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Can Redmond Answer Google's Call?

Doug's still out, so covering once again is Jeff Schwartz.

Reports that Google may release its own phone generated a lot of buzz over the weekend. Though Google isn't confirming that it will, in fact, release a phone, the company did acknowledge its employees are testing one.

According to a TechCrunch report on Saturday, a Google-branded phone called "Nexus One" could appear as soon as next month. It would be unlocked, meaning a customer could use it with any carrier that supports GSM (in the United States, that's AT&T and T-Mobile).

If Google does release a phone next year, it could put pressure on Apple, whose iPhone and iTunes App Store have a clear lead over everyone. But what about Microsoft? If Google offers a phone directly to customers or through retail channels, does that put more pressure on Redmond to offer a device based on its Zune platform or Windows Mobile, or some combination thereof?

If Google launches its own phone, it will hit two nerves with Redmond: first, its declining share in the mobile market, and second, the potentially lucrative mobile advertising market. Could Google be poised to put a stake in the ground in mobile advertising just as it did with Web advertising when it established itself in the search market?

"I think they are trying to get the market to a place where mobile advertising is as big as the market can be, and they are trying to move the market faster than it would otherwise move," said Yankee Group analyst Joshua Holbrook in an interview. And if Google gets out there first, "everyone else will follow suit, and at that point Google has won."

CIMI analyst Tom Nolle noted that responding by following in Google's footsteps isn't so simple. "I think it doubles down on Microsoft's risk," Nolle said. "They have a lot more to lose by getting directly into the cellular business than Google does. Microsoft expected to make money on Windows Mobile and they'd certainly kill off all their handset partners if they decided to sell phones of their own. Imagine what would happen to Windows if Microsoft sold computers. Google Android is open source and free, so Google might very well be able to sustain partner interest even with its own handsets."

Andrew Brust, chief of new technology at twentysix New York and author of the Redmond Diary blog, is skeptical. "Unlocked phones have failed to resonate in this country," he said in an e-mail.

Brust does see a motivation for Google's move. In his own review of the Droid, he pointed out several issues with the phone and most of them were attributed to Motorola's physical hardware design, rather than the Android operating system itself.

"If I were Google (or Microsoft, for that matter), I would commission one or two phones running my OS on exemplary hardware, but make these showcase devices rather than attempts at gaining serious market share," he noted.

"What Google needs to do is encourage its OEM partners to put their OS on great devices that show off the OS nicely," he added. "Apple does so by controlling the hardware and subjugating the carrier. Google doesn't want to do either, but they still want Android to be utilized to its full potential. 

Presuming Google follows suit and releases a Google-branded unlocked phone, what impact will that have on Microsoft's mobile ambitions? Drop me a line at [email protected].

Posted by Jeffrey Schwartz on December 14, 2009