Android and the Google Phone are musts - not "options" - for Google

(Disclosure: the author owns shares in both Apple and Google)

There is great discussion going on right now about the new Google Phone and Android. And of course, hundreds of stories are written each day about the continuing growth of iPhone apps.  Today in MobileCrunch, there's a great article about the number of apps hitting the 20,000 mark.  Also today  is another great article by Rita Chang about why Google is launching its own handset in AdAge, as well as a new Mobile Internet Report released by Morgan Stanley.

I actually think much of the chatter and analysis understates the danger of the rise of mobile computing and the iPhone in particular present to Google. The iPhone and iPhone apps represent a comparable opportunity in size to AdWords (which still drives the vast majority of Google's market cap) to Apple at the same time it threatens Google's core franchise.  This also explains Google’s acquisition of AdMob along with Apple’s rumored interest in the acquisition.

As the World Wide Web was launched on a browser, Google (and Yahoo before it) succeeded (where many others failed) in becoming THE STARTING POINT for web navigation.  And by far the MOST VALUABLE type of web navigation is search.  The ability to allow advertisers to reach consumers at the point of their intentions is an incredible innovation that has made Google one of the most financially successful companies in history. 

With the rise of the mobile internet - and Apple's early dominance - that innovation is now truly threatened for the first time. Here's why: 

1)     As I've written before, not only will the vast majority of iPhone Apps be free, but every company, business, and storefront will have an iPhone app.

2)     Businesses already love iPhone apps for the way in which the consumer is 100% engaged while interacting with their app.

3)     As the number of apps grows to 1 million, the discoverability problem around apps will only be exacerbated.  It is extremely difficult today to find the right app for what you need, and to be confident that the app will solve your needs.  At Appolicious, we aim to solve that problem by connecting consumers with other folks who’ve downloaded and used those apps, and by driving recommendations based on the collective ownership, ratings and rankings of those apps.  We also recently launched a Discussion feature that allows consumers to congregate around the types of apps they are looking for in order to share expertise and tips.

4)     The discoverability problem for consumers is mirrored by a much worse problem for app developers. From a business standpoint,  how do you drive adoption of your apps?  It is critical to have a presence in your customers hand wherever they may be in order to compete.  Right now, it is extremely difficult to drive adoption of an app.  After businesses exhaust their free methods of distribution, techniques today revolve around creating enough buzz and early adoption to make a top ten list, or better yet, an editor’s pick, in the App Store.  And no third party sites such as Appolicious have emerged with enough scale yet to solve this problem for a large number of app developers.

The obvious solution is for Apple to offer an AdWords-type service within a web-based version of the App Store.  The acquisition of LaLa certainly signaled an intention by Apple to go to the web.  By allowing app developers to bid on keywords within the App Store, Apple will go a long way to solving both the discoverability and adoption problems experienced today. This is similar to how Google’s search is a much better experience when consumers can see what advertisers have paid to be seen next to search results.

When that happens, Apple will have unleashed a multi-billion dollar franchise that will directly be taking dollars away from Google. The Morgan Stanley Mobile Internet Report also makes the point that the mobile Internet could foster the fastest tech adoption cycle of all time.

Not surprisingly, Google has a three-pronged response to this threat:

1)     First, challenge the whole notion of “apps.”  Google has repeatedly (but not so much recently) talked about how the mobile Internet will go to the web page paradigm, thereby ensuring that search still matters.  Unfortunately, the market hasn’t agreed here.  Apps make sense when you are talking about taking advantage of GPS, accelerometer, social, screen size, input technology, headphone, microphone, etc…and it is extremely difficult to produce similar web experiences for the myriad of mobile operating systems and standards.  In other words, the market wants a platform – a standardized and integrated hardware and operating system…(the iPhone!)

2)     Then launch a competing open mobile OS, Android, that is much more developer-friendly in some ways (approval process) but unfortunately more difficult in many ways – developers still need to work on multiple hardware and OS platforms.  In other words, Android alone doesn’t solve the problem.

3)     So launch your own device; one that integrates hardware and OS in one platform like Apple.  Hence the Google Phone

The challenge facing Google is large.  As the cost of breakthrough and quality apps continues to increase (see here for a recent article on Appolicious on how much harder it is to have a “winner” on the App Store), developers and brands will prioritize their development resources against the integrated device that has the most traction.  Which today is clearly the iPhone.