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Coming in 2012: A Google Phone Not Based on Android

Stocks in this article: GOOG

B. Cost -- This type of a cloud-centric smartphone could be produced using less memory, less local storage and a less powerful CPU. It would not negate the need for constant improvement in the areas of display resolution, GPU horsehower and improved (faster) connectivity and input methods such as cameras.

C. Competition -- Earlier this year, rumors published by several of the major tech bloggers suggested that Motorola Mobility is working on an unspecified cloud OS for its future smartphone and tablet needs. More recently, Samsung announced that it will introduce its "Cloud Phone" in 2012. It therefore seems clear that at least two of the leading Android licensees are seeking alternatives from the ever-faster spinning Android competitive treadmill.

We are seeing in the discovery documents covered in the Skyhook-Google lawsuit an increasing tension between Google and its licensees, specifically Motorola and Samsung. It looks like all parties have at least some dissatisfaction with what they perceive to be downsides of the very open Android model, which is still largely controlled by Google. Licensees feel it's hard to differentiate, whereas Google doesn't want them to differentiate the software, only the hardware.

So where is all of this going? We are increasingly moving into a set of vertical ecosystem silos. RIM, Apple (AAPL) and Hewlett-Packard (HPQ) are already complete vertical silos in terms of their smartphone/tablet products. Microsoft (MSFT) has a very tightly controlled process with no ability for software differentiation, but is now in bed with what appears to be a highly favored ("more equal than others") partner in Nokia (NOK), to the detriment of Samsung, LG, HTC and Dell (DELL). Many signs point to a wholesale merger between Microsoft and Nokia, which may cause the other four aforementioned licensees to drop Microsoft 7 Mobile like a bad habit.

That leaves us with Google. If not only RIM, Apple and HP -- but also Microsoft -- goes completely vertical with dictatorial end-to-end control, Google would be the odd man out with a chaotic ecosystem lacking in consistency and therefore user experience.

So what would Google do? I believe it is looking to a two-pronged mobile strategy.

1. Continue to Android largely as is but with whatever modifications it can get away with, in order to reduce (but not eliminate) fragmentation. Tools to do this include giving preferential treatment for new OS versions, which we saw most recently with 3.0 Honeycomb. In this case, you may have noted how all 3.0 Honeycomb products announced to date are stock Android, not the skins usually provided by HTC, Samsung and others. This will change soon, at least on the software side, but Google is at least attempting to steer the market for a few months in the direction of its "plain vanilla" offering -- which is frankly what most consumers want anyway, at least so far.

2. Offer an all-new OS where it adopts -- at a minimum -- the Microsoft "total control but with some hardware makers" approach. Google would offer a very tightly controlled smartphone Chrome OS with hardware chassis specs to the usual suspects Samsung, HTC, LG, Motorola, Sony Ericsson, Dell and many others. The emerging problem here would be that at least a couple of these guys -- Samsung and Motorola -- are or appear to be on their way to their own vertical integration with their own cloud OS ecosystems.

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