Google's New Cell-Phone Universe

Its Open Handset Alliance, including Intel, Motorola, and T-Mobile, could threaten Symbian and Microsoft—and redouble investments in mobile software

by Olga Kharif

Building a better mobile phone is a costly, time-consuming business. Whether it's crafting the chips that power phones, the handsets that hold the pieces together, or the software that runs the features, companies around the world have been at it for decades, but few manage to get it right.

Leave it to Google (GOOG) to try to speed things along. On Nov. 5 the owner of the world's largest search engine announced the creation of the Open Handset Alliance, a group of 34 companies that will create a package of free software that includes everything needed to run a cell phone: an open-source, Linux-based operating system, a Web browser, and a slew of applications, including maps, e-mail, and video-sharing and -viewing tools.

The Alliance includes some of the biggest names in tech, including chipmakers Intel (INTC) and Qualcomm (QCOM), handset maker Motorola (MOT), wireless carriers T-Mobile and Sprint Nextel (S), and e-commerce provider eBay (EBAY). The new platform will be known not as Gphone, as had been widely expected, but Android—as in a machine made to resemble a human—after a company acquired by Google in 2005. And Alliance partners aren't the only ones that get to contribute. As its name suggests, Open Handset Alliance will introduce a toolkit that will let independent programmers build mobile software and services for Android-based cell phones. Google will in turn make that third-party software available to users through an online store.

The creation of the Alliance reflects a sea change in the way cell phones are built (BusinessWeek.com, 10/29/07). Cell-phone carriers and handset makers are slowly losing their grip on mobile-phone design, and third-party developers are gaining sway over the features and tools used by the world's billions of cell-phone subscribers. "They've got an excellent Big Bang," Richard Doherty, director of consultancy Envisioneering Group, says of Open Handset Alliance.

Pulling It All Together

Google's effort is hardly the first upstart attempt to build a new operating system for cell phones. Microsoft (MSFT) has created variations of its Windows OS for mobile phones, Nokia (NOK) knit together a consortium through its Symbian effort, and there are at least 22 flavors of the Linux operating system for mobile phones. The Open Handset Alliance represents a potential rival for Microsoft and Symbian. It could also one-up the fractured Linux efforts. A developer hoping to create a hot new tool for Linux needs to rewrite an application for each variant. The other major Linux consolidator, a consortium called LiMo, focuses on software in the guts of the phone. But the Open Handset Alliance will deliver a more complete package.

Startups already are itching to contribute to the Alliance's efforts—and investors are eager to fund them, says David Helfrich, managing director and co-founder of Garnett & Helfrich Capital. "You'll see hundreds of millions if not a billion dollars invested" in mobile Linux software startups, says Helfrich, whose firm has about $350 million in private equity. Among Garnett's holdings is Linux software maker Celunite. Helfrich says he'll invest $12 million to $50 million this year in mobile-Linux-related companies. "We see it as a huge market that represents billions of dollars of opportunity," Helfrich says.