Android is about advertising, not the enterprise

Even though three companies hosted the launch event and the software is backed by a consortium, the introduction of the first Android phone made it very clear that Android is about one company: Google.

Android is Google's attempt to dominate the mobile advertising market, just as it has dominated the online PC advertising market, said Craig Wigginton, industry leader for Deloitte's telecommunications practice. "Their number-one driver for pushing this is the advertising model," he said.

But in order to grab a major share of the mobile advertising market, Google will have to convince a large number of people -- including business users -- to buy Android phones. That's a significant challenge in the increasingly crowded mobile phone market.

The G1, the first Android phone introduced by T-Mobile, Google and HTC on Tuesday, comes loaded with Google applications, including Gmail, Gtalk, Maps and YouTube. The home screen includes just one item: a Google search bar. Each of those applications is an opportunity for Google to deliver advertisements to users.

"Google is moving into the mobile devices market not to become yet another mobile phone manufacturer, but to enable a large addressable market for its services and applications," agreed Carolina Milanesi, an analyst at Gartner.

Around the world, there are 3.5 billion mobile-phone users. Just a fraction as many have computers. "Google has been very successful in the PC marketplace from an advertising perspective, so I think this can be a phenomenal source of revenue for them," Wigginton said.

Mobile advertising so far is a small market, but some analysts have high hopes for growth in the future. M:Metrics found that mobile display advertising was an approximately US$200 million industry last year, a figure analysts there expect to at least double this year. Analysts at Heavy Reading predict that the mobile advertising industry will exceed US$10 billion in annual revenue in 2013.

But Google faces a major challenge in trying to get the phones into hands of users, since it is up against some strong competitors, including the iPhone. Researchers at Strategy Analytics predict that 400,000 people will buy the G1 by the end of the year. That compares to 1 million people who recently bought the 3G iPhone on its opening weekend.

Google and T-Mobile appear to be mainly hoping that mass-market consumers will buy the phone, even though smartphones have traditionally appealed most to business users. The G1 lacks some features that business users might want. For example, it doesn't support Exchange mail, although it could if a developer builds the application.

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J. Gold Associates recently conducted a study of large and small businesses regarding their expectations for which mobile platform they expect to use within the next three years. The study of North American companies found that Android comes in last place, with 4.8 percent of businesses in the study saying that the platform will be important to them within the next three years.

Microsoft doesn't see Android as a competitor to Windows Mobile. "It's not even supporting Exchange, so I really doubt this is going to be going after the market that we do," said Scott Rockfeld, group product manager at Microsoft's Windows Mobile group. Microsoft has recently tweaked its marketing message from pitching Windows Mobile as exclusively a business tool to portraying the device as a single phone that appeals to people while they're working and playing.

Still, since Android is an open platform, developers can build applications that might interest enterprise users. "With the open sourcing, we should see as many enterprise apps as we would see consumer apps," said Wigginton.

Google's success in the market could benefit all mobile users, be they consumers or business users, in the form of lower prices. Onlookers have speculated that Google could help subsidize Android phones using revenue earned from advertising to the devices. "I don't know if Google is subsidizing it or not, but it's not out of the realm of possibilities," said Wigginton. The G1 will cost $179 when it becomes available in late October in the U.S.

Some analysts say they don't expect Android to be an overnight success, but given time it could challenge its competitors. "The G1 represents a promising start, and Google has pockets deep enough to outspend and compete with its competitors," said Geoff Blaber, an analyst at CCS Insight.

Once other Android phones start appearing, the platform could gain momentum. "There will be more to come in 2009 when manufacturers such as Samsung and LG will deliver their devices. Android has the potential to become the de facto operating system for Linux, and we expect sales to reach around 10 percent of the smartphone market in 2011," said Gartner analyst Roberta Cozza.

It's unclear yet which operator will launch the next Android phone. T-Mobile appears to have gotten a head start on its competitors. During the launch event on Tuesday, Cole Brodman, chief technology and innovation officer for T-Mobile USA, mentioned that the operator had been working with Google and HTC as far back as three years ago. Their partnership then predates the introduction of Android and the alliance of companies that back it in November 2007. Sprint, NTT DoCoMo, Telefonica and other operators around the globe are also members of the consortium.