For example, Amazon (AMZN) offers the phone it for a penny with a two-year Sprint account, for example.
Although Android has built huge volume, there's no way to know from the outside how much is driven by heavy price discounts. That's the type of business that tends to have a lower degree of loyalty, to say nothing of profitability. One clever strategy that businesses sometimes use is to deliberately push less financially desirable customers to competitors. Even though it may seem like sending aid and comfort to the enemy, it actually helps undermine the other company.
Maybe that is what Apple has done to Android vendors, writing off the lower end of the market. After all, if you can capture two-thirds of the world's mobile phone profits, why not let someone else have the business you don't want?
Ironically, it doesn't matter to Google if its vendors are pulling in the profit dregs. As long as more units go out and the ad revenue increases, the company is happy.
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