By Yi-Wyn Yen
November 13, 2007

By Yi-Wyn Yen

With no Gphone and no mobile customers in sight, Google is offering a good reason for developers to build high-quality applications for its new Android mobile platform – $10 million in cash prizes.

The money goes to developers who build the coolest Android widgets. But will that be enough to jump start innovation?

Apparently it is because geeks really love prizes. Google (GOOG) released a software kit to show developers how to use Android, its Linux-based operating system (shown right) on Monday, and early feedback shows interest has exceeded the company’s expectations. The number of downloads to the Android how-to kit has already surpassed that of Open Social, another new Google initiative to create a common set of standards for social networking sites.

“The idea of an open-source phone isn’t all that new, but the fact that this standardized platform is actually open to regular developers like me is different,” says William Voorhees, a 21-year-old coder from Minnesota who is building a GPS application for the Android platform to track cyclists’ training rides. “This is a big breakthrough for developers who don’t have relationships with carriers or people in the telecom industry. And Google’s backing all this with prize money, which is always encouraging.”

The Android platform has already generated interest among Google’s own developers who competed for a Nintendo Wii. Steve Horowitz, a Google engineering director, showed off several Android mobile features like a text messaging tool and a globe that spins around by using a touchpad key. “Internally we’ve seen an unbelievable amount of interest among developers,” Horowitz says. “But a free Wii also saved them a trip to the store.”

For non-Google developers, there’s even more motivation to create killer apps for Android. The contest, known as the Developer Challenge, will give the top 50 developers $25,000 and a chance to earn up to $275,000 for cell phone apps that focus on consumer-related features like social networking, photo sharing, gaming, traffic and weather updates.

Google’s $10 million giveaway isn’t directed at major major third-party developers, but rather serves as an alluring carrot stick for smaller developers looking to break into the mobile market. “For a couple guys building something in their garage, it’ll mean something,” says Bonfire Media CEO Alex Poon, whose company makes a third-party application to run eBay auctions. “Google’s showing that it appreciates developers. And beyond the prize money, there’s the publicity of winning something from Google.”

A week ago Google struggled to generate interest among third-party developers when the company announced its grand mobile plans. “The reality is that people were disappointed that there was no Gphone,” says Standard & Poor’s analyst Scott Kessler. “All Google really said was that they were in support of more open standards.”

“Google needs applications and they understand that money is going to motivate,” he adds. “Google’s in a very tenuous balancing act. They want to encourage openness, but they don’t want to discourage participation from industry giants who are largely absent.” Wireless heavyweights like Apple (AAPL), Nokia (NOK), Research in Motion (RIMM), Verizon (VZ) and AT&T (T) have currently chosen not to participate in Google’s Open Handset Alliance.

Beyond the chance to win cash prizes, Google has yet to provide insight as to how developers will make money on its new mobile platform. Many developers are banking on ad-driven models, but Andy Rubin, the director of Google’s mobile platforms, said last week that an ad-based cell phone is still far off.

Horowitz says its mobile developers will earn a profit the “conventional way.” Currently developers rely on subscriptions and licensing fees to run their software on mobile devices, and often split revenue with the carriers who certify and promote their applications. “The most interesting thing about the Android platform is the potential user base that developers have access to sell into,” he says.

For now, Google’s banking that the publicity of the Android project will be enough to sustain creative apps to run on future phones, which won’t be available until mid-2008. “There will always be developers who are driven to build cool, interesting stuff first and think about monetization later,” Poon says. “Look at all those developers on Facebook. People were building tons of things for months, and only now is Facebook starting to figure out how to make money.”

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