Google, Verizon Wireless: A Potent Smartphone Team

Move over Apple and Research In Motion. Rivalry in the smartphone market has just heated up.

For a while it seemed the bloodiest battle in smartphones would be fought between Apple (AAPL), maker of the iPhone, and BlackBerry maker Research In Motion (RIMM). But an emerging alliance between Google (GOOG) and Verizon Wireless has the potential to create a potent alternative to the BlackBerry and iPhone in the U.S. smartphone market.

On Oct. 6, Verizon Wireless and Google said they will collaborate on mobile devices, services, and software for the Android mobile operating system that's being developed by a Google-led consortium. The pairing gives Android its largest-yet wireless industry backer and is likely to accelerate the development of Android-based devices and of applications tailored to the Android operating system.

Thirty Android-Based Devices by Yearend?

Analysts expect Verizon Wireless, a joint venture of Verizon Communications (VZ) and Vodafone (VOD) and the largest U.S. wireless service provider, to unveil at least three Android-based phones from such makers as Motorola (MOT), Samsung, and HTC later this month.

Backing from Verizon Wireless, which boasts 87.7 million users, could encourage other handset makers to build for Android, too. All told, device manufacturers may unveil 30 Android-based devices by yearend, says Stifel Nicolaus analyst George Askew. Last summer, Google's top Android manager, Andy Rubin, said he expected up to 20 devices to debut in 2009.

Depending on how aggressively Verizon Wireless begins marketing Android handsets, BlackBerrys and other smartphones could be forced to play second fiddle in Verizon Wireless stores, says Kaufman Bros. analyst Shaw Wu.

An increasingly important selling point for smartphones is the availability of applications, such as games and productivity tools, often developed by third-party programmers. Android Market, which sells games and productivity apps for phones such as the T-Mobile G1 and myTouch 3G, currently offers about 10,000 apps. The Apple App Store has more than 85,000.

No iPhone for Verizon Wireless?

Part of the reason for the success of Apple's outlet is the marketing support from big carriers such as AT&T (T), the exclusive U.S. iPhone carrier. Once Verizon Wireless starts preloading Android Market on handsets and offering its own games and other applications through the store, the Market's content and usage should increase. "Within 12 to 18 months, we'll see a lot more interesting applications coming out of the developer community," says Scott Ellison, a vice-president at consultant IDC.

The Verizon Wireless network is reputed to be more reliable than AT&T's in key markets. Add to that the prospect of more features, and Android phones become more viable alternatives to the iPhone. Partnering with Google also gives Verizon Wireless less incentive to make the concessions it would need to offer in order to become a partner to Apple in selling the iPhone. "They are showing Apple: 'If we don't get the iPhone, we have all this other stuff; we are not desperate,'" says Tero Kuittinen, senior analyst at institutional equity trading and research firm MKM Partners.

Another smartphone maker, Microsoft (MSFT), has been losing market share to RIM and Apple, and the Verizon Wireless-Google alliance could put it further in the shadows. The Android alliance was announced on the very day Microsoft was unveiling a new version of its cell-phone software under a new name, Windows Phone. The brand, which replaces Windows Mobile, will be supported by a major marketing campaign. Still, Microsoft's announcement got far less play in the media than Google's. "I am sure Google meant to be a spoiler," says Kuittinen.

If it's any consolation, Microsoft may not be the only one to lose out.

Source: http://www.businessweek.com