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Google's bold mobile move: Nexus One

By David Goldman, staff writer

NEW YORK (CNNMoney.com) -- Google is expected to take a giant leap forward into the smartphone arena Tuesday, with the much-anticipated unveiling of the Nexus One, the first smartphone completely designed by the search leader.

Up until now, Google (GOOG, Fortune 500) had mostly been behind the scenes when it came to smartphones. It designed mobile software like Google maps and the Gmail app, and its Android operating system was released in 2008.

Google is ready to raise the stakes.

"The tea leaves and crystal balls are all pointing to the same thing: The future is in mobile devices," said Ramon Lamas, mobile device analyst at IDC. "With its own phone, Google can control the hardware, the software and can put together its own mobile roadmap from there."

The company is expected to unveil its smartphone plans at a scheduled "Android press gathering" at its headquarters in Mountain View, Calif. at 1 p.m. ET.

The Nexus One smartphone will be wider but slimmer than Apple's (AAPL, Fortune 500) iPhone and faster than Motorola's (MOT, Fortune 500) Droid, according to a review by tech blog Engadget. The new smartphone was built by mobile device maker HTC, but the specifications were all ordered by Google. It will run Google's Android 2.1 software on a lightning-fast processor.

Google has already had some success with its Android operating system partnerships, including several "With Google" phones like T-Mobile's G1 and G2 phones, designed by HTC. Verizon Wireless' popular Droid phone, made by Motorola, has been a great success so far.

Playing catch-up

Google appears to be taking a page from Apple and Research In Motion's (RIMM) books, the nation's two most successful smartphone companies, said Lamas. Both Apple's iPhone and RIM's BlackBerry devices run operating systems designed by their manufacturers, and they are praised for offering seamless experiences for their users.

But for Google to have the same kind of success, it will need to play some catch-up.

Google said late last month that there are more than 16,000 apps available for Android phones at the Google App Store. Although that's several thousand more than are available for BlackBerrys, Microsoft's (MSFT, Fortune 500) Windows Mobile devices and Palm's (PALM) WebOS phones, it is far less than the more than 100,000 apps available at Apple's App Store for the iPhone.

Another competitive challenge will be marketing. Gartner analyst Ken Dulaney said Google doesn't plan on running any television advertisements for the Nexus One, a strategy that he thinks is a big mistake.

IDC's Lamas agrees. "Apple doesn't just create demand for the iPhone, it creates lust," said Lamas. "We haven't seen that yet from Google, because people don't know Google as a hardware manufacturer."

Dangerous ground

The other big factor will be the cost. Though Google won't reveal anything until Tuesday, rumors say the device will be subsidized by T-Mobile but also available directly from Google, unlocked, for upwards of $600. An unlocked phone would be able to work on AT&T's (T, Fortune 500) network as well, since its GSM network is compatible with T-Mobile's. Verizon (VZ, Fortune 500) and Sprint's (S, Fortune 500) networks will not be able to support the device.

Nokia and a handful of other device makers have offered unlocked phones to U.S. consumers for years with little success. Wireless customers abroad often buy their phones unlocked, but in the United States, consumers buy their phones through carriers who subsidize the cost of the phone. For instance, you can buy an iPhone for $699 from Apple, or sign a 2-year contract with AT&T and get the phone for $299.

"This is a 'here's what's possible phone' for Google," said Soumen Ganguly, principal at Altman Vilandrie & Co. "If the rumors are true, they're going to experiment with going direct to consumers in the United States, which other [mobile device makers] won't do because of their relationships with the carriers."

But other analysts think that Google is treading on very dangerous ground if it opts to bypass a carrier and sell the Nexus One through its own channels.

"If Google is going to maintain its own inventory and ship a device that competes with other equipment manufacturers, then it's a really dumb move," said Gartner's Delaney. "That would be a very arrogant play, and they'd anger all of the other manufacturers that they've worked with." To top of page

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