Google Teams Up With Cell Industry
Tuesday, November 6, 2007
Google made its first major foray into the wireless industry yesterday with an announcement that it would partner with cellphone carriers, makers and software developers to create a new system for mobile phones, a crucial move as it seeks to expand its advertising empire.
Unlike Apple's iPhone, Google's project does not involve designing a new device. Instead, it plans to offer a free software system that would make it easier to surf the Web on phones and allow most cellphones to work more like computers. The system is designed to try to overcome the challenges of navigating the Web on a small device and to encourage the cellphone industry to liberalize what it has allowed customers to do with their phones. A greater audience would mean more potential advertising dollars for companies like Google.
The alliance is made up of nearly three-dozen companies, including Sprint Nextel, T-Mobile, Qualcomm and Motorola, to design the system, which will be available to software developers next week and to customers using specially equipped cellphones in the second half of next year. Although the 34 partners said they support Google's software, not all have formally committed to using it. The final agreements are most likely to involve revenue-sharing arrangements.
The agreement could signal enormous change for the wireless industry and may have regulatory implications for Google, which has brought its campaign for more accessible cellphones to Washington in recent months. It also spells a strategic shift for carriers Sprint and T-Mobile, which are trying to keep pace with larger rivals as wireless consumers demand increasingly sophisticated services.
Google says its new cellphone technology, Android, is also part of the firm's attempt to force wireless carriers and cellphone makers to give up some of their control over which features and services consumers can access with their cellphones, often at sluggish Web-browsing speeds. Google's end game is to create a system in which cellphone service is subsidized through ads, similar to the way many Web services are offered now, the company has said.
Google-powered software would loosen those restraints by allowing thousands of companies to develop new services, such as social-networking sites and mobile video portals, without needing permission from carriers -- a move that Google's partners say would accelerate the growth of new mobile features.
Putting Google's popular search, e-mail and YouTube video applications in front of more cellphone users positions the company to tap into a growing market for mobile advertising. Search on cellphones generates $30 million in revenue in the United States and is expected to grow to $1.4 billion by 2012, according to Kelsey Group, a market research firm.
"A vast majority of people do their local business face-to-face or over the phone, said John Gauntt, eMarketer senior analyst. "That's a huge swath of business that occurs outside the World Wide Web."
Google's plans could threaten the mobile dominance of Yahoo's search platform and Microsoft's operating system, which enjoy lucrative arrangements with carriers and cellphone manufacturers, according to some analysts.
"This is the most direct challenge that Google has offered Microsoft to date," said technology analyst Roger Kay of Endpoint Technologies Associates. "Microsoft has to take a real deep breath and decide what it is going to do here."
But Andy Rubin, Google's director of mobile platforms, said cellphone advertising still has a long way to go.
"You won't see a completely ad-driven cellphone based on this for quite some time," he said yesterday during a conference call.
Meanwhile, the strategy comes with significant risks for carriers like Sprint and T-Mobile, which are betting that by giving up control over what consumers do with their phones, they will attract more subscribers.
Albert Lin, managing director of American Technology Research, said those carriers could end up cannibalizing their own offerings -- like ring tones, for example -- with those developed by outside parties. But Sprint and T-Mobile face steep competition from larger rivals AT&T and Verizon Wireless, so they are willing to try a new strategy, he said.
Sprint is in a particularly weak competitive position, having lost more than 1 million customers over the past year.
Sprint acknowledged that joining Google's alliance could challenge some of its existing arrangements with other companies such as Pandora, which streams music to Sprint's cellphones, and Loopt, which lets customers locate and chat with friends, said John Garcia, Sprint's senior vice president of product development.
"It's a step we've taken quite conscientiously, but we're betting that giving customers the full array of what's available to them will be more profitable than restricting them to the things we choose for them," Garcia said.
Google's approach differs from Apple's approach with its iconic iPhone. While Google is actively encouraging programmers to build applications for its new system, Apple has been reluctant to open its iPhone to outside developers, partly because of security concerns.
Yesterday's announcement could also affect Google's position in a federal auction of the last big swath of valuable wireless airwaves. Google successfully lobbied regulators to require networks built with those airwaves to allow cellphone subscribers to use a greater selection of applications.
Now that it has enticed two national carriers to open their networks to its technology, Google has less incentive to make a multibillion-dollar bid for airwaves so it could build its own wireless network, said Blair Levin, an analyst with Stifel Nicolaus.
"The larger strategic goal is to make their applications available on all networks," he said of Google.
Staff writer Mike Musgrove contributed to this report.