Google Inc.'s announcement last year that it would give away software that could run cell phones was met by dizzy accolades from analysts who thought it would let the search engine company conquer the world of mobile advertising.
On Tuesday, a fruit of that announcement is set to drop: T-Mobile USA will reveal the first phone to use Android, Google's software platform, at a New York news conference.
But a lot has happened in the world of cell phone software in the intervening year, and Google looks set for an uphill battle in trying to capture the desires of consumers and wireless carriers.
Research firm Strategy Analytics estimates that T-Mobile could sell 400,000 phones this year, giving Google about 4 percent of the U.S. market for "smart" phones, a category dominated by Research in Motion Ltd.'s BlackBerry phones with tough competition from Apple Inc.'s iPhone, Palm Inc.'s Treos and Centros and various phones running Microsoft Corp.'s Windows Mobile software.
The new phone, called the G1 according to T-Mobile's invitation, is widely expected to be a design from HTC Corp. of Taiwan, which has made a name for itself by making smart phones that use Windows Mobile software. Based on previous Google demos of its software, it's assumed that it will have a touch screen and a slide-out, full-alphabet keyboard.
The Wall Street Journal reported last week, citing unnamed sources, that the phone would sell for $199 and carry the Google brand. It's likely that the phone will go on sale in a few weeks. Other details are scant, and it's not clear exactly what the phone will be capable of, but Web browsing and e-mail are safe bets.
"This is the right moment for Google to answer some of the big questions that have been outstanding since Android was announced almost a year ago," said Morgan Gillis, executive director of the LiMo Foundation, which has created a rival cell phone software platform. "What will the consumer do on this handset that can't be done on other handsets?"
The LiMo Foundation is behind one of the developments that has undermined the prospects for Android in the last year. In May, Verizon Wireless said LiMo, or Linux Mobile, would be the "preferred" software for its phones, starting next year, joining some European carriers.
Like Android, LiMo is based on Linux computer software, and is given away free to phone makers. But the LiMo Foundation is designed as consortium of industry participants to assuage their fears that a single company would dominate phone software, like Microsoft does on PCs. In contrast, while Google has tried to broaden its base by creating an Open Handset Alliance, Android is still very much identified as its project, and a "Google" brand on the phone will strengthen that image.
The world's largest supplier of software for smart phones is Symbian Ltd., used by Nokia Corp. In June, Nokia announced it was buying Symbian with a view to donating the software to a LiMo-like foundation, which will make it available for free.
That means there will soon be not one but two suites of software with strong industry support and a price tag of zero to compete with Android when manufacturers pick operating systems.
When it comes to getting carriers interested in Android, Google has an advantage its competitors lack: a world-beating advertising system that turned it into a multibillion-dollar company in the space of a few years. If Android can translate Google's success in Web advertising to the phone, carriers could get a cut of the revenue.
Wireless operators have been looking for more than a decade at making the cell phone an welcoming place for advertisers, said In-Stat analyst Bill Hughes. In particular, they want to make use of the ability of cell phones to locate their users and provide ads keyed to that location.
But the carriers "are not really set up, structurally or by temperament, to pursue that," Hughes said. "So it's basically remained: `This is a really good idea that we're going to get to some day.'"
Now, he added, Google "can come to them and say `Look, we've proven ourselves to be very successful in this application." By building an operating system from the ground up with this idea in mind, it could succeed where others have failed.
That prospect boosted Google's stock to its highest level ever, $747.24, on Nov. 7 last year, the day after Android was announced. Analyst Sandeep Aggarwal, then with Oppenheimer & Co., predicted then that Google could be harvesting as much as $4.8 billion in annual revenue from the mobile market within three years after Android appears. He put a 12-month price target of $850 on Google stock. But time has deflated some of the hopes around Android, and Google shares closed Monday at $430.14.
Among U.S. carriers, Sprint Nextel Corp. has apparently taken the bait along with T-Mobile, and is a member of the Open Handset Alliance. Verizon Wireless has not ruled out Android phones, but is putting its energy into LiMo. AT&T is holding off on making decisions about Android.
"We will look at it and see if it makes sense for our customers," said AT&T spokesman Mark Siegel.
