After Google, Motorola readies Android phone

As the wireless world awaits the Oct. 22 debut of the first phone based on the Google-backed Android software, engineers at Motorola are hard at work on their own Android handset. Motorola's version will boast an iPhone-like touch screen, a slide-out qwerty keyboard, and a host of social-network-friendly features, BusinessWeek.com has learned.
Motorola has been showing spec sheets and images of the phone to carriers around the world in the past two months and is likely to introduce the handset in the U.S. sometime in the second quarter of 2009, according to people familiar with Motorola's plans.

Building a phone based on the highly anticipated Android operating system is part of Motorola's effort to revive a loss-making handset division that has forfeited market share amid a drought of bestselling phones. Motorola stock, which on Oct. 17 rose a penny to 5.62, is hovering near a 16-year low.

The phone will appear among a new class of social smartphones designed to make it easy for users to connect quickly and easily to mobile social networks such as Facebook and News Corp.'s MySpace. Such phones let users message in-network friends directly from phone contact lists, for example. A Facebook representative declined to comment on the company's work with Motorola. MySpace.com didn't respond to a request for comment.

Motorola declined to elaborate on its plans, but said in a statement: "We're excited about the innovation possibilities on Android and look forward to delivering great products in partnership with Google" and the community of developers known as the Open Handset Alliance that are working on the Android operating system.

Mobile networking wave
In the next year, social networking phones are expected to be a hit with the 16- to 34-year-old crowd, analysts say. According to consultancy Informa, the number of mobile social-networking users will rise from 2.3 per cent of global cell-phone users at the end of 2007 to as many as 23 per cent of all mobile users by the end of 2012.
The Android handset will feature a touch screen about the size of those on Apple's iPhone, people familiar with the phone say. While it takes some of the design cues from Krave ZN4, the first touch-screen phone from Motorola launched with Verizon Wireless on Oct. 14, it's not certain whether the Android phone screen will feature Krave's distinctive and interactive clear flip screen.

Like the world's first Android phone, from HTC, Motorola's Android-based device will offer a slide-out Qwerty keyboard. People who've seen the pictures and spec sheets for the device say it looks like a higher-end version of the HTC phone, called the T-Mobile G1. But it's expected to sell for less, at prices similar to the Krave, which is available for $150 with a two-year contract. After carrier subsidies, the G1 will retail for $180 with a two-year contract.

Slow off the mark
Motorola's new phone likely won't be ready to launch in the US until the second quarter of next year, say people who are familiar with it. And it may not be available in Europe until the third quarter of 2009. Many analysts have been expecting Motorola to roll out an Android phone in December or January.

Any delay gives competing Android phones a chance to gain traction. London-based INQ will unveil its social-networking phone, INQ1, in Britain and Australia in about a month. The slider phone, which integrates Facebook features into its address book and camera, is expected to enter the U.S. market next year.

And Nokia, the world's largest cell-phone maker, has already begun adding connectivity to its media-sharing site Ovi in some of its higher-end phones. "The sooner [Motorola] comes out with a social phone the better," says John Jackson, an analyst with the Yankee Group. "The more you wait, the more distance gets put between you and the rest of the world."
In the handset business, a best-selling product can reverse a company's fortunes quickly, as Motorola has seen first with its popular StarTAC, and then with the Razr line of devices. "Motorola still has global carrier and distribution relationships" to rival those of most competing players, says Jackson.

Motorola also has a relationship with industry innovator Apple, and may be able to offer iTunes downloads for upcoming phones, says Moe Tanabian, principal at researcher IBB Consulting. Music downloads may appeal to the same category of consumers that is expected to buy social phones.

Good people
The Android project is getting a lot of attention and support directly from Motorola's new co-chief executive officer, Sanjay Jha. The Android phone - likely one of a series of Android handsets Motorola is cooking up - is the brainchild of people who joined Motorola via its 2006 acquisition of Good Technology.

Good specialised in enterprise wireless messaging, data access, and security software used in such products as Motorola's Q line of smartphones. The project is headed by Rick Osterloh, vice-president and general manager for Android products and formerly Good's vice-president of marketing and product management.

Motorola is looking to add staff to its Android project in California, where the Good team is based. Applicants are invited to work on a "social smart phone." One posting for a software engineer on job board Monster.com reads: "We are a new start-up division within Motorola with strong executive level sponsorship, a 50M+ budget for our Android platform. Our new CEO, Sanjay Jha, has been in the forefront of the formation of the Android Open Handset Alliance!"

Yahoo! makes Google ad deal, Microsoft talks fail

Yahoo Inc and Microsoft Corp ended months of deal talks on Thursday as the Web pioneer agreed to let archrival Google Inc sell search ads on its site, the companies said.
Separate statements from Microsoft and Yahoo signaled a real rift between the two after their agonizing on-again, off-again talks, and Yahoo shares fell 10 per cent as final hopes of a full or partial acquisition faded for many.

Microsoft shares rose more than 4 percent as investors showed relief that the company would not be paying too high a price for a deal they considered risky -- and even though it faces the joining of forces of its biggest rivals on the Web.

Yahoo said it had agreed to let Google put search ads on its site in what it called an $800 million annual revenue opportunity that would boost cash flow by $250 million to $450 million in the first 12 months.
"Google has made an enormous gain strategically. This move might well have shut Microsoft out of the online space altogether," said Sanford Bernstein analyst Jeffrey Lindsay.

Google and Yahoo, No. 1 and No. 2 in search, will pit ads against each other in auctions for the ad that pays the most. "Yahoo is being a reseller of Google whenever it makes sense, and that is likely to be a lot of the time, given how much more effective Google Web search ads have proven to be," Global Crown Capital analyst Martin Pyykkonen said.

The process is nonexclusive, meaning others could join in the bidding to place ads, a factor that could make a deal easier to pass regulatory approval.
The companies agreed to wait 3-1/2 months for regulatory approval and to offer a way to end it if Yahoo is taken over.

But the prospect of combining the top search ad vendors in one system immediately raised fears. Sen. Herb Kohl, a Wisconsin Democrat and chairman of a U.S. Senate antitrust subcommittee, said lawmakers would "closely examine" the plan.

Google Chief Executive Eric Schmidt likened the deal to ones in other industries where rivals find ways to cooperate even as they compete. "The decision of showing ads is a Yahoo decision, not a Google decision," he said.

MICROSOFT OFFER
Yahoo rejected Microsoft's latest proposal, which sources briefed on the subject said included an offer to buy 16 percent of Yahoo for $35 per share, plus to buy its search business.

Yahoo simply said that an alternative Microsoft proposal to buy only its search business did not fit into its plan to grow search and display advertising.

Microsoft's offer for a minority stake was at a premium per share to its early May offer to buy the entire company for $47.5 billion, or $33 per share.

Microsoft, which said it was still open to an alternative deal, had hoped a Yahoo deal would accelerate its ability to capitalize on Web advertising growth and compete with Google, which is increasingly fighting for the same Internet audience.

Yahoo said on Thursday that Microsoft had made it clear in a meeting on June 8 that it was no longer interested in buying the company outright, even at the $33 per share price Microsoft had most recently proposed.

That may not appease Yahoo shareholders -- including billionaire Carl Icahn -- who have been pressuring Yahoo to reach a deal with Microsoft. Icahn has called for Chief Executive Jerry Yang to be ousted. THE END? Analysts said they did not expect that Yahoo and Microsoft would try another round of negotiations.

"It certainly seems to be the end," said Derek Brown, an analyst at Cantor Fitzgerald. "In their most recent discussions, they were talking about totally separate visions of both a deal and the future." Microsoft is expected to soon be on the prowl for other acquisition targets because it has not given up its goal for online advertising. "Microsoft will keep trying," said Morningstar analyst Toan Tran.

"Yahoo is one of the most popular sites on the Web, and there is no one else with as much traffic. AOL may be one option, and it may not be as expensive." Icahn, who has waged a proxy battle to remove Yahoo's board at its Aug. 1 annual meeting, had urged Yahoo to secure a higher price from Microsoft.

Icahn has said a partnership with Google should only be a second choice. Icahn could not be reached for comment. Yahoo shares sank as low as $22.50 on news of the talks failing and expectations of the Google deal. It was their lowest level since Jan. 31, the day before Microsoft announced its offer for the company.

Yahoo shares fell $2.63 to $23.52 on Nasdaq. Google shares finished up $7.75 at $552.95, and Microsoft closed up $1.12 at $28.24.

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