Google pitches Gphones to Verizon

Google is pitching its vaunted Gphone to Verizon Wireless, but the odds are still against the search giant striking a major deal with the second largest phone company in the U.S.

The Wall Street Journal and Reuters reported Tuesday evening that Google is in "serious discussions" with Verizon Wireless to put its mobile "GPhone" software on Verizon phones.

For months, people have been speculating about the rumored Google "GPhone." Most people believe that it's not a specific phone, but is more likely an operating system or software that integrates many of Google's mobile services, like Web search, Gmail, Youtube, and Google Maps, onto phones made by existing handset makers. But more than simply integrating Google services onto handsets, the new Google mobile OS is believed to be an open platform on which application developers would have free reign to develop a slew of new applications and services.

The WSJ said in an earlier article published Monday that Asian cell phone makers HTC and LG Electronics will be the first two handset makers to use the software.

But Google-powered phones will be useless unless the company can strike deals with mobile operators to allow them on their networks. T-Mobile USA is rumored to be the first U.S. operator that will sign on with Google. And now the WSJ has said that Verizon Wireless is also in "serious discussions" with Google over using phones that have its new software embedded.

Verizon Communications Chief Operating Officer Denny Strigl admitted on Monday during an investor call that the phone company has been in talks with a lot of companies, including Google. But he didn't elaborate. His comment was in response to a question about the upcoming 700Mhz auction.

Verizon and Google have been publicly squabbling for months over the "open" provisions the Federal Communications Commission adopted as part of the upcoming 700 MHz spectrum. The provisions require winners of the spectrum auction to allow any device to connect to networks using that spectrum. Verizon had filed a lawsuit against the FCC. But last week, it dropped its complaint and said it would no longer appeal the provision.

Despite this change of heart, Verizon Wireless' history indicates that it's still very unlikely the company would agree to offer phones with tons of Google-branded services on an open platform. The reason is very simple. Of all the mobile operators in the U.S., Verizon is the most aggressive in protecting its "walled garden." It has some of the most stringent testing of new phones, and it is very selective about the applications it allows onto its "deck."

What's more, Verizon is also very cautious about allowing other companies to brand services on its network. For example, Verizon Wireless uses a search application from a smaller company on its VCast mobile service, which it brands itself, instead of using a search tool from a bigger company such as Google or Yahoo. And instead of leveraging existing music libraries as its competitor AT&T has done, Verizon has built its own music and video library.

So what could Google and Verizon be talking about? The most likely scenario is that Google is offering Verizon the ability to use its operating system to integrate any applications it wants into its phones. Most of Verizon's phones today are built on either Qualcomm's BREW environment or on a Windows Mobile platform. Google may be offering Verizon a free or very cheap licensing deal to use its software on phones. Verizon could still lock-down the phones if it chooses. This means that the Google-powered phones on a Verizon network might not be "open" at all to consumers or developers.

The new Google software will also supposedly offer integration with advertising platforms. And this is something that Verizon or any mobile operator would likely find very interesting. Today, mobile advertising makes up a small fraction of revenue, but carriers expect to generate a significant amount of revenue from mobile advertising in the future.

At the end of the day, Google's biggest market for the supposed Gphone software may not be with any of the U.S. carriers. Instead, Google will likely find a great upside in aiming its open platform at the developing world where people are much more likely to access the Internet on a cell phone than they are on a PC.

"A Google-software enabled phone makes the most sense in emerging markets," said Charles Golvin, an analyst with Forrester Research. "The next 1 billion to 2 billion cell phone users are going to be people in these markets. And most of them will not own a PC. For Google to grow its Internet audience there, it makes much more sense for them to optimize the Web experience on a phone."