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Google Cell Phone (GPhone) and Its Prospects

Om Malik has an interesting post and speculation about mobile carrier Orange, mobile device maker HTC and Google teaming up for a Google-branded phone. Here’s the original source (the UK’s Observer):

Their plans centre on a branded Google phone, which would probably also carry Orange’s logo. The device would not be revolutionary: manufactured by HTC, a Taiwanese firm specialising in smart phones and Personal Data Assistants (PDAs), it might have a screen similar to a video iPod. But it would have built-in Google software which would dramatically improve on the slow and cumbersome experience of surfing the web from a mobile handset.

A source close to the talks told The Observer: ‘Google are software experts and are doing some amazing work compressing data so that the mobile user gets a much better experience. They don’t know so much about mobiles, but they are eager to learn from Orange’s years of experience.’

While I don’t know anything beyond what I’ve read above, I’ll speculate that it’s entirely possible this is true. For purposes of the rest of this discussion let’s assume it is.

In Europe, where carriers don’t rule to the degree they do in the US, this phone (notwithstanding the Orange branding) could hypothetically be sold directly to the public and work with multiple carriers. In the US (if there were a US version of this, which is less likely), it would be offered through a carrier or carriers. The closest analogy would be the Treo or the Q. Treo is fairly ubiquitous, while Verizon has used its exclusive control of the Q as an incentive to switch carriers.

Obviously passive location awareness would be a huge benefit to the user in terms of conducting local searches and seeking local content (weather, etc.). We could imagine many ways in which the user experience could be improved and how Google might benefit through adoption and locally targeted advertising. (Then there’s YouTube and mobile video ads.)

Recall that last month Google CEO Eric Schmidt made the following comment:

“Your mobile phone should be free,” [Google CEO Eric] Schmidt told Reuters. “It just makes sense that subsidies should increase” as advertising rises on mobile phones.

While it would be interesting and potentially a model for other similar deals, it would not mean Google would immediately rise to a position of huge advantage in mobile advertising. (The speculated release date is 2008.)

Changing your cell phone or your carrier is not like changing your browser or search engine. There are numerous considerations involved. Some nexus of cost and differentiated features would be determinative of adoption of a “GPhone.” And of those, cost (monthly fees) would likely be the more powerful factor. Note the results of an IDC consumer survey (US based) on mobile data and advertising, recently reported in MediaPost (reg req’d):

The biggest complaint of 38.5% of mobile consumers was that data services are “too expensive.” But mobile users aren’t necessarily eager to accept ads in exchange for lower bills. In the survey, consumers were asked to indicate how willing they would be to accept three ads a day in return for half-priced data services or content. Rating on a scale from one (very willing) to seven (very unwilling), the average was 2.45. Only 6% of respondents said they were “very willing” to accept advertising in return for lower service costs. About 16% indicated at least some openness to advertising.

As the excerpt from the article indicates, users are not necessarily willing to accept ads to subsidize their data plans — mobile advertising has limits. The successful model is “directional” (i.e., paid search): when I’m looking for a bar or a hotel, I get an ad or relevant offer. In other cases display ads might work and users will also tolerate video pre-roll here and there. But the idea that ad-subsidized services are a panacea to accelerate mass data adoption is mistaken.

Greg Sterling is the founding principal of Sterling Market Intelligence, a consulting and research firm focused on online consumer and advertiser behavior and the relationship between the Internet and traditional media, with an emphasis on the local marketplace.

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Google Cell Phone (GPhone) and Its Prospects

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