Paranoid about Android

Google spat spills over into handset sales

News that Google is considering pulling out of China has dominated media headlines for most of the last week.

But much of the focus has been on the potential impact of a Google withdrawal on the search and advertising segments of the industry (general consensus: it’s good news for homegrown rival Baidu).

It is only in the last couple of days that the wider telecoms sector has come up for discussion too, following the announcement that Google will also be postponing the launch of its two Android phones models, developed by Samsung and Motorola for China Unicom.

Android phones use a Google-designed operating system capable of interfacing with a range of its other applications. The search giant felt it would be “irresponsible” to release the new models in an atmosphere of such uncertainty on it’s future in China.

What about China Mobile’s OPhone, a smartphone also built on Android software? China Mobile has been positioning the OPhone as the counterweight to China Unicom’s exclusive deal to distribute Apple’s popular iPhone.

The Android is an open source design, so any company (even in China) should be able to develop and sell an Android phone model.

But most are packed with popular Google applications like Gmail and Google Maps. So if Google is not allowed to operate in China, those applications will likely have to be removed, rendering the phones less attractive.

Will China customers still want a a phone shorn of much of its Google functionality?

“Many Chinese consumers are willing to pay the extra money for a device with all its features. They may not so willing to buy a device that’s crippled in one way or another,” says Kevin Burden, analyst at ABI Research.

Others say it’s not as bad as it seems. Mobile carriers can create their own applications on Android phones. China Mobile has replaced certain Google features on its OPhone with applications of its own design, says Flora Wu, an analyst at technology advisory firm BDA China.

Die-hard fans of the Android can always buy phones smuggled into the country’s thriving grey markets (see WiC28) too. Nexus One – Google’s own smartphone – is still to be released in China but is widely available at electronic stores in Beijing and Shanghai.

Manufacturers like Motorola and LG have already made big bets on Google’s mobile platform. Both will have the majority of their smartphones built on Android this year. China-based Lenovo Group has also unveiled a number of Android-powered devices. And Dell launched its Mini 3 smartphone in China last November – also running on Android code.

The launch of the 3G network last year was supposed to prompt a surge in sales of internet-enabled smartphones, which are expected to account for 40% of China’s overall cell phone market by 2012.

Google said last week that it is still hoping that it can persuade the Chinese government to agree to changes that would enable Google.cn to show uncensored search results.

But if a compromise isn’t worked out within the next few weeks, it intends to shut down its search engine and pull out.

A speech this week by China’s foreign ministry has left scant hope for any resolution: “Foreign firms in China should respect China’s laws and regulations, and respect China’s public customs and traditions, and assume the corresponding social responsibilities, and of course Google is no exception,” says Ma Zhaoxu, foreign ministry spokesman.

In event of a pull-out, analysts expect Google to forego between $400 and $600 million in revenue on the mainland this year, says the South China Morning Post.

Not that Baidu is complaining. In fact, its shares have jumped 21.5% since Google’s announcement.

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