Radio needs reinventing. Google (Nasdaq: GOOG) and Sirius XM Radio (Nasdaq: SIRI) should partner to make it happen.

This isn't a rant about content or connectivity. Neither Howard Stern's contract nor the proliferation of broadband wireless networks concerns me. (Not anymore, at least.) What does? Revenue. The revenue model for radio needs an overhaul, and I'm including satellite radio in the mix when I say that.

Tuning in for a tuneup
As an investor, I fear radio's all-or-nothing business model. Take Sirius XM, which mostly eschews advertising. Subscriptions accounted for more than 87% of Sirius XM's first-quarter revenue, according to its Securities and Exchange Commission filings.

By contrast, terrestrial and Internet options are built almost entirely on advertising. It works some of the time. Westwood One (Nasdaq: WWON) may be struggling to turn a profit, but Web sensation Pandora booked a reported $50 million in 2009 revenue and has a partnership with Ford (NYSE: F) to appear in vehicles equipped with Microsoft's (Nasdaq: MSFT) Sync smart vehicle service.

We don't have enough data to say whether Sync is a runaway success, but we know that Microsoft and Ford are taking steps to make it as widely compatible as possible. Also consider AppLink, software that promises to allow drivers to control Android and BlackBerry smartphones using voice commands.

Sync is a significant step forward in making devices, radio, and software work together inside a vehicle cockpit. But it doesn't solve radio's revenue problem. Heck, it doesn't even address it. For Google and Sirius XM, that's a screaming opportunity -- but only if they're willing to create Google Radio.

Google Radio? Really?
Really. A confluence of events has influenced my thinking about this:

  1. The emergence of always-on networks. Nielsen Internet Research reports that consumers spent 23% of their time online using social networks in June, up from 16% last year. The appeal of these networks is that they're always on, and there's always someone to talk to. Consider that the members of this group are also more likely to use smartphones, and you've got a rising class of users who'll log on anytime, anywhere, including in their cars.
  2. Too many devices. Look around you. Do you own an MP3 player? How about a smartphone? Apple (Nasdaq: AAPL) has sold more than 200 million iPods since the first model was introduced, and with the latest quarter's figures, the Mac maker has likely passed 60 million iPhones sold. And that's just one vendor.
  3. Regulatory crackdowns on texting while driving. Several states have begun crackdowns on texting while driving, and for good reason. There's no way to be alert at the wheel while texting your pal. Ford has taken steps to limit texting while driving via Sync. If Google and Sirius XM want to introduce a Sync alternative, they'll need to build similar features into the platform while also preserving some aspects of connectivity via a voice-activated system.
  4. Google TV. Radio has the same problem as TV when it comes to advertising. Why not attack the problem similarly? Google Radio could index what's playing on satellite, on terrestrial stations, and on the Web and match ads to our listening patterns, as Google TV promises to do with the tube.

What it might look like
Creating Google Radio wouldn't be easy. Sirius XM would have to commit to making a broader type of receiver, and that might mean outsourcing to an audio specialist such as Harman International (NYSE: HAR).

Google would add smarts via its Android operating system. Everything would be voice-activated and built for key services such as Google Voice and Google Maps. We know this is possible; the Big G has been providing voice-enabled turn-by-turn directions via Android phones for months now.

Where this idea gets really disruptive is with advertising. Google has the cash and the smarts to spec and fund a hardware design entirely on its own, pass that to manufacturers, and subsidize purchases.

Yep, you read that right. Google could subsidize the market. But instead of giving car buyers two years of Sirius XM free, as the satrad superstar does today, Google Radio could be free forever, so long as drivers agreed to an ad-subsidized plan. They'd trade privacy for basic satellite radio, with Google managing placements and sharing the revenue with Sirius XM. Premium channels would still require a subscription, but less than what today's subscribers pay -- just enough to create an incentive to switch.

Could the model work? I think so, but I've already had my say. Now it's your turn to weigh in. Should Sirius XM and Google team up to create a better radio platform? Let the debate begin in the comments box below.

Apple and Ford are Motley Fool Stock Advisor selections. Microsoft is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers recommendation. Motley Fool Options has recommended creating a diagonal call position in Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He 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 owns shares of Google and is also on Twitter as @TheMotleyFool. The Fool's disclosure policy can't listen to you right now; it has to focus on the road.