7th November 2007, Dow Jones Newswires
SAN FRANCISCO -(Dow Jones)- Google isn't the first to try to bring order to the cellphone industry - it's just the latest and biggest name to do so.
Monday, the Internet giant announced its 34-member Open Handset Alliance of carriers, hardware makers and software groups that aims to create a mobile phone platform built on Linux-based open-source technology standards. To hear Google tell it, the initiative will revolutionize the mobile phone industry and enable customers to access the Internet through any wireless device and service provider.
Industry analysts, though, remain far more skeptical. Google and alliance partners such as Sprint Nextel, Samsung Electronics and Motorola certainly have the clout to drive changes within the industry, but skeptics question whether Google will be able to finesse the technical conflicts, political differences and business model disputes that inevitably arise in alliances of this size.
"Alliances typically don't work. Responsibilities are not clearly defined, and there aren't any penalties for failure," said Lisa Pierce, wireless analyst at research group Forrester.
Google dismissed such concerns, arguing that its end-to-end mobile software package - dubbed Android - will minimize technical conflicts, and that alliance members are all determined to create a cellphone industry based on open standards.
The Internet search and advertising giant hopes Android will be the foundation for a new generation of cellphones that let consumers surf the Internet much like they do now with their computers.
The goal for Google is to extend its core search and advertising business into the mobile marketplace, which research group Informa Telecoms & Media projects to be greater than $11 billion in 2011. If successful, Google's mobile advertising play could yield the company up to $4.8 billion in annual revenues within three years, according to Sandeep Aggarwal, analyst at Oppenheimer & Co.
Nonetheless, some are wondering if an alliance of nearly three dozen partners is the most effective way to create a seamless set of wireless products and services.
"You can't just slap together a mobile software platform, make it work with hardware and have it spin like a top," said John Jackson, wireless analyst at Yankee Group. "This is an exact opposite play to what Apple is doing," noting that Apple's popular iPhone works well specifically because the company developed its own hardware and software.
Ken Dulaney, wireless analyst at Gartner, cautioned that the very openness touted by Google could create unexpected technical hurdles. For example, he noted that handset makers will be able to choose from several Linux versions and then add a variety of open-source modules to provide a range of features. Carriers could then add one of several browsers and select from hundreds of applications.
"The end result is that each device delivered through each carrier, despite being built on Google, can in reality be quite different from each other," said Dulaney. He said handset makers can never be sure how components and modules will interact with each other, so they must be tested to make sure they will not cause a mobile device to crash.
Another concern is that some handset makers or developers might be unable to resist the urge to lock down products so that rivals can't take advantage of their modifications.
Skeptics also noted the alliance had failed to draw in key mobile players, including leading handset maker Nokia and U.S. carriers AT&T and Verizon Communications.
Then there is the potential for confusion with other mobile industry groups - such as the LiMo Foundation, the Linux Phone Standards Forum and the Open Mobile Alliance - that aim to define technical standards and foster collaboration.
Bill Hughes, analyst at In-Stat consultancy, noted that these alliances - including Google's OHA - have overlapping memberships even as they seem to be pushing their own standards, raising questions about which companies are most committed to which alliances.
"If you have a lot of variation, it will scare off developers," he said. "People will get confused and confused customers won't buy."
Google was quick to downplay those concerns. Ethan Beard, director of new business development at Google, argued that while other alliances were debating rules, discussing technical specifications and authoring papers, the OHA was preparing to ship software development tools next week.
Beard also argued that Android is a robust software package that includes all the components that handset makers, carriers and developers will need to build low-cost mobile phones, minimizing the risk of fragmentation.
When asked about the possibility that some alliance members might try to lock out rivals, Chief Executive Eric Schmidt suggested those companies would ultimately lose out in a market in which consumers demand openness.
Money Issues
But industry analysts said technical issues were only half the battle. A key question was how the introduction of mass advertising might change the economics of the wireless carrier industry.
For example, would carriers stop subsidizing phones that work on rival networks? If so, would consumers be willing to let advertisers subsidize the cost of their phones? And most importantly, how would alliance members share the services and advertising revenues that Google and some financial analysts so readily anticipate?
Google was determined to talk up the technical side of OHA this week, but some analysts questioned whether the alliance will be able to withstand the tensions that will inevitably arise as members stake their financial claims.
"I have significant questions about changing parts of the (business) model," Forrester's Pierce said. "The hard work is yet to come."
