Google Phone Effort Aims at Mobile Ad Revenue

Oct 09, 03:01 AM

Current Headlines: By Miguel Helft

Matt Richtel and Laura M. Holson contributed reporting.

* For more than two years, a large group of engineers at Google has been working in secret on a mobile phone project. As leaks about their efforts have trickled out, expectations in the technology world for what has been called the Google phone, or GPhone, have risen, the way they do for Apple loyalists ahead of a speech by Steve Jobs.

But the GPhone is not likely to be the second coming of the iPhone - and Google's goals are very different from those of Apple.

Google wants to extend its dominance of online advertising to the mobile Internet, a small market today but one that is expected to grow rapidly. It hopes to persuade wireless carriers and mobile phone makers to offer phones based on its software, according to people briefed on the project. The cost of those phones may be partly subsidized by advertising that appears on their screens.

Google is expected to unveil the fruit of its mobile efforts this year, and phones based on its technology could be available next year.

Some analysts say they believe that the Google project's impact on the wireless industry is not likely to be as profound, at least initially, as that of the iPhone, whose revolutionary look and features have redefined consumer expectations for mobile phones.

"The iPhone was a milestone in terms of how people use a mobile device," said Karsten Weide of the research firm IDC. "The GPhone, if it does come out, will help Google with distribution for their online services."

At the core of Google's phone efforts is an operating system for mobile phones that will be based on Linux, the open-source software, according to industry executives familiar with the project.

While Google has built phone prototypes to test its software and show off its technology to manufacturers, the company is not likely to make phones, according to analysts.

In short, Google is not creating a gadget to rival the iPhone, but rather creating software that will be an alternative to Windows Mobile from Microsoft and other operating systems, which are built into phones sold by many manufacturers. And unlike Microsoft, Google is not expected to charge phone makers a licensing fee for the software.

"The essential point is that Google's strategy is to lead the creation of an open-source competitor to Windows Mobile," said an industry executive, who did not want his name used because his company has had contacts with Google. "They will put it in the open- source world and take the economics out of the Windows Mobile business."

Others say they believe that another major goal of the phone project is to loosen the control that carriers have over the software and services that are available on their networks.

"Google's agenda is to disaggregate carriers," said Dan Olschwang, chief executive of JumpTap, a start-up that provides search and advertising services to several mobile phone operators.

Google declined to comment on any specifics of its mobile phone initiative. But its chief executive, Eric Schmidt, has said several times that the cellphone market presented the largest growth opportunity for Google. "We have a large investment in mobile phones and mobile phone platform applications," Schmidt said this year.

Industry analysts say Google, which has little experience with complex hardware products, faces significant challenges.

"Running a Web site and a search engine is one thing," said Weide of IDC. "But developing a phone is a whole different game. It will not be easy for them."

Some carriers, especially in the United States, are likely to give Google a cool reception. Companies like Verizon Wireless and AT&T have spent billions of dollars upgrading their networks, establishing relationships with customers, subsidizing phones and creating their own mobile Internet portals. Now they want to make sure those investments pay off, in part, through mobile advertising, and they see Google and other search engines as competitors.

As a result, most carriers in the United States have chosen to shun the major search engines for now. Instead, they have promoted the search engines and ad systems of small technology companies like JumpTap and Medio Systems, whose services they can stamp with their own brands.

Most carriers declined to comment on Google's plans. But Arun Sarin, chief executive of Vodafone Group, which promotes the Google service on its phones, said it was not clear what compelling functions Google would offer that are not already available.

"What is it that is missing in life that they are going to fulfill?" Sarin said. "It is not a no-brainer. You can reach Google already through a number of devices."

Google's desire to loosen the carriers' control over their networks has hardly been a secret. The company recently lobbied the Federal Communications Commission to impose rules on any carrier that wins a coming auction for wireless spectrum. The rules, which the U.S. regulator adopted despite opposition from Verizon and others, require that the network using that spectrum be open to any phone and software applications from any company.

Google said it was considering bidding for some of that spectrum. But regardless of who wins it, phones based on Google's software would be able to take advantage of it.

Google's lobbying efforts, as well as its work on an open-source phone software platform, represent an effort to bring to the mobile Internet the dynamics of the PC-oriented Internet, which is free of control by network operators. Google is hoping that it can beat competitors in an open environment.

But some analysts say there are no guarantees that Google will be able to replicate its online success in the mobile world.

Microsoft, whose mobile operating system has been available for years, has distribution agreements with 48 phone makers and 160 carriers around the world. Still, only 12 million phones sold this year will be based on Microsoft's software, giving it 10 percent of the smartphone market, according to IDC.

Microsoft declined to comment on potential competition from Google.

Mahesh Veerina, the founder and chief executive of Celunite, which makes cellphone software based on Linux, said Google's offering was likely to be attractive to small carriers, which may see it as a competitive weapon.

But if Google-powered phones prove to be a hit with consumers, other carriers may feel pressure to follow suit, said Richard Doherty, director of Envisioneering Group, a consulting firm. "No one," he said, "wants to be the last carrier to endorse Google."

Originally published by The New York Times Media Group.

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