Google's VP of Engineering, Andy Rubin, had this to say about the matter:
We launched Nexus One in January with two goals in mind: to introduce a beacon of innovation among Android handsets, and to make it quick and easy for people to buy an Android phone. We’re very happy with the adoption of Android in general, and the innovation delivered through Nexus One. Already, a lot of the innovation that went into creating Nexus One has found its way into numerous Android handsets, like the HTC Evo 4G from Sprint and the Verizon Droid Incredible by HTC.
But, as with every innovation, some parts worked better than others. While the global adoption of the Android platform has exceeded our expectations, the web store has not. It’s remained a niche channel for early adopters, but it’s clear that many customers like a hands-on experience before buying a phone, and they also want a wide range of service plans to chose from.
So today we’re announcing the following changes:
More retail availability. As we make Nexus One available in more countries we’ll follow the same model we’ve adopted in Europe, where we're working with partners to offer Nexus One to consumers through existing retail channels. We’ll shift to a similar model globally.
From retail to viewing. Once we have increased the availability of Nexus One devices in stores, we'll stop selling handsets via the web store, and will instead use it as an online store window to showcase a variety of Android phones available globally.
Innovation requires constant iteration. We believe that the changes we're announcing today will help get more phones to more people quicker, which is good for the entire Android ecosystem: users, partners and also Google.
Phandroid added an important thought about the future of Nexus One sales and Google's successor to the Nexus One, saying:
While it remains to be seen just how much life the N1 has left in it with phones like the Droid Incredible, EVO 4G, and HTC Desire causing mass fan-gasms worldwide, at least we know if and when Google does decide to release a Nexus Two, it will be under the same old distribution model we are all used to and just plain happy with.
Image from AndroidCentral