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Panic in smartphoneland

Google to unveil phone; world ends at noon

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Analysis Google is set to give the mobile phone business a body blow today - the second punch in the guts it's had this year. Apple delivered the first blow, by turning the operators' subsidy model upside down - as well as making rival manufacturers look like knuckle-dragging Neanderthals. But Google's arrival may prove to be more dramatic and far reaching for the business.

Google is expected to give away the platform required to create a sophisticated smartphone to OEMs. Its strategy is to extend its digital advertising business into new areas - and the phone is the vehicle.

In a research note for Dresdner Kleinwort published last month, an understated Per Lindberg summed it up:

"Other players, accustomed to riding on operators' subsidy business model, notably Nokia and RIM, would have to absorb much of the 'marketing expenses' themselves. Such a transformation of the competitive landscape could have overwhelmingly effects [sic] on industry-wide profitabilities and market share distributions.

Indeed, and at the Symbian Smartphone show last month, the question of Google's imminent entry into the market hung over the event.

Symbian came about because of a common resolve by the three largest handset makers - others soon joined - to create a mass market for smartphones. At the time, and it's almost a decade ago now, the company predicted a market of around 400 million "wireless information devices" per annum by the mid-2000s. While Symbian's annual run rate is only just reaching about a third of that, it's arguable whether there's a smartphone market today at all.

Blackberry claims around 10 million users for its messaging service, but most of the rest of those devices are expensive fashion statements; the "smart" features go unused. Technically, these devices are quite amazing, but like the expensively-built 3G networks they're all dressed up with nowhere to go. The operators' massive investments in building up high speed data capacity haven't found a market.

So, Google is addressing this from both a supply side and a demand side.

The supply side envisages much cheaper devices, subsidised by advertising and location services. The demand side sees users rushing to use Google services such as YouTube, Maps, and its search engine on a mobile.

One of these looks a better bet than the other.

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