Is Google Cell Phone a Good Deal for Consumers?

Unless you're hopelessly dedicated to a landline-only existence, you're going to read a fair amount about the G1, a.k.a. the Google Phone. Manufactured by HTC and offered by T-Mobile, the iPhone-like device runs on Google's Android operating system and goes on sale Oct. 22. But the biggest thing to bear in mind is that this phone was not primarily designed to solve a problem that you, the consumer, are having. Rather it was designed to solve a problem that Google has—namely, the need to keep feeding more and more people into the maw of Google's online advertising machine.

Google dominates the search business with a 71-percent market share, according to researcher Hitwise. In the emerging mobile-computing environment, such domination may carry over, or it may not. Imagine, for example, what might happen if a rival like Microsoft were to enhance its Windows Mobile platform in ways that steer people to its online advertising machine rather than to Google's. Or imagine that for whatever reason people simply started using alternatives to Google's online services. To prevent either scenario from happening, Google has gone to the great expense and trouble of developing Android and giving it away free to the world. No licensing deals, no fees. Better yet, you can modify the software any way you want. Such a deal!

What's in it for Google? Plenty. Google loads Android with its own software (including a variant of its Chrome browser) and a slew of its other services, like mail, maps, contact, calendar, and search—and then rakes in money by showing advertisements to users of those services.

In other words, the phone is a Trojan horse. You get a cool phone for not much money—$179 with a contract from T-Mobile—but then you're caught in Google's Web. Another way to see this is that a quasi-monopolist (Google rules the online advertising business) is attempting to protect and extend its quasi-monopoly by giving away at no cost something for which others charge money. Sound familiar? It's what Microsoft did to Netscape in the 1990s, giving away a free browser to undermine Netscape Navigator.

Now Google is turning the tables and using Microsoft's own tactics against it. Microsoft sells a mobile-phone operating system called Windows Mobile and charges handset makers to use it. Its licensees include Taiwan-based HTC, the star of today's Android show, whose CEO seemed almost gleeful to be on stage with the Google team. "HTC's great excitement about Android is it can build a smartphone using a high-level operating system and not pay any royalty," says Shiv Bakhshi, an analyst at researcher IDC.

The G1 phone itself has a cool touch-screen interface, but overall it's nothing spectacular. It's bigger and clunkier than Apple's iPhone—it's like comparing a Subaru wagon to a Mercedes coupe.

In fact, the G1 is more like the anti-iPhone. For one thing, Android is open-source, meaning anyone can tinker with the software and modify the code. Plus, the software isn't coupled to any particular brand of hardware. Loads of Android-based phones will be hitting the market. Apple's iPhone, by contrast, is a closed system with hardware and software tightly coupled and locked down, kept secret from the world.

Same goes for iPhone applications. If you want to sell an application on the iPhone, you must do so through Apple's online store and you must get Apple's permission. Google is launching something called Android Market, a free-for-all site where anyone can create an application and post it online for others to download.

In techie circles this contrast is known as "the cathedral and the bazaar," based on an essay by a hacker named Eric Raymond in 1997. Raymond was writing about ways to create software, but the concept applies to the market as well. He argued that the old, hierarchical, highly controlled approach where development is controlled by a priesthood of experts (the cathedral) would be outpaced by the freewheeling open-source approach where anyone could contribute (the bazaar).

It's a great theory, but so far it hasn't exactly been proved correct. Open-source programs like the Linux operating system and the Mozilla Firefox Web browser have made a dent in the armor of Microsoft, the king of closed-source software. But so far it's just a dent. Windows still powers more than 90 percent of the world's PCs, and sales keep growing. And Microsoft's browser, Internet Explorer, remains by far the most popular browser with more than 70 percent share.

But the mobile market may be a different story. With PCs, the market was already fully mature and Windows was already well entrenched as the leader before the open-source wave came roaring along. In the mobile space, open source will be hitting at a much earlier stage, when mobile computing is still evolving and there's no entrenched leader.

The smartphone market is highly fragmented. Competitors include Research in Motion, maker of the BlackBerry; Palm, maker of the Treo and Centro; Microsoft, with its Windows Mobile platform; Symbian, an operating system used by Nokia and others; and Apple with the iPhone.

Right now these companies are engaged in a replay of the PC wars from the late 1980s, when the market was small but booming and loads of PC makers were constantly leapfrogging one another. Smartphone unit shipments will rise 26 percent this year, according to researcher IDC. These new handheld computers ultimately may become the most popular way of accessing the Internet. Google, king of the Internet, isn't taking any chances on being left behind.

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