Wednesday, October 31, 2007

Google's Phone Keeps Everybody Talking

Google is characteristically silent, but rumors about the "Gphone" have people talking. According to Forbes Magazine, Google plans to enter the smart-phone market with a high-end handset subsidized by targeted advertising. Brian Caulfield, the article’s author, suggests that Google’s ad-supported mobile phones may best fit consumers in emerging economies. An effective advertising model could reduce the price of the handset and/or service, appealing to this price-sensitive market. Caulfield points out that a mass-market approach fits Google’s business model, and suggests China Mobile and Orange are possible partners.

Google certainly knows how to monetize advertising volume, but a foray into hardware would put the company well outside its comfort zone. While Google has entered partnerships in the past, it has never been as dependent on those partners as it would be with telecommunications partners in this new scenario. A phone with a great user interface and cool applications may get the market’s attention, but the ability to scale will be largely in the hands of Google’s partners. Google’s strength is its ability to abandon traditional business models. A mobile phone that makes money on something other than voice or data transmission may fundamentally disrupt the market, but is Google in the best position to capitalize on the opportunity

An ad-based revenue model presents an opportunity for a host of other technology players. Yahoo! and AOL are also chasing emerging-market eyeballs through acquisitions and partnerships that integrate their services with newer handsets. Larger phone manufacturers and operators are exploring an ad-based interface, trying to secure revenues without giving too much away to content providers. Microsoft software is available on 140 mobile phone models, so it has well-established ties in the telecommunications industry. Perhaps a (long-rumored) partnership between Yahoo! and Microsoft would pave the way for an ad-based mobile OS. Ultimately, the winner in this race will be the company that offers the most compelling deal to developing-country operators without losing focus on the real opportunity - access to two billion eyeballs.

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