Oct. 28 (Bloomberg) -- Google Inc. is adding a free U.S. turn-by-turn mapping service to the Android mobile-phone operating system, opening up a new source of competition for makers of navigation devices.

The service is part of the updated Android 2.0 software, which was released to developers yesterday. The new maps service, called Google Maps Navigation, will include audio instructions for routes and simple ways to search for businesses, the company said.

Google, which has more than 50 million users for its current mobile-mapping feature, aims to add more so-called cloud services -- programs that are delivered via the Internet. The company offers many of the services for free, a strategy to keep customers loyal and create new opportunities for advertising, Google’s main source of revenue.

“Obviously, we like the price of free and consumers like that as well,” Chief Executive Officer Eric Schmidt said yesterday at a preview of the service. The company can figure out how to make money from the product later, he said.

The navigation feature uses a phone’s Internet connection to provide the latest maps and business information. To use the service in a car, customers can purchase a cradle for their phone that attaches to the dashboard.

Garmin, TomTom Competition

That would allow drivers to replace their car-navigation devices with phones running the Google software. Garmin Ltd. is the biggest maker of navigation devices in the U.S. and TomTom NV is the biggest European manufacturer.

“It can be downloaded on the telephone like TomTom’s application but wouldn’t cost you anything,” said Alexander Peterc, a Paris-based analyst with Exane BNP Paribas who has an “underperform” rating on TomTom shares. “Even if the quality is lower, it will make a major dent in paid navigation.”

Ted Gartner, a spokesman for Garmin, declined to comment. Richard Piekaar, a TomTom spokesman, couldn’t immediately be reached by phone.

TomTom, based in Amsterdam, today reported a 15 percent drop in third-quarter sales and Chief Executive Officer Harold Goddijn said in an interview that device prices will continue to drop this quarter.

TomTom plunged 21 percent to 8.11 euros in Amsterdam trading, its biggest drop on record. Garmin fell $6.19, or 16 percent, to $31.59 in Nasdaq Stock Market trading at 4 p.m. New York time. Google declined $7.99, or 1.5 percent, to $540.30.

‘Plain English’

The Google service includes what the company calls “search in plain English.” Users can type in an approximate business name or a type of business, and Google can track down the actual address.

The search feature also works with voice commands, and a satellite view lets users see a route overlaid with three- dimensional images of the landscape.

The new service will be available for Android 2.0 phones, including Motorola Inc.’s Droid. It could be added to other devices in the future, said Vic Gundotra, vice president of engineering at Mountain View, California-based Google.

Google is working with Apple Inc. to bring the navigation system to the iPhone, he said. He declined to elaborate.

“We’ve had a philosophy to release capabilities when they’re ready,” Gundotra said. “It was clear from user demand that the next natural step for Google Mobile Maps was to offer turn-by-turn.”

To contact the reporter on this story: Brian Womack in San Francisco at bwomack1@bloomberg.net

Last Updated: October 28, 2009 16:05 EDT