Google Android Group Shows Cracks

Google Inc.’s mobile-phone alliance is showing signs of strain.

After Verizon Wireless scrapped plans to offer Google’s Nexus One handset this week, Motorola Inc. said it opted for a mapping software other than Google’s version. Samsung Electronics Co. has developed an alternative mobile-phone operating system, and HTC Corp. may follow suit.

By shunning the Nexus One and adding rival applications to phones, the handset makers and carriers may loosen Google’s control over how customers use wireless devices. The company worked with partners three years ago to create Android, an operating system that the industry could share. Recent setbacks may hamper Google’s efforts to replicate the success of its Web search engine in the burgeoning mobile advertising market.

“Everybody is afraid of Google having too much power,” said Carl Howe, an analyst at Yankee Group, a Boston-based research firm. “I don’t think anyone wants to say, ‘In addition to 70 percent of the search traffic in the world, we’re going to give them a whole lot more business.’”

Android’s share of the U.S. smartphone market jumped to 9 percent in February from 5.2 percent at the end of 2009, according to research firm ComScore Inc. in Reston, Virginia. It ranks behind Research In Motion Ltd., Apple Inc.’s iPhone and Microsoft Corp.’s Windows Mobile.

Photographer: Kim White/Bloomberg

A Google Inc. Nexus One touch-screen mobile phone sits on display for the media at Google headquarters in Mountain View, California on Jan. 5, 2010. Close

A Google Inc. Nexus One touch-screen mobile phone sits on display for the media at... Read More

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Photographer: Kim White/Bloomberg

A Google Inc. Nexus One touch-screen mobile phone sits on display for the media at Google headquarters in Mountain View, California on Jan. 5, 2010.

Pick and Choose

Google plays down the partner moves, saying Android is valuable because it gives users the freedom to pick alternatives.

“Various people in the mobile ecosystem can choose which part of the software they want to use,” said Anthony House, a spokesman for the Mountain View, California-based company. “The competition is good for consumers.”

Google advanced 13 cents to $529.19 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have dropped 15 percent this year.

Google offers Android for free, seeking to make money from mobile advertising in searches and other applications. Sales from mobile ads in the U.S. will more than triple to $1.56 billion by 2013 from the end of last year, according to New York-based research firm EMarketer Inc.

Android partners are increasingly willing to use mobile software made by rivals, giving Google fewer opportunities to sell ads. Motorola, which started selling Android-powered phones last year, said yesterday that it will use location and navigation technology from Skyhook Wireless in the devices. Motorola had relied on Google’s location service.

Motorola’s Moves

Christy Wyatt, a vice president at Schaumburg, Illinois- based Motorola, said programs from both Google and Skyhook remain on the phones. Motorola is not moving away from Google, and the choice of Skyhook is “more of a deepening of the technology we have to work with,” she said.

Still, the move indicates an unwillingness to become too reliant on a single software provider.

“You want to control your own destiny,” said Will Stofega, program director at researcher IDC.

A day before Motorola’s announcement, Verizon Wireless retreated from plans to sell the Nexus One, the first Google- branded phone. The company plans to focus instead on other Android-powered models.

Verizon Wireless, the top U.S. wireless carrier, had said in January that it would carry the Nexus One, adding it to a roster of Android phones that includes devices from HTC and Motorola. Verizon is not part of the Open Handset Alliance, the group formed in 2007 to support Android.

Verizon’s Decision

“This is a competitive business, and there’s value in competition,” said Brenda Raney, spokeswoman for Basking Ridge, New Jersey-based Verizon Wireless, which is co-owned by Verizon Communications Inc. and Vodafone Group Plc. “Wireless phones are not one-size-fits-all.”

HTC, maker of the Droid Eris and Droid Incredible phones, said earlier this month that it’s studying whether to create another operating system. HTC, based in Taoyuan, Taiwan, was the first manufacturer to release an Android handset. The company also uses Microsoft’s Windows Mobile software.

Samsung, the world’s second-largest mobile-phone maker, introduced an operating system called Bada earlier this year. It will use the software on its Wave handset. The company has Android on other phones, such as the Galaxy.

“As others compete with Google and make their own operating systems, it dilutes the vision,” said Allen Nogee, an analyst at Scottsdale, Arizona-based In-Stat LLC. “Android will be just one of several operating systems going forward.”

Keith Nowak, a spokesman for HTC, said the company still has a serious commitment to Android and its “mantra is to investigate anything.” Sungin Cho, a spokeswoman for Suwon, South Korea-based Samsung, didn’t return a call seeking comment.

Technical Glitches

The biggest challenge for Google may be to improve its software and ensure that it can adapt to the mobile market, said Maribel Lopez, an analyst at Lopez Research LLC in San Francisco. Google is on its fourth revision of Android in the past year, in part because of software glitches and missing features, she said.

Google says it’s pleased with demand for phones with its software. More than 60,000 Android phones are being sold and activated a day, Senior Vice President Jeff Huber said during Google’s first-quarter earnings call this month.

Still, a rising number of Android iterations may make it harder for developers to create high-quality applications for phones based on the operating system, diminishing the brand, Lopez said.

“This is nightmarishly complicated,” said Lopez, who’s followed the mobile industry for more than 18 years. “There’s no consistency across the platforms, there’s no consistency across devices, and there’s no consistency across the application ecosystem.”

To contact the reporter on this story: Ari Levy in San Francisco at alevy5@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

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