Google's Friends And Family Plan
The drumbeat has started in Silicon Valley: Google phones are coming. — It's no secret that Google (nasdaq: GOOG - news - people ) is keen to become a pivotal player in the mobile phone world. And one of the companies often mentioned behind closed doors …
Context & Ripple Effects
As of October 1, 2007, there is no announced product — what exists is Silicon Valley buzz that Google phones are reportedly coming, with details staying behind closed doors. What makes the rumor credible rather than idle chatter is the pattern around it: Google is on record wanting to become a pivotal player in mobile, and within the past week it shipped a substantially upgraded Gmail mobile web experience at m.gmail.com, treating the phone browser as a first-class surface.
The strategic logic is visible elsewhere in Google's playbook. Its September AdWords changes squeezed independent vertical search engines like shopping comparison sites, protecting the ad auction that already dominates query volume despite Yahoo's stronger click-throughs. A phone would be the same play carried into a market where access is currently controlled by carriers rather than by Google.
First-order effects
- Carriers and handset makers face a potential entrant whose incentive structure differs from theirs: Google monetizes usage through advertising, so it can afford to make the device or software cheap in ways subscription-driven operators cannot easily match.
- If the rumored phone follows the Gmail-mobile pattern, Google's own web services get preferential placement on the device, shifting traffic and ad inventory toward Google properties.
Second-order effects
- Operators whose business models depend on controlling the mobile deck and billing for data access would come under pressure to open up or to strike terms with Google on unfavorable ground, echoing how Google Docs & Spreadsheets forced a defensive response from Microsoft on the desktop side.
- Advertisers gain a new mobile channel priced off the same auction machinery that already dominates desktop queries, concentrating pricing power further in Google's hands relative to Yahoo and the vertical sites the AdWords changes squeezed.
Third-order effects
- If the pattern holds, the industry moves from a carrier-controlled, subscription-funded mobile internet toward an ad-funded one where the operating system and services layer — not network ownership — captures the value, with Google positioned as the default gatekeeper.
- A confirmed hardware move by a pure software-and-services company would lower the barrier for other internet firms to treat handsets as distribution infrastructure, restructuring who bears device cost in the ecosystem.
The trend: Google is extending its desktop ad-auction economics into mobile, with a rumored handset serving as the wedge against carrier-controlled distribution.