Google Inc.’s mobile aspirations in China, including the adoption of its Android mobile operating system, could hit a snag if the Internet giant decides to pull out of the country.
Google’s push to get into the smartphone business was driven by its desire to take the lion’s share of future mobile advertising revenue. But if the company pulls out of China, it could dampen interest in Android and hurt its position in the nascent but rapidly growing market just as other smartphone players step up their game.
The problem could “potentially be huge,” said Kevin Burden, analyst at ABI Research. For example, the largest wireless carrier in China, China Mobile Ltd. (CHL), has roughly 500 million subscribers.
Some–but not all–of the Android phones could be affected. Google has pushed forward two lines of smartphones: devices that feature the latest Google software and programs; and phones that run on customized software developed by the handset partner.
The Nexus One, for instance, has Google’s fingerprints all over it. As does Motorola Inc.’s (MOT) Droid. Both devices carry a “with Google” tagline printed on the back.
These devices may get the cold treatment in China if Google decides to pull out. The devices put their ties into services such as Gmail and Google Voice at the forefront of their features, so the loss of Google’s support would be even more glaring.
Other Android devices, though, may not be affected. Devices like Motorola’s Cliq or HTC Corp.’s (2498.TW) Hero or Droid Eris have a second layer of software running on top of Android that changes the way the phones look and feel. The devices aren’t as reliant on Google programs, and they could still sell well in China.
“I think they will be treated totally different,” said Ken Dulaney, analyst at research firm Gartner Inc. “The operating system is more of an ingredient than a finished product.” Dulaney noted that the Android software is managed by the Open Handset Alliance, and not Google, despite the company’s overarching influence.
While Google may be able to pull out of China, other companies don’t have that luxury. Motorola, which has struggled to regain its footing after a long gap between hit phones, sees China as one of the strongest sources of future growth.
“China is a critical market for Motorola, and we are committed to providing the most innovative products and services, as we have in China for the last 22 years,” said Motorola spokeswoman Jennifer Erickson.
An HTC spokesman said the company wasn’t in a position to comment.
China-based Lenovo Group Ltd. (LNVGY), meanwhile, unveiled a number of Android-powered devices, including a smartphone, at last week’s Consumer Electronics Show. And Dell Inc. (DELL) launched its Mini 3 smartphone in China in November.
It remains unclear, however, whether Chinese consumers will be willing to buy a device that lacks critical Google features, even if the handset maker adds other bells and whistles. In addition, there is heightened competition with the Apple Inc. (AAPL) iPhone now available in the country, and Research in Motion Ltd.’s (RIMM) Blackberry, slated to hit China in the third quarter.
Many Chinese consumers are willing to pay the extra money for a device with all its features. They may not be so willing to buy a device that’s crippled in one way or the other, Burden said.
Android also has made an appearance on netbooks and smartbooks, devices that fall in between laptops and smartphones. Manufacturers can take more liberties with the hardware to distance the product from Google, and analysts feel there is less of a threat to those devices. But if there is a backlash against Google products, the companies will opt to use Microsoft Corp.’s (MSFT) Windows software, or an alternative Linux platform.
“It’s too important for the manufacturers to ignore the Chinese market,” Burden said.