Google Pushes Software Onto TVs, Steps Up Rivalry With Apple

Google Inc., owner of the most-used Web search engine, is teaming up with Intel Corp. to get its software onto televisions in a bid to succeed where rival Apple Inc. has struggled.

At a conference that starts today, Mountain View, California-based Google plans to announce a partnership with Intel and Sony Corp. that will put Android software on TV sets and other home-entertainment equipment, people familiar with the matter said earlier this month.

Google aims to expand beyond the online advertising business that makes up almost all its sales, while benefiting from rising demand for Web-connected TVs. Apple says it has had “small” sales of its own Internet-television device, calling the effort a “hobby.” There’s no guarantee Google can make deeper inroads, said Altimeter Group analyst Michael Gartenberg.

“It’s no slam dunk,” said Gartenberg, whose firm is based in San Mateo, California. “This is a place where lots of people have tried and not gained a whole lot of traction.”

Sony, based in Tokyo, will tap the new home-entertainment devices to stem losses in its TV division. The arrangement helps Santa Clara, California-based Intel get its processors into electronics other than computers.

Google fell $2.67 to $495.70 at 9:59 a.m. New York time in Nasdaq Stock Market trading. The shares had dropped 20 percent this year before today. Google spokesman Gabriel Stricker declined to comment, as did Intel spokesman Bill Calder and Sony spokesman John Dolak.

‘First Brick’

Google, which has the biggest share of the $60.4 billion online advertising market, broadened into smartphones through the Android mobile operating system. Adding TVs would give it a toehold in the $174.9 billion television advertising market.

“This is a new frontier for Google,” said Ray Valdes, an analyst at Gartner Inc. “It’s a return to traditional mass media concepts.”

To attract consumers, Google will need to provide a broad variety of easily searchable programming and let viewers chat or post comments about it online, on a single screen, Valdes said.

Google also needs to land content partnerships to make its service attractive to more than just technology-savvy consumers, he said. “They are laying down the first brick in the foundation,” Valdes said. “The brick has to do with hardware and software and geek topics. If they stop there they’re not going to go very far.”

Apple TV, unveiled in 2007, is a set-top box that lets users access content from the Internet and iTunes and display it on widescreen TVs. Apple doesn’t break out sales of Apple TV.

‘Small’ Unit Sales

Chief Executive Officer Steve Jobs and Chief Operating Officer Tim Cook both call it a “hobby” compared with Apple’s other products, which include the Macintosh computer, iPhone wireless handset and iPod digital music player.

“The absolute number of units are still small,” Cook told analysts on April 20 after the company reported earnings.

Part of Apple’s challenge may be that it requires consumers to buy a separate box to hook up to their televisions, said Paul Gray, an analyst at researcher DisplaySearch. Google may avoid that setback by including its software directly in the hardware.

“In the end, this is kind of a stealth sale,” Gray said. “The consumer is unaware of what’s going on. It just does it. That’s the way to go.”

Demand for Web-connected sets is gaining. An estimated 46 percent of flat-panel TVs will ship with Internet connections in 2013, up from an estimated 19 percent this year, according to ABI Research Inc. Companies such as Yahoo Inc! now offer software for makers that want to provide Web-enabled sets.

Google’s Turf

“The TV manufacturers are starting to look at this as a checklist, or checkbox for Internet connectivity,” said Jason Blackwell, an analyst at ABI Research in Oyster Bay, New York.

Consumers also are warming to Internet content on TV. About one in eight people in a recent Yankee Group survey said they may end or curtail pay TV services in favor of online content.

Google’s prowess in organizing information will help it address consumer frustration over slow on-screen guides and search features ill-equipped to handle the multiplicity of channels and ways of getting programming, said Carl Howe and analyst at Yankee Group in Boston.

“In many ways TV has wandered into Google’s space,” Howe said. “You didn’t need search when there were three stations. If you could change channels in a tenth of a second rather than one to two seconds that would attract a lot of people.”

Nudging Apple Aside

Google already has moved beyond search on the personal computer with Android on smartphones. In the first quarter, Android replaced Apple as the No. 2 operating system on U.S. smartphones, gaining 28 percent market share, according to NPD Group in Port Washington, New York. Apple had 21 percent, while Research In Motion Ltd.’s BlackBerry led with 36 percent.

“From what we’ve seen from the smartphone categories, Google is sort of well-positioned for that in terms of creating a developer base and a base of applications that will then provide some reason for the consumers to look for the devices,” ABI’s Blackwell said.

To make money from TV software, Google might deliver ads based on what a viewer does on the Web while they’re watching television, he said. Google also could simply provide more general video ads as a broadcaster would, he added.

This year television ad spending will reach $174.9 billion, almost three times the total spent online, according to market researcher ZenithOptimedia Group Ltd. in the U.K.

“Google has made no secret that it wants all screens to be connected -- it wants them to be connected to Google services,” Altimeter’s Gartenberg said. “You don’t want to ignore the TV set as part of that vision.”

To contact the reporters on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net.

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