GOOGLE, APPLE AT ODDS IN MOBILE PHONE MARKET.(Business)

  

 The Virginian-Pilot (Norfolk, VA)

January 10, 2010

By John Boudreau

San Jose Mercury News

SAN JOSE, Calif.

   Pursuit of the vast riches that have begun to flow from the burgeoning mobile phone market is transforming two of Silicon Valley's most dynamic and powerful companies.

Google last week unveiled the Nexus One, a direct competitor to the iPhone.

Hours before the announcement, Apple bought a mobile ad firm, Quattro Wireless - a move similar to the one made by Google in the fall.

   Taken together, observers say, the events show that the once-close allies - Google's CEO Eric Schmidt used to serve on Apple's board - are moving beyond their traditional markets and bumping into each other in what many think will be the next big thing: the mobile marketplace.

   "These are the two smartest companies in the valley," Broadpoint AmTech analyst Brian Marshall said. "And they are looking at open turf in the future. They are running parallel paths."

   The separate announcements can be seen as a form of corporate shadow boxing - neither company is aiming to deliver direct blows against the other, however, they find themselves competing in the same arena.

   In August, Schmidt resigned from Apple's board after the Federal Trade Commission began an investigation into whether the companies' close relationship violated antitrust laws.

   The resignation was announced three days after the Federal Communications Commission said it was looking into why Apple rejected the Google Voice application for the iPhone, which would allow users to send free text messages, sidestepping AT&T's cellular network.

AT&T is Apple's carrier partner in the United States.

   "Apple and Google have had a 'coopitition' relationship," said Forrester mobile analyst Charles Golvin. "It seems that over the last year it has become less cooperation and more competition."

   The Nexus One is the latest phone created by a partnership between Google and Taiwan-based HTC, though it's the first time Google will sell a smartphone to consumers via the Internet. Some of the new phone's features, such as voice navigation, are not yet available on the iPhone.

   "By introducing a Google-branded phone, Google is leaning closer to Apple by providing hardware, software and services," said Tim Bajarin, president of Creative Strategies and a longtime Apple watcher.

   Google's Android mobile phone operating system runs on about a dozen other devices made by HTC and other manufacturers, including Motorola and Samsung.

Google's Chrome browser and Chrome operating system, meanwhile, are potential competitors to Apple's Safari browser and Macintosh operating system.

   Apple, for its part, is reportedly paying $275 million for Quattro - after Google paid $750 million for rival mobile ad company AdMob that, analysts say, Apple had been eyeing.

   AdMob ads show up in many ad-based iPhone applications, and observers believe Apple's Quattro acquisition was to buy a slice of this fast-growing market, which already is a nearly $3 billion global industry, according to Chetan Sharma, an independent wireless industry analyst.

Apple last week announced that more than three billion apps have been downloaded from its App Store. An estimated 25 percent of app downloads - in categories ranging from games to travel and news - are free.

   "Now Apple has a sales force that will sell ads against that inventory," said Krishna Subramanian, co-founder of Mobclix, a California startup that offers developers analytical data garnered from mobile devices.

Needham & Co. analyst Charles Wolf does not believe Google and Apple will ever compete head to head.

   "I don't think Apple is going to be a major ad delivery company," he said. "That isn't in their DNA. If you look at the Nexus One - it's a pretty conventional phone. It's really an HTC phone. I don't see Apple and Google on a collision course."

Google's search and map services are bundled on the iPhone, and Google offers free apps for Apple's device.

   "Google gets tremendous benefits from its relationship with Apple," Golvin said.

Apple and Google have different business models - Apple derives most of its revenue from selling devices such as iPhones, iPods and laptops, while Google has made its fortune from online advertising.

   "They are both globally ambitious, driven companies that are quite disruptive," analyst Sharma added. "They are not afraid of being disruptive to their rivals - or partners."

   Google isn't really interested in becoming a designer of mobile phones; rather, it wants to drive the mobile phone industry to create more sophisticated devices that make it easy for users to access the Internet, which ultimately benefits the giant search engine, Sharma said.

   "This puts a lot of the (handset makers) and carriers on notice: You've got to play nice with Google and you've got to adopt whatever Google wants them to adopt as their strategy," he said. "No matter what happens, Google wins."

   Last week, Google unveiled the Nexus One, a direct competitor to Apple's iPhone. Meanwhile, Apple has purchased a mobile advertising company to rival a similar acquisition of Google's.