Google to Push Android Deeper into Asia

Stepping up its rivalry with Apple and Nokia, Google outlines plans to court developers and put its operating system on lower-priced phones in China and India

Google (GOOG) plans to push its Android mobile software in India and China, and is exploring ways for developers to make more money from applications, stepping up competition with Apple (AAPL) and Nokia (NOK).

To attract programmers to its Android operating system, Google may offer tools that help them sell subscriptions, virtual goods, and other items from within applications on mobile phones, Andy Rubin, vice-president of engineering at Google, says in an interview.

The company also aims to put its Android operating system on lower-priced phones made by Huawei Technologies (2049:TT) and LG Electronics (066570:KS) in parts of Asia and Europe, where it's taking on Nokia, the mobile market leader. "The down-market opportunity is about to happen," Rubin says. "It's actually quite a revolution."

Android is part of Google's strategy to get more of its software on mobile devices, creating new avenues to sell advertising—its main source of revenue. The total mobile-ad market will grow to $13.5 billion in 2013 from less than $1 billion last year, according to research firm Gartner (IT) in Stamford, Conn.

Google, based in Mountain View, Calif., lags behind Apple in mobile apps, which are a growing platform for ads and help attract consumers to devices. Android users have about 65,000 apps available, less than a third of the more than 200,000 Apple programs.

ANDROID'S GROWTH

Google is taking steps to accelerate Android's growth. Expanding in new markets such as Korea helped drive up the number of users who activated Android devices to 160,000 a day in June, from 100,000 in May, the company said. Sixty-nine percent of Android-based phones sold in the first quarter were in the U.S. "We are definitely in the hockey stick," said Rubin, referring to Android's growth pattern. Gartner predicts that Android will leapfrog Apple's operating system, iOS, by 2012 to become the world's second-most-popular mobile operating system behind Nokia-supported Symbian.

Google also is increasing incentives for app developers. It's exploring ways for programmers to make more money from their software, such as by making it easier to accept payments within the apps or sell subscriptions, Rubin said. That provides a way for consumers to purchase new game levels, virtual weapons, and monthly subscriptions to digital magazines. Apple added similar features to the iPhone in 2009.

Android developers mainly make money from ads placed within their apps or from one-time fees. That makes it harder for them to earn as much as their Apple counterparts. Of the $4.4 billion that consumers will spend on app downloads this year, Apple's App Store will receive at least 77 percent of the revenue, according to Futuresource Consulting in Dunstable, England. Android Market will collect 9 percent. Natalie Harrison, a spokeswoman for Cupertino (Calif.)-based Apple, didn't return a call seeking comment.

While businesses like eBay's (EBAY) PayPal already offer in-app payment tools for Android developers, dealing with multiple companies increases the complexity, Rubin says. Since starting its in-app payment tool on May 19, PayPal has had more than 1,000 developers download it, says Osama Bedier, a vice-president at PayPal. Most of the developers came from China.

HELPING HANDSET MAKERS

Google is also helping handset makers like Huawei in China and LG in South Korea offer cheaper Android-based smartphones, Rubin said. Huawei, the biggest maker of wireless equipment for carriers in China, unveiled four Android phones and an Android-based tablet in February.

Smaller Chinese manufacturers, which make up about 10 percent of the global phone supply, are also adopting Android, seeking to gain share with lower-priced devices. Many of these manufacturers rely on Taiwan-based MediaTek, which supplies chips for ultra-cheap phones sold in Asia, Africa, and South America. The company has joined the Open Handset Alliance, the group that promotes Android, Google said. MediaTek-based devices may cost carriers as little as $70 apiece, said Carolina Milanesi, an analyst at Gartner. Today, the cheapest Android phones cost carriers about $200, while low-cost Symbian devices run about $170, she said.

As more lower-priced phones come to market, more carriers will offer the devices to consumers for free. That could boost the adoption of Android, especially in emerging markets like India and China. That adoption will give Android a leg up on Nokia. While the Espoo (Finland)-based company holds only a fraction of the U.S. market, it is the leading phone maker globally. "As Android develops, the main vendor who is going to feel the pressure is Nokia," Milanesi says.

In the first quarter, more than 41 percent of smartphones shipped worldwide were powered by Symbian, the software used on most Nokia handsets. Almost 16 percent used Apple's operating system and 10 percent ran Android, according to consulting firm ABI Research in Oyster Bay, N.Y.

Nokia says it has the brand and products to maintain its market share in Europe and Asia. "Nokia has developed locally relevant solutions that consist of affordable mobile phones and applications, designed and built from the ground up to meet the specific needs of customers in emerging markets," spokeswoman Laurie Armstrong says.

Kharif is a reporter for Bloomberg Businessweek in Portland, Ore.

Turning the iPhone Glitch into Gold

Accessory makers see benefits after Apple CEO Steve Jobs recommends cases to compensate for a flaw in the iPhone 4's antenna

When complaints surfaced that the antenna wasn't working properly on the iPhone 4, Apple (AAPL) told users to hold the device differently or put it in a protective case.

Some owners called the response insensitive. Makers of iPhone accessories, on the other hand, welcomed it. "It is good news," says Tim Hickman, founder and chief executive officer of Hard Candy Cases in San Francisco. Apple's suggestion may add allure to an already popular accessory, he says in an interview with Bloomberg News. "The demand is there and Apple has built it."

The proposed solution may also benefit Belkin Internationaland other accessory sellers—including Apple itself. The cases, typically made of rubber, plastic, or recycled materials, are part of a growing market. Mobile accessories generated $135 million in U.S. revenue in the first quarter, according to NPD Group. That indicates annual sales of more than $500 million. "Consumers are putting more information on these products and they are relying on them more, so they are more willing to invest in protecting them," says Ross Rubin, an analyst at Port Washington (N.Y.)-based NPD.

Apple is selling its own iPhone 4 cases in six colors for $29 apiece. They're made of a piece of rubber known as a "bumper," which surrounds the outer rim of the phone. The accessory doesn't cover the back or front of the device, prompting the iPhonesavior.com blog to call it "the thong underwear of protective iPhone fashion." Shaw Wu, a San Francisco-based analyst with Kaufman Brothers, says Apple may have to start giving away the bumpers with the purchase of a phone as a way to alleviate customer concerns. Natalie Harrison, a spokeswoman for Cupertino (Calif.)-based Apple, declined to comment beyond the company's remarks on the antenna.

DIVERSE ACCESSORIES MARKET

The release of a new iPhone every year since 2007, along with devices like the iPad and iPod, has spawned a diverse accessories market. The products include speakers, chargers, headsets, scratch-retardant screen covers, and exercise kits. IPod accessory makers have even produced an aluminum bulletproof case, a leather holder that resembles underwear, and a docking station that doubles as a toilet-paper holder.

Manufacturers of more traditional fare range from large corporations like Royal Philips Electronics (PHG) to startups such as Hard Candy. Belkin, iFrogz, and Cozip also make phone cases, which generated $23.5 million in U.S. sales in the first quarter, up 43 percent from a year earlier, according to NPD. Apple has been "pretty aggressive" in releasing new gadgets, Mack McCoy, who does marketing for the iPhone accessories division of Playa Vista (Calif.)-based Belkin, tells Bloomberg. "All of this opens up new avenues for us to play with."

For the iPhone 4, Belkin makes an armband holder for runners that costs $24.99. Skinomi, based in Whittier, Calif., makes a see-through case that's designed to protect the iPhone from nicks and scratches.

With the iPhone 4, Apple changed the design of its antenna, embedding it in the steel-frame chassis. It used to be stored internally. Some customers found that their reception drops out if they hold the bottom-left corner of the device. They took to blogs, Google's (GOOG) YouTube, and online forums to air their complaints.

With reporting by Matt Robinson in New York.

Satariano is a reporter for Bloomberg News.

Smartphone Use on the Web Goes 'Mainstream'

More U.S. adults—particularly African Americans and Hispanics—are using smartphones to e-mail, network, surf, and send video, says Pew Research

Smartphone use is gathering steam in the U.S., new research shows. Forty percent of American adults use their cell phones to surf the Web, e-mail, or use instant messaging, according to a study from Pew Research Center in Washington.

That's up from 32 percent a year ago, based on Pew's survey of 2,252 adults ages 18 and older that was released on July 7. "The smartphone has really penetrated the mainstream of American society," says Aaron Smith, a Pew research specialist. In the first quarter, smartphones accounted for 34 percent of all mobile handsets sold in the U.S., up from 31 percent in the fourth quarter of 2009, according to consultant NPD Group.

Smartphone sales are getting a summer boost from last month's introduction of Apple's (AAPL) iPhone 4 from AT&T (T). Motorola's (MOT) Droid X will be released throughVerizon Wireless on July 15.

A separate report suggests that smartphone growth may ebb in the second half of the year as high unemployment and the oil spill in the Gulf of Mexico curb consumer confidence and curtail demand for some nonessential services. "Remarkable smartphone-penetration growth is going to slow down," says Tero Kuittinen, a senior analyst atMKM Partners, an institutional equity trading and research firm in Stamford, Conn., in an interview. After rising for three consecutive months, the Conference Board's Consumer Confidence Index dropped in June to near the level it reached in March. The index is based on a survey of 5,000 U.S. households and reflects consumer sentiment about the economy.

Amid economic woes, the next smartphone growth spurt may come from cheaper devices. "Specifically, consumers want smartphones priced at $100-$190, and our research finds little supply in this price range," Kuittinen wrote in a July 6 MKM report. To keep sales up, device manufacturers may have to face faster-than-expected price drops through 2011, he says. Phone makers such as Huawei and LG (066570:KS) are expected to push into lower-priced smartphones in the next year.

WEB ACCESS VIA OTHER DEVICES

To spur adoption, carriers may need to keep slashing prices on their cheapest smartphone plans as well. AT&T, the second-largest U.S. mobile-service provider, introduced a $15 limited data plan on June 2. In six to nine months, the average smartphone user will pay just $10 a month for data connectivity, down from $15 today, estimates wireless consultant Chetan Sharma. "The barriers to getting data plans are coming down," he says.

Less-expensive data plans may encourage additional consumers to access the Web via smartphones and other mobile devices. Some 3 percent of respondents in the Pew survey own a tablet PC such as an iPad. About 60 percent of them have used the device to access the Internet. About 4 percent own e-book readers such as Amazon.com's (AMZN) Kindle and almost half use the gadgets to access the Web.

Overall, 59 percent of adults in the U.S. go online wirelessly, via Wi-Fi or mobile connections, on cell phones and laptops, up from 51 percent a year ago, according to the Pew report. Among all cell-phone owners, 54 percent used their devices to send photos and videos, 23 percent accessed a social networking site, and 11 percent made a purchase.

Older adults are venturing onto the mobile Web in larger numbers, too. Some 43 percent of people between the ages of 30 and 49 access the Internet, up from 31 percent a year ago, the study showed. Those people are also more likely to send or receive e-mails and instant messages. African American and Hispanic consumers remain at the forefront of mobile-Web adoption. More than 50 percent of English-speaking Hispanic users access the Internet on their phones, compared with 46 percent of African Americans and 33 percent of Caucasians, the Pew study found. "For many Americans, their cell phone is one of the essential utilities of modern life," says Pew's Smith.

Kharif is a reporter for Bloomberg Businessweek in Portland, Ore.

Apple's iPad Wins Corporate Converts at Wells Fargo, SAP

The tablet computer, designed for video and book-reading, is making inroads at companies as varied as SAP and Mercedes-Benz

Wells Fargo (WFC) spent two years studying the iPhone before letting bankers use the device at work. Apple's (AAPL) iPad, released in April, took just weeks to get cleared.

This time around, safeguards against security breaches are stronger from the start, according to Megan Minich, a senior vice-president at the San Francisco-based bank. Her colleagues used two of the first shipment of 15 iPads to demonstrate financial products at an investor conference in May. More are on the way, Minich says. "We've got a bunch ordered that we can't get yet," she says in an interview.

Apple, known for courting consumers with sleek designs and easy-to-use software, is making inroads with corporations that say the iPad can make workers more productive without putting sensitive customer information at risk. SAP (SAP), Tellabs (TLAB), and Daimler's (DAI:GR) Mercedes-Benz are using the tablet-style computer for tasks as varied as accessing work e-mail, approving shipping orders, and calling up on-the-spot auto-finance options.

Apple Chief Executive Officer Steve Jobs announced the iPad in January, touting its ability to deliver games, video, music, Web access, and digital versions of books and magazines. Yet companies say it's widely applicable at work, too. "This iPad thing has taken the world by storm," says Ted Schadler, vice-president and principal analyst at Forrester Research (FORR) and author of Empowered, which explores how employees use new technologies. "It came in as a consumer product and very quickly the people who actually bought them were businesspeople."

BUSINESS "EXPERIMENTATION"

Last month, Apple said it sold 3 million iPads within 80 days of its release. The company may sell 9.7 million iPads in 2010, says Shaw Wu, an analyst at Kaufman Brothers in San Francisco. More than half—52 percent—of 770 smartphone users surveyed by Zogby International said they would most likely use a tablet device like the iPad to do work. The study, commissioned by Sybase (SY), was released Mar. 23. "A lot of businesses right now are in experimentation with these devices," says Dan Shey, practice director for enterprise at ABI Research, which is based in Oyster Bay, N.Y.

Many companies may keep their distance from tablet-style computers, which boast smaller screens and won't let businesspeople switch back and forth between tasks as quickly as bigger machines. Apple rivals including Hewlett-Packard (HPQ) and Cisco Systems (CSCO) are getting into tablets, too—so the iPad maker's lead may narrow.

For now, workplace adoption of the iPad stands to benefit Apple while undermining rival makers of computers that run Microsoft's (MSFT) Windows operating system. Many companies initially chafed at letting employees use iPhones for business amid concerns that it may not keep corporate data secure. That resistance ebled after Apple in 2008 released a version of iPhone software with beefed-up security and better support for corporate e-mail. Similarly, a growing number of companies have begun letting employees use Apple's Macintosh computers in addition to, or in place of, Windows-based PCs. Apple spokesman Simon Pope declined to comment, referring instead to remarks by Jobs, who said on May 31 that "customers around the world are experiencing the magic of iPad."

With their smaller screens, inability to multitask, and lack of keyboards, tablets may not soon replace bigger computers for many work-related tasks. The iPad's display, for example, is 9.7 inches (25 centimeters). By 2015, less than one-fourth of personal computers sold will be tablet-style, Forrester says.

COMPETITION'S COMING

As popular as the iPad may be for businesses now, it may soon face competition from rivals including Hewlett-Packard, Dell (DELL), LG Electronics (066570:KS), and Samsung Electronics (005930:KS), which plan their own tablet computers. Cisco said on June 29 it too will release a tablet that will be able to handle high-definition videoconferencing and may be available in early 2011.

Some companies may also be reluctant to entrust their data to the iPad after a breach on the AT&T (T) website revealed the e-mail addresses of as many as 114,000 iPad users. Apple takes pains to keep its products secure in part by carefully vetting the applications that can be downloaded onto it. Still, the process is "not foolproof, it will be subverted eventually," says Mikko Hyppönen, chief research officer of Helsinki-based security firm F-Secure.

Reservations aside, Wells Fargo saw early on how quickly the iPad might take hold among business clients the weekend the device was released. Finance executives of large companies—those that generate more than $50 million in revenue—accessed corporate Wells Fargo accounts with iPads, says Amy Johnson, a Wells Fargo vice-president who works on the company's online portal and mobile strategy. A finance official or account representative could use a mobile device like the iPad to approve multimillion-dollar wire transfers, she explains.

Johnson used one of the iPads bought by Wells Fargo to demonstrate financial products during a May 13-14 conference. She says she now carries the iPad with her everywhere.

VERSATILE TOOL

The same goes for Rob Enslin, North America president at SAP, the world's largest maker of business-management software. Enslin says that when he travels, the only device he carries besides a Research In Motion (RIMM) BlackBerry is the iPad. "It's allowed me to almost run a paperless office," says Enslin, who uses it to access business applications, briefing documents, customer information, and other data.

SAP, based in Walldorf, Germany, also works with clients to put its products on mobile devices including the iPad. Tellabs, for instance, collaborated with SAP and Sybase on an iPad application that lets managers more quickly approve shipping of customer orders. "We also have three or four different applications lined up behind this that will help us with better inventory control," says Jean Holley, chief information officer at Tellabs, based in Naperville, Ill.

Other companies using the iPad at work include Daimler's Mercedes-Benz. Sales representatives in 40 U.S. dealerships in late May began using iPads on showroom floors to order on-the-spot financing options for customers, says Andreas Hinrichs, vice-president of marketing at Mercedes-Benz Financial. In October, Mercedes-Benz had released an application for the iPhone that lets customers manage accounts and make payments. Up to now, customers have made $5 million in car payments through the application, Hinrichs says. The company now is considering doling out iPads to all of its 350 U.S. dealerships.

At Wells Fargo, Minich is waiting for an iPad after her boss made off with the one she expected to be assigned to her.

King is a writer for Bloomberg Businessweek in San Francisco

Cadillac brooms out its ad agency

Not even two months into the job, General Motors Co. marketing Vice President Joel Ewanick is already shaking things up. Adweek reported that he has replaced Bartle, Bogle and Hegarty as Cadillac’s advertising agency after six months with the account, handing the estimated $250 million in business to Fallon.

It’s not a big surprise. Ewanick is known for moving quickly and any new marketing chief will want to bring in his own people and favored agencies. Last month, he brought in San Francisco-based Goodby, Silverstein and Partners for the Chevrolet account, replacing Paris-based Publicis after just a few weeks. Publicis had been hired by GM before Ewanick arrived to replace Campbell Ewald, which did Chevy’s advertising for decades.

Even before Ewanick arrived, GM wasn’t blown away by some of the Cadillac work done by BBH. The company asked for changes several times, says one person with direct knowledge of Cadillac’s advertising. Cadillac wants ads that focus more on the cars and have less emphasis on sizzle and sophisticated graphics, the source said.

Expect more changes to come. Two people close to GM’s marketing operations say Ewanick wants to bring in some outside marketing talent to add some brain power to GM’s ranks. Given the company’s woeful marketing efforts in recent years and its brand-image challenges, it could be just what the company needs. The company’s brands have lurched from one marketing message to another for a decade, with a revolving door of marketing bosses to keep the churn going. Cadillac, for example, has had three marketing heads in a year.

And make no mistake, Cadillac is a big marketing challenge. Last year’s sales were the worst since 1953, albeit in a woeful car market. The brand ranked eighth among 12 luxury car brands in the Luxury Institute’s 2009 survey of people making more than $150,000 a year. Only one-third of respondents said the brand is worth paying a premium to buy, compared with 57% for BMW and 62% for Mercedes. At 62 years old, the average buyer is 13 years older than a BMW buyer. That’s a long way of saying that the brand isn’t hip. Cadillac has some strong models with the CTS sedan and new SRX SUV. But GM needs to get the core of the luxury consumers to check out the new, aggressively-styled and sporty models that are the antithesis of the brand’s old geezer image. Now it’s up to Ewanick and Fallon to get luxury buyers to give those cars a look.

Posted by: David Welch on June 25, 2010

GM Mulls a New York Showroom to Woo Wall Street

General Motors realizes it has a nagging little marketing problem as it prepares for an initial public stock offering. The analysts, portfolio managers and potential investors that they are hoping will like their stock aren't big customers of the company's cars. So GM is mulling over a plan to open up a GM salon in Manhattan, say three people who know about the discussions. The company would rent or buy a building, outfit it with imagery for its four brands and showcase the latest cars. The idea is to get GM's best models in a place where high-fashion New Yorkers, tourists and high-rolling investors might walk by. GM does poorly in the New York metro area. GM's market share in the New York area was just 9.6% in the first quarter, compared with 18.7% in the U.S. GM's share in the New York area was 10% last year, down from 13% in 2008, according to Experian Automotive, which tracks vehicle registrations.

GM thinks that the salon would show investors and car buyers that the company's newest models are competitive. Audi has a similar display called the Audi Forum at the corner of 47th Street and Park Avenue. Audi keeps five cars on hand, including a vintage Le Mans series race car. Audi has events at the Forum. They even kept it open so Audiphiles could watch the entire 24 Hours at Le Mans race last year.

For GM, this does create a bit of a dilemma. GM wants to get in front of the hip and the well-heeled. But is this the right way to do it? The Forum works for Audi because it's a house for just one brand. There is nary a Volkswagen in sight. GM would have four brands together at a time when the company is trying to give Buick, Cadillac, Chevrolet and GMC some individuality.

That isn't what's stopping GM. Executives say they like the idea of a company showroom in the Big Apple. But Manhattan real estate is really pricey. For a company perceived by some to be on the dole--and that took some heat for giving a Corvette to near-perfect Detroit Tigers pitcher Armando Galarraga--a Manhattan marketing scheme could draw heat. GM should pay no mind. The bigger question is whether GM could differentiate its brands with this, and any other companywide marketing strategy.

Posted by: David Welch on June 28, 2010