Getting Inside Google's gPhone

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More than 20 million devices will ship this year with either Mobile Windows or other Microsoft software on them, according to the Yankee Group. But Google—despite deals with handset makers including Motorola (MOT) and LG and carriers such as Sprint Nextel (S)—won't come anywhere near to that sort of distribution, figures John Jackson, an analyst at Yankee.

Yahoo has also enjoyed more success in its wireless endeavors. Thanks to its new mobile search engine, oneSearch, Yahoo has actually stolen some business away from Google. In January, Opera replaced Google with oneSearch as the default search engine on its browser for mobile devices. Though Opera's share of the mobile browser isn't huge, such developments could spell trouble if, as some experts expect, Web searches on mobile devices begin to exceed those on PCs. To protect its core business, then, Google needs to carve its spot in the cell market now.

A Slice of Apple's Approach

This might have been easier to accomplish had Google not forged a somewhat acrimonious relationship with big cellular carriers such as AT&T (T) and Verizon Wireless (VZ). Even before Google revealed its plan to compete directly with them in the wireless auction, the company rankled the cellular establishment with its decision to build a Wi-Fi broadband network in Mountain View, Calif., and join EarthLink (ELNK) in constructing a Wi-Fi network in San Francisco (a plan that's since unraveled).

Now, as it charts more of an independent course, Google may even use the gPhone as Apple has the iPhone, stoking discontent with the current state of mobile Web access. Today's cellular providers, to prevent their customers from wandering the Internet freely on phones as they do on computers, herd users to their own branded mobile portals and a limited selection of approved partner sites—a model reminiscent of the "walled garden" that AOL thrived on a decade ago until customers rebelled. Thanks to such obstacles, while 15% of U.S. wireless users have browsed Web pages on their mobile phones, only 3% have used a mobile search engine, according to JupiterResearch.

Though its brand doesn't generate the same passions among consumers as Apple's, Google may hope its new platform will present an irresistible attraction to handset makers and carriers seeking the next "it" phone, replicating at least some of success the iPhone has managed since its U.S. launch through AT&T.

Google's new, ad-supported business model may ultimately appeal to the carriers as they struggle to boost revenues in markets where the price competition is fierce and first-time users are becoming scarce. "The addition of new business models simply creates more opportunities for all companies in the industry to sell more products," says John Starkweather, general manager of mobile communications at Microsoft.

Boost to Wireless Broadband?

While analysts have long frowned on the idea of mobile ads, Virgin Mobile recently reported that 330,000 of its 4.8 million subscribers have agreed to view ads in exchange for free calling minutes (BusinessWeek.com, 07/09/07).