The Nightmare Haunting Google's Android Dream

It's only just been released, but expectations are already high, and early reviews are glowing. Google's (Nasdaq: GOOG  ) first Android-based phone -- the Dream from HTC -- made its debut today on Deutsche Telekom's (NYSE: DT  ) T-Mobile USA. Apparently, advance interest has been huge as consumers are eager to snap up the open platform device.

But while some kudos are warranted even before a wide population tests the offering, I'm a little concerned about displaced opinions and comparisons that many investors seem to hold. Most scary to me is that some investors still seem to think that Google is a device maker and that the phone should be compared to Apple's (Nasdaq: AAPL  ) iPhone or Nokia's (NYSE: NOK  ) smartphone lineup to gauge its success.

The handset market and the application market that Google is going after are very different, and success in each area comes in completely different ways. More importantly, the factors in making a piece of hardware a success don't necessarily translate into similar levels of high-margin revenue from scalable applications. If you could crack open Apple's books to see the revenue from iPhones compared to the revenue from iTunes downloads I imagine this would become very apparent.

The other aspect of the Android that could deliver some investors a rude awakening is that it will likely be a niche product for much longer than many expect. Niche is certainly not bad when you're talking even of numerous Android deployments that could be floating around by next year. But it's a far cry from the mainstream, where the ubiquity offers brand scale that leads to significant revenue.

Consider that Motorola (NYSE: MOT  ) scored big with the RAZR not just because early adopters went nuts over the device, but because even wirelessly-challenged individuals gravitated to the sleek design that was also easy to use. And though Research In Motion (Nasdaq: RIMM  ) has persuaded millions to learn how to email from a mobile device, that only took, umm ... about a decade.

It will take Google time to migrate mainstream user interest from the desktop to mobile as well. While competition from Verizon (NYSE: VZ  ) and others also haunt Google's mobile applications ambitions, it is the retraining generations of phone users that will be the hard part.

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Fool contributor Dave Mock uses applications on his phone, but it's still a sub-par experience. He owns shares of Motorola. Nokia is an Inside Value selection. Google is a Rule Breakers pick. Apple is a Stock Advisor recommendation. The Fool's disclosure policy does have many striking similarities to the Borg.


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