June 30, 2008

How Nokia’s Symbian Move Helps Google

Nokia (NOK) rocked the wireless industry June 24 with news it would purchase the portion of Symbian, a maker of mobile-phone software, that it didn't already own -- and then give away the software for nothing.

The prospect of free software would surely lure users away from competing cell-phone software makers [BusinessWeek.com, 6/24/08] including Google (GOOG), which in the past year threw its hat into the cell-phone software ring by spearheading the creation of Android, an operating system for wireless devices. Or so the argument runs.

But Nokia's move may play right into Google's hands, by helping to nurture a blossoming of the mobile Web and spur demand for all manner of cell-phone applications -- and most important, the ads sold by Google. "There's nothing to say that this isn't what Google's plan was all along," says Kevin Burden, research director, mobile devices at consultancy ABI Research. "They might have wanted a more open device environment anyway. This might have been Google's end game."

Opening the Airwaves Google, which makes money from ads placed on Web pages and alongside search results, stands to benefit from anything that helps spread the use of the Web -- be it on computers or the advanced cell phones known as smartphones that run Symbian software. With the desktop search market showing signs of slowing, the company needs to ramp up usage of its applications from mobile devices. U.S. mobile search ad sales are expected to rise to $1.4 billion in 2012 from $33.2 million in 2007, according to consulting firm Kelsey Group.

But in the U.S. market, Google has long been hampered in getting its applications onto cell phones for a variety of reasons. To now, Web search on phones has been too slow or awkward, mobile data plans and smartphones are often expensive, and carriers and cell-phone makers place restrictions on which applications run on their calling plans and devices.

Google has tried to turn the tide in part by lobbying regulators to make wireless airwaves open to a wider range of applications. It's also been pushing the Federal Communications Commission to make some airwaves available for free public broadband use.

The creation of the Open Handset Alliance, a consortium of more than 30 companies developing Android, is another part of this multipronged effort to remove some costs currently inhibiting handset makers from making cheaper phones able to access the Web. The hope is that by keeping Android free, more people would be able to afford smartphones and log onto the mobile Web -- and ultimately use Google applications. After all, 82% of Apple (AAPL) iPhone owners use the Internet through the smartphone -- five times the average consumer's usage, according to Nielsen Mobile.

Google's Win-Win Nokia may be able to accomplish a lot of that groundwork, much more easily. Android lacks scale, and as a startup effort it's been prone to glitches and delays. It would take months for Android to start to significantly impact smartphone sales. Symbian is already the world's most popular smartphone operating system, with 56% of the market.

With Symbian free and open, Burden of ABI Research expects to bump his smartphone sales projections for 2009 by a "single-digit percentage." While smartphones account for 10% of the total handset market today, they could reach up to 25% of the total in three to four years, thanks in part to the Nokia announcement, says Jack Gold, president of consultancy J. Gold Associates. "Google shouldn't really care all that much what the operating system on a phone is," he says. Adds Burden: "The key to Google making a lot of money is we all use phones with operating systems on them."

Once more phones feature full Web browsers, it's reasonable to assume that more people will flock to Google's mobile sites. "Data I've seen suggests if a company is dominant on the desktop, it's going to be dominant on mobile," says Matt Booth, senior vice-president at Kelsey Group. On their mobile phones, people still go to sites powered by Google, Yahoo! (YHOO), and Microsoft (MSFT), which garner the most traffic in the PC world as well.

Google benefits if its applications come preinstalled on a phone. Being the default search engine on Apple's iPhone has helped Google dominate the nascent U.S. mobile search market, with 61% share, according to Nielsen Mobile. But many users will rely on Google even if it's not the default on a given phone, analysts and investors say. "Google could strike deals with carriers," explains Chris Sacca, a venture capitalist who until recently directed many of Google's wireless efforts. "But Google wants users to get applications on their devices on their own. Google's end goal isn't necessarily to push Google's applications onto people, but to create an open environment where people can choose these applications."

Sticking with Android And it's not like Google is going to turn its back on Android either. "A lot of the Apple developers are looking at Android [and not Symbian] as their Plan B," says Rick Doherty, director at consultancy Envisioneering Group. T-Mobile USA is expected to introduce its first Android device in late 2008 and Sprint Nextel (S) will likely follow suit in 2009. Besides, it will take several years for Symbian to go fully free and open.

Still, some analysts aren't convinced Google will stick with Android over the long haul. "I don't see any reason for Google to continue down the Android path long term [now that Nokia has made its move]," Gold says. "Google's commitment to Android hasn't changed," Google said in a statement. "And we're very excited to see the momentum continuing to build behind the Android platform among carriers, handset manufacturers, developers, and consumers."

Before long, Google may find itself equally excited by the momentum building around Symbian.