Android's threat to the iPhone

September 23, 2008: 9:34 AM ET
The first phone to use Google's Android operating system will be available on October 22.

If Google plays its cards right, its unveiling of the first Android-powered phone on Tuesday will prove to be more than a distraction from iPhone-mania – it will be the moment the search giant capitalizes on Apple's control issues.

First, the lowdown on Google's (GOOG) Android mobile operating system. The first phone to use it, the $179 G1 from HTC, will be available around October 22 and will use T-Mobile's wireless network. Data plans will start at $25 per month, and cost $35 per month for unlimited access. (Voice plan is separate.) It comes with nifty programs like Gmail, YouTube, contacts, calendar, IM, and Google Maps with Street View, which shows pictures of locations on a map.

Think of Android as an attempt to do for phones what Windows does for the PC, or OS X does for the Mac. But unlike Microsoft (MSFT) and Apple (AAPL), Google isn't looking to make money off of phone software or hardware; instead, it's giving Android away for free to any phonemaker and wireless carrier who will bake it into a handset. Why? If people use their phones to get online, the more they'll do Google searches, click Google ads, and in the process, make Google money.

That clears up why Google needs Android. But do the rest of us? After all, there's no shortage of smartphones out there already; if you don't want RIM's (RIMM) BlackBerry, you can get Apple's iPhone, Nokia's (NOK) N95; or a Windows Mobile phone from Palm (PALM), Motorola (MOT) or Samsung.

Google's answer for why we need another: to save us from folks like Apple and Microsoft. "No one party will control this platform," Rich Miner, Google's group manager for mobile, said at the Mobilize conference in Silicon Valley last week. In theory, such a hands-off approach makes it easier for bright entrepreneurs to set up shop and make money without answering to one powerful company. Jason Bremner, senior director of Qualcomm's (QCOM) cellular products group, vouches for that. "It helps innovation," he said. "And it drives costs down."

It's a timely argument, because Apple has been a bit heavy-handed with its popular gadget lately. We already knew about the iPhone's basic restrictions: AT&T (T) is the exclusive U.S. carrier, Apple is the only company allowed to make iPhones, and Apple itself decides which programs you can legitimately download and install through its App Store. But in recent weeks, Apple's inner control freak has grown especially active.

It began in August, when Apple's App Store police rejected programs including "I Am Rich," which was little more than a very expensive picture for $999; NetShare, which turned the iPhone into a modem; and Murderdrome, a violent digital comic book.

But a real backlash began a few days ago, when Apple nixed Podcaster, a program that lets people directly download shows without going through Apple's iTunes. The app didn't seem to violate any of Apple's published rules – so why was it tossed?

Creator Alex Sokirynsky, a 27-year-old web developer who writes software in his spare time, blogged his rejection letter: "Since Podcaster assists in the distribution of podcasts," Apple wrote, "it duplicates the functionality of the Podcast section of iTunes." The implicit message: Don't try to improve on our way of doing things. The move even angered some Apple fans. Longtime Mac developer Paul Kafasis blogged that Apple had "gone too far;" online publishing pioneer Dave Winer called it a dealbreaker for developers. (Apple did not respond to a request for comment.)

Actually, Apple has always had control issues. When CEO Steve Jobs returned to save the company a decade ago, one of his first acts was to cancel agreements that allowed other companies to make Macs. Executives almost decided not to release a Windows-compatible version of the iPod partly because it would mean dealing with Brand X operating system.

And of course there are those strained relationships with Hollywood studios, because Apple insists on dictating the pricing for most songs and videos in the iTunes store. To be fair, Apple's meticulous streak has its benefits, of course – if the company wasn't so particular, do you think it could build iTunes into the top-selling U.S. music retailer, invent the iPod, and win all those design awards? Yeah, probably not.

But in this case, there's reason to believe Apple's hands-on approach could eventually lose out to Google's more open model. Assuming Google can build and maintain a reliable operating system on its first try (and that's a big assumption), it's reasonable to expect major players like Motorola, Samsung and Sony Ericsson to build phones around the free software. And since the wireless carriers are hungry for Internet-friendly phones to compete with AT&T's lock on the iPhone, Android phones could prove popular. It's conceivable that in a year, Google-backed phones could be available from all four major U.S. carriers next to Apple's one, with a wide-open distribution model next to Apple's curated App Store.

Still, even in Google's dream scenario, Android won't gain ground overnight. The first model out the gate is from HTC (hardly a household name), running on T-Mobile's second-tier network. Adding to the uncertainty around the launch, a number of software developers are taking a wait-and-see stance toward Google's debut effort.

Andrew Stein, director of mobile business development for Popcap Games, said that while the maker of titles like Bejeweled and Zuma jumped at the chance to be first on the iPod and iPhone, it's not so excited about Android. "Apple's been doing operating systems for a very long time, but this is really Google's first," Stein said. "I don't think the first couple of devices are going to be multimillion-unit phones."

But Google's got at least one developer eager to take a chance. Sokirynsky, whose rejected iPhone app became a cause for bloggers, said he's now turned his attention to building a version of Podcaster for Android. "I only developed Podcaster for the iPhone because that was the phone I used and the app I wanted," he said. "I plan to keep developing for other platforms that are more open."

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