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Original URL: http://www.theregister.co.uk/2007/11/05/google_phone_analysis/

Panic in smartphoneland

By Andrew Orlowski (andrew.orlowski@theregister.co.uk)
Published Monday 5th November 2007 09:48 GMT

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.

Free doesn't make it good

A quick look at the profitability of Nokia's multimedia and enterprise business units - dissolved in this year's reorganisation - shows what potential there is. Neither makes money, which given the company's engineering and marketing muscle, as well as its unrivaled routes to market, counts as a colossal failure.

But it isn't clear whether cost is an inhibitor to market growth, here. It's possible to pick up a Nokia N95 for free with a new contract in the UK, and for not much more in most of Europe, where there's less subsidy. Here's a phone that does "many things" the company boasts on the box, but these "many things" still go ignored.

As I wrote here (http://www.reghardware.co.uk/2007/09/07/apple_ipod_touch_coup/page2.html) recently, the "smartphone" category has really become a distinction without a difference.

(I'd bet that the top reasons for customer satisfaction with the Nokia N95 are performance [it's not sluggish, like its S60 predecessors], a decent keypad, large fonts and a big screen, and an interface that offers some respite from the clumsy and antiquated S60 UI. Wi-Fi and GPS are appreciated - but only by only a few tech enthusiasts).

The man in charge of the Google mobile platform business has already shown that a rich feature set doesn't have to be forbidding. After Web TV, Andy Rubin founded Danger Inc, whose Sidekick was so simple that even a blonde could use it (http://www.theregister.co.uk/2005/02/21/paris_hacked/). Rubin left Danger to start Android, which via acquisition is Google's new phone platform. As with Google Earth, sometimes it's better not to start from scratch, in house. Google has also hired considerable technical talent for its London-based mobile operation, particularly from Symbian. So it should work well, and look good.

But Nokia's problem in stimulating demand for mobile data services could soon be Google's problem.

The "web" in your hand sounds great on paper, and the numbers chart great on PowerPoint™ - but it rarely translates well to real life, and that's a place Google's maths PhDs aren't really that well acquainted with.

This summer I warned against (http://www.theregister.co.uk/2007/07/19/god_machine_meets_maker/page2.html) inflated expectations for mobile data services - where users are more demanding, and where the device's input and display are much more limited than on a PC:

"Mobile data services simply are almost always beaten by "real life". Need directions? No mobile service can compete with a good dedicated GPS - they don't know where you are precisely enough - and you'll typically find it's quicker and more rewarding to ask. The same applies to asking for recommendations for local bars or restaurants. Again, local knowledge beats 'virtual' information."

Yes, the iPhone has a breakthrough browser. But it's still the web (http://www.theregister.co.uk/2007/04/01/apple_google_mobile/) at the end of the day. And to make Google's task even harder, contextual advertising bombs on a phone.

And in the meantime, operators and equipment manufacturers, still wondering how to stimulate demand, might just wake up and realise the answer has been staring them in the face for years (http://www.theregister.co.uk/2004/02/11/why_wireless_will_end_piracy/). ®

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