Talk about Google entering the mobile phone sector has been rampant of late. It has driven Google’s already stratospheric stock price up an incredible 20% in the past month.
What Google is apparently working on is not the hardware per se, but an open operating system and applications that play to its strengths in search, mapping, YouTube and, of course, targeted advertising. Various accounts has it speaking with Verizon Wireless, Sprint and T-Mobile in the U.S., possibly others globally.
The first question anyone following this thread would ask is why would any of these players consider opening up their tightly controlled phones? Right now, for example, Verizon customers who want GPS directions pay $10/month or $3.00 daily for data that cost Verizon almost nothing to provide. Other mobile phone data services bring in anywhere from $5 to $45 month. Why would Verizon agree to an open system that would blow open this cash cow?
The answer lies in the same metrics that lead The New York Times to forgo $49 from 220,000 subscribers to its Times Select service. And it is the same calculus that my colleague here Dorian Benkoil (and various commenters) put together for scenarios that might make it more profitable forThe Wall Street Journal to give away its online product and forego the $60 million, plus or minus, in subscription revenue. That is, the potential for advertising revenue is greater than the current and projected revenue from the walled cell phone garden.
What are the stakes? In 2006, an estimated $301 million was spent on ads for mobile phone in the U.S. One research firm guesses that should increase to $2.12 billion in 2011. (How can they predict to two decimal places four years from now? Someday I will examine a bunch of these past forecasts and see how they line up with what really happened). But this projection likely assumes that the current cell phone industry model prevails. If a more open network evolved, with advertising dollars available to replace lost subscription revenue, that $2.1 billion would be higher. How much? Ah, there’s the rub.
What I am suggesting here is some credibility to the notion that the carriers, like much of the media industry, might do better from an advertising model than from user revenue for their data services. The most likely carriers to be amenable to a deal with Google would be number three Sprint-Nextel and number four T-Mobile. Word is that the latter may be closest to a deal. But Verizon could want to get in on the act as well to counter AT&T’s excluive with Apple. In any event, Google would likely need to split revenue more generously with the carriers than it does in the media world because the carriers are in a much stronger bargaining position.
If Google does get its foot (or whatever) in the mobile phone world, the impact could be every bit as great as has been its impact in the Web universe. It might force Apple to open up the iPhone even more than it has planned to, as much to accommodate its current partner, AT&T, than out of true belief.
I’m not ready to buy Google stock at $700—but then, I thought it was rich when its IPO priced it at about $85, so don’t take advise on this from me. Still, if they pull this off, $700 may look cheap by 2011.
What Google is apparently working on is not the hardware per se, but an open operating system and applications that play to its strengths in search, mapping, YouTube and, of course, targeted advertising. Various accounts has it speaking with Verizon Wireless, Sprint and T-Mobile in the U.S., possibly others globally.
The first question anyone following this thread would ask is why would any of these players consider opening up their tightly controlled phones? Right now, for example, Verizon customers who want GPS directions pay $10/month or $3.00 daily for data that cost Verizon almost nothing to provide. Other mobile phone data services bring in anywhere from $5 to $45 month. Why would Verizon agree to an open system that would blow open this cash cow?The answer lies in the same metrics that lead The New York Times to forgo $49 from 220,000 subscribers to its Times Select service. And it is the same calculus that my colleague here Dorian Benkoil (and various commenters) put together for scenarios that might make it more profitable forThe Wall Street Journal to give away its online product and forego the $60 million, plus or minus, in subscription revenue. That is, the potential for advertising revenue is greater than the current and projected revenue from the walled cell phone garden.
What are the stakes? In 2006, an estimated $301 million was spent on ads for mobile phone in the U.S. One research firm guesses that should increase to $2.12 billion in 2011. (How can they predict to two decimal places four years from now? Someday I will examine a bunch of these past forecasts and see how they line up with what really happened). But this projection likely assumes that the current cell phone industry model prevails. If a more open network evolved, with advertising dollars available to replace lost subscription revenue, that $2.1 billion would be higher. How much? Ah, there’s the rub.
What I am suggesting here is some credibility to the notion that the carriers, like much of the media industry, might do better from an advertising model than from user revenue for their data services. The most likely carriers to be amenable to a deal with Google would be number three Sprint-Nextel and number four T-Mobile. Word is that the latter may be closest to a deal. But Verizon could want to get in on the act as well to counter AT&T’s excluive with Apple. In any event, Google would likely need to split revenue more generously with the carriers than it does in the media world because the carriers are in a much stronger bargaining position.
If Google does get its foot (or whatever) in the mobile phone world, the impact could be every bit as great as has been its impact in the Web universe. It might force Apple to open up the iPhone even more than it has planned to, as much to accommodate its current partner, AT&T, than out of true belief.
I’m not ready to buy Google stock at $700—but then, I thought it was rich when its IPO priced it at about $85, so don’t take advise on this from me. Still, if they pull this off, $700 may look cheap by 2011.
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