The influence of Android

In this year, the wireless industry will have some significant milestones to be reached by new members from the computer and Internet industry. Both Apple and Google are trying to break into a world that is dominated by operators. Whereas both Apple and Google will mark a developmental milestone in the wireless industry by offering mobile software, they have different incentives to develop it. Apple's major incentive is to sell more iPhones; however, Google's incentive is more complicated. In fact, the causes of the introduction of Android involve the potential of mobile advertising, the development of Google's mobile search engine, and the extension of Google's Internet services; on the other hand, the effects of Android may change the way that the wireless industry operates and may bring a new business model to the wireless industry.

The first reason why Google wants to invent Android is that the market of mobile advertising is very promising. The market of mobile advertising has great potential because advertisers could tailor their advertisements to match each subscriber's hobbies. Like its online ‘pay-per-click’ advertisements, Google's AdSense for Mobile delivers advertisements relevant to the advertiser's mobile audience. By introducing Android, Google can extend its hugely profitable key-word search advertisements business from the Internet market to the wireless market. Moreover, it is easy to understand why Google has been putting so many resources into the wireless market. While Google has dominated Internet search advertising with a 62.7% market share, according to research by the consultancy Compete, the company needs another arena to support its growing market capitalization. According to Informa Telecoms & Media, a research firm, although spending on mobile advertising was only $871 million worldwide in 2006, the annual expenditure will reach $11.4 billion by 2011 (The Economist, 10/6/07), a bit more than Google's revenue in 2006.

The other two reasons behind the introduction of Android are the development of Google's mobile search engine and the extension of Google's Internet services. Although Google is a leading Internet search engine company, “the company is lagging behind Microsoft and Yahoo in mobile search and other applications for the cell phone” (BusinessWeek, 9/6/07)4. Google has been focusing its attention on the mobile market for the past two years. To enter into this market, Google has steadily introduced new services that are designed specifically for mobile phones, such as downloadable Java applications for Google Maps and Gmail. By introducing Android, Google can work closely with the company's mobile search engine and other Google applications that are already popular on the Internet.

It is clear that Google has great ambitions toward the wireless market. When the gPhone is introduced in the future, the effects of Android may change the way that the wireless industry operates and may bring a new business model to the wireless industry.

The first effect of Android is that it may change how the wireless industry operates by providing an alternative mobile network, mobile operating platform, and billing system for users and service providers. While most mobile operators only allow users to browse their own branded mobile portals, Google may offer an alternative mobile network where users can browse the Internet as freely on phones as they do on computers, and service providers can provide their varied applications without being controlled by mobile operators. In August, Eric Schmidt, CEO of Google, has said that the company may participate in a federal auction in early 2008 on contracts to build a new mobile network with no restrictions on what applications users can use. Second, Google could provide an alternative mobile operating platform, which could save the service providers' cost if the gPhone wins a large scale of handset market. Unlike the computer market, in which there are just three operating systems, the handset market has more than 40 software platforms (BusinessWeek, 10/29/07). If the handset market consolidates around several platforms, the service providers can save a lot of time and money when they develop applications for mobile devices. Third, Google could offer an alternative billing system for service providers. Today, service providers collect money through operators' billing systems in that mobile operators can charge up to half the revenue for their transaction fees. One expected feature of the gPhone platform is that it could offer a mobile payment system by which service providers allow their users to pay for their services via text messages. If Google could introduce an alternative billing system that charges service providers lower fees, the whole wireless ecosystem could become healthier.

Another effect of Android is that it may bring a new business model to the wireless industry, offering ad-supported free mobile phone calls and text messages for mobile subscribers. Two existing cases may offer some thought about what strategies Google might apply in its mobile business model. Blyk, a new mobile virtual network operator in Britain, in September launched a service that offers subscribers 43 free minutes of voice calls and 217 free text messages per month if they agree to receive six tailored advertisements by text messages every day. To sign up for this service, users have to fill in a detailed questionnaire about their hobbies and habits so that advertisers can provide tailored advertisements to highly relevant customers. This model is very familiar to Google's online advertisement strategy, which helps advertisers to find their target users and organizes the information related to users' interests. Furthermore, it is important for Google to make sure its applications work everywhere in the world; therefore, since it is impossible to bid for wireless spectrum licenses in each country, Google could lease space as a mobile virtual network operator. Another case is America's Virgin Mobile, which launched a “Sugar Mama” service last year, offering subscribers the chance to earn free minutes of voice calls if they agree to receive an advertisement via text messages or to view a 45-second advertisement. This model is controlled by mobile operators; therefore, Google might play a role as a partner that offers its mobile search engine or some applications—such as mobile YouTube service or mobile Gmail service.

In conclusion, Google may see a blue-ocean market in the wireless industry, not only providing an alternative mobile network, mobile operating platform, and billing system for service providers, but also offering ad-supported free mobile phone calls and text messages for mobile subscribers. Google's goal is to connect advertisers with mobile subscribers based on offering information from its mobile search engine, mobile gmail, Google maps, Google earth, and other applications, just as it has done on the Internet.

Reference:
1. BusinessWeek (2007, October 16). Will Apple Open the iPhone?
2. BusinessWeek (2007, October 29). Apple, Google vs. Big Wireless.
3. The Economist (2007, October 4). The next big thing.
4. BusinessWeek (2007, September 6). Getting Inside Google's gPhone.