All the talk about Google (GOOG) courting the cell phone market seems to have folks a bit confused about what the search giant really wants to accomplish. Is Google trying to become a handset maker? Does it want to be a wireless carrier?
I think not. What Google wants is a world in which everyone can access Google services as quickly and cheaply as possible, on ever more powerful devices. Google wants to see this world become a reality because it’s a world in which Google makes a whole lot of money from advertising, and eventually from software sales. (For more, see this Wall Street Journal piece.)
Google isn’t making a “Google Phone” – it’s drawing up the blueprints so that other people can. To accomplish this ambitious goal, Google seems to be borrowing some pages from the playbook of Danger, the Silicon Valley startup that brought us the T-Mobile (DT) Sidekick.
It’s not about the hardware
Danger made a big splash in the days of Mobile Web 1.0 with an innovatively designed device with a flip-out screen that brought people closer to the full-fledged Web experience. Danger confused many people in the press, however, because its strategy wasn’t based on making the devices. It designed the hardware and software for the devices, and handled the back-end server magic that made the online experience possible, but it left the manufacturing details to other companies. Danger wasn’t interested in paying to have the devices made, or in branding the devices itself – it just wanted a cut of the software and service revenue.
It just so happens that Danger co-founder Andy Rubin has worked for Google for about two years now. And while he might not be following the Danger strategy exactly, he certainly knows how the game is played.
Like Danger, Google shouldn’t want to be responsible for manufacturing phones. Hardware continues to be a messy, low-margin business, as Microsoft (MSFT) has reminded us with its Xbox adventure; the real money is in software. (Yes, Apple (AAPL) is making plenty of money on the iPhone, but that device is more a software play than hardware, as I’ve argued before.) What Google wants is to make its software and services ubiquitous. That probably means offering a version of its phone software for cheap or free, and building out a global user base. (For an example of how this might work, look at the Gmail deal Google recently struck with KDDI in Japan.)
Who’s afraid of Google?
What companies should feel threatened by Google’s moves?
Most immediately, Microsoft. Google probably would be willing to give its software to device makers and carriers for less than Microsoft charges, because would plan to make money on advertising, not just on the software itself.
In the long-term, Research In Motion (RIMM) could face competition from Google, too. Though Google is likely to focus early phone efforts on the mass market, the company has already shown that it wants to push paid versions of its free software (including Gmail, Google Docs & Spreadsheets, and Google Earth) into the enterprise. Google is already trying to get companies to run their e-mail through its Gmail service – it’s not hard to imagine the company extending that strategy into the mobile space.
Carriers such as Verizon Wireless (VZ) and AT&T (T) should be worried, too. They’re already fighting Google in battles over Net Neutrality and the 700MHz spectrum, and they’re unlikely to embrace a Google phone. Rivals T-Mobile and Sprint (S), though, which aren’t doing as well as their larger competitors, might be eager to form an alliance with a Silicon Valley innovator.