Google Leverages Wireless Supply Chain to Reshape Mobile Business
Published on: 19th Feb 2010
Note -- this news article is more than a year old.
By pursuing a strategy of working with the mobile chain rather than against it, Google has a strong chance of success in its bid to transform the wireless business from its traditional voice subscription model to one supported by broadband based mobile advertising revenue, according to iSuppli Corp.
If Google can execute this strategy, it stands to rewrite the rules in the $1 trillion wireless industry.
"During the past three years, Google has continually targeted the mobile communications industry with a series of initiatives," said Dr. Jagdish Rebello, director and principal analyst at iSuppli. "From offering free Wi-Fi services, to developing a free and powerful open operating system for smart phones - Android - to offering free maps and turn-by-turn navigation services, to introducing a Google branded phone - the Nexus One - the Internet search giant is revolutionizing the mobile value chain in an attempt to unlock new value and to expand an industry desperately searching for the next inflection point."
Like much of the rest of the mobile value chain, Google is seeking to uncover new user behavior patterns and to drive social networking services through the promotion of cloud storage and computing, mobile advertising, and a variety of location-based services. All of the free Google offerings are driving toward this goal.
"While all the facets of this multipronged strategy will not be successful, it is clear that Google is pushing toward the strategy of monetizing mobile search by leveraging its leadership in Internet search with relevant location-based services and mobile advertising," Rebello said. "iSuppli believes that if the company executes this strategy correctly - by working with and not against the rest of the mobile value chain - the wireless industry will be well positioned to unlock the next trillion dollars of value by the end of this decade."
Google strategy: free is good
As part of its wireless strategy, Google has actively promoted and shaped the development of the Android open-source operating system. Google claims that there are now about 20 smart-phone models that support Android.
A unique and compelling characteristic of the Android OS is the integration of many of Google's popular Web-based services and cloud computing/storage applications, as well as the synchronization of a user's e-mails, contacts, calendar and other information with smart-phone devices.
Google also has encouraged the adoption of the Android operating system among device OEMs, mobile operators and application developers by creating an ecosystem where everyone benefits. While OEMs pay no licensing fee for incorporating the Android operating system and have the capability to customize the User Interface (UI) to their own specific requirements, the application developers and mobile operators split the revenue from the sale of downloaded applications at a ratio of 70:30. This is a variation from the present industry norm, where application developers evenly split revenue with the operating system platform provider.
In another paradigm-shifting move, Google in November announced that it will include Google maps and turn-by-turn navigation applications for free in all phones with the Android operating system. Although the application will at first be available only on Android 2.0 handsets, the fact that Google Mobile Maps for BlackBerry integrates functions like Street View, Layers, Latitude, Traffic, Wikipedia, and the like is proof that Google Maps Navigation eventually will also come to other smart phones.
"The beauty of Google's navigation initiative is that its offering, while free, will result in profits via mobile search and advertising," Rebello said. "These moves by Google are intended to drive the increased use of mobile searches and prompt new social networking behaviors that leverage cloud storage and mobile advertising. Given its overwhelming dominance in the Internet search application market, Google is now poised to leverage its search capabilities with Location Based Services (LBS) to drive mobile search results targeted at the location of the mobile consumer. Clearly, Google's strategy is to expand into areas where it has a competitive advantage due to its dominance in search and advertising. This, coupled with mobile advertising and mobile commerce, has the potential to unlock tremendous value for the mobile user and to drive new revenue opportunities for Google."
Because of all these factors, Google is well positioned to reshape the wireless business in its own image, Rebello added