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Why Google Needs Its Own Phone

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By now, you've heard the hubbub. Google (Nasdaq: GOOG  ) is preparing its own smartphone to challenge Apple (Nasdaq: AAPL  ) , Palm, Research In Motion (Nasdaq: RIMM  ) , and -- oh, the horror! -- Motorola (NYSE: MOT  ) , a partner with Google. The new Nexus One, as it's known, is presumably slated to be sold through Google's website, beginning in January.

Verizon (NYSE: VZ  ) executives probably hated this idea when they first heard it. Why? Control. Google plans to relinquish none, according to reports published by The Wall Street Journal. This won't be Droid 2.0.

Carriers just aren't part of the plan, though T-Mobile subscribers may get a discount on the Nexus One if The Big G and Deutsche Telekom (NYSE: DT  ) reach an accord. The two companies are negotiating now, the Journal reports.

No other handset maker has shown this kind of guts -- or stupidity, if you think Google has gone mentally AWOL -- not even Apple. AT&T (NYSE: T  ) has long had a say in how and when the iPhone gets tethering, a technology for connecting a cell phone to a computer to enable wireless Web access.

By going it alone, Google is reframing the argument over who controls the content that appears on a smartphone. Traditionally, that's been carriers. Apple has made progress with the App Store but apparently not enough for Google's taste.

And that's as it should be. Google, fundamentally, is an ad server. It can't allow a private network to stiff-arm software that will help it to collect data from Android handsets. To do so would be to waste the $750 million it spent for mobile ad market AdMob.

Carriers don't mind Google right now. The Droid is a hit. But just as Apple had its own finger-pointing fracas with Ma Bell, Google could suffer a spat with Verizon or T-Mobile over Android apps that pull unwanted data from their networks. That's a problem. Google isn't ever likely to approve of a model that allows carriers to dictate terms. The Big G thrives on unrestricted usage of its services; it's how its advertising engine gets smarter.

Google needs its own phone. Not because the other handset makers are a threat, but because it can't depend on the carriers.

But that's my take. Now it's your turn. Is Google's Nexus One the telecom equivalent of a thrown gauntlet? Please vote in the poll below. You can also sound off in the comments box at the bottom.

Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor selection. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy most enjoys long walk on the beach during winter. In Hawaii.

Read/Post Comments (2) | Recommend This Article (4)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 17, 2009, at 10:24 AM, alanwarms wrote:

    I wrote my own version of this story two days ago: basically why GOOG MUST develop a phone because of the AAPL potential threat to AdWords. Central to my argument is that AAPL will eventually offer AdWords-type ad solution in a web-based iTunes app store in the future:

  • Report this Comment On December 17, 2009, at 12:20 PM, anagin wrote:

    I was Sure Google would do this one day when they have announced Android Opensource Platform. Infact gPhone was anticipated a while ago even before iPhone picked up. I am Sure with Chrome OS on the way there will be a Google computer(gBook) as well. HTC or DELL or ???? could make the Hardware for their Software :)

    Now that I have all my stuff with Google I do welcome gPhone.

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