Google shares break $700 on reports of wireless talks

Google shares broke through the $700 mark on Wednesday, after press reports
that the search engine giant is in advanced talks with U.S. wireless carriers
over adoption of mobile phone software Google is reportedly developing.

On Tuesday evening, Reuters
and The Wall Street Journal, quoting anonymous sources, reported that Google
and Verizon Wireless are making progress in drafting a mobile partnership.

On Wednesday morning, the
Journal expanded its story, reporting that Sprint Nextel is also at the
negotiating table with Google.

Earlier on Tuesday, the Journal had reported that Google will soon announce
details of its mobile phone platform, which, according to the paper's sources,
Google will deliver in mid-2008 and which will allow outside developers to create
mobile applications.

At issue is Google's need to make it easier to deliver online services like
Web search through cell phones, and, consequently, extend its online ad reach
to the mobile market. The market is tiny but is expected to grow quickly in
coming years.

Google already provides services for mobile phones via different methods. For
example, Google has created mobile versions of some of its Web sites, which
can be accessed via mobile browsers. It also has some deals with carriers to
integrate Google services into the menu of features these telecom companies
offer to their mobile subscribers. Finally, Google has also developed mobile
applications that people can manually download to their cell phones.

Rampant rumors and speculation about Google's mobile phone strategy have been
around for the past six months or so, and at one point included reports that
Google would go as far as make actual handsets, something that it apparently
has no plans to do.

The Kelsey Group recently forecast that mobile search and display advertising
in the U.S. will hit US$33.2 million this year and grow at a compound annual
rate of 112 percent through 2012, when it will total $1.4 billion.

Kelsey Group also expects the number of mobile Internet users to grow at a
20 percent compound annual clip in the U.S. through 2012, when there will be
almost 92 million people going online via their cell phones.

Worldwide, mobile ad spending is expected to reach US$1.5 billion this year
and grow to $11.3 billion by 2011, according to market researcher Informa Telecoms
& Media.

Other Internet companies like Yahoo, AOL and Microsoft are also busy retooling
their online services and applications so that they can be used on cell phones.

However, these Internet companies are finding that delivering online services
and applications via mobile phones isn't as straightforward as doing it via
PCs.

In the mobile market, Google, Yahoo, AOL and Microsoft have to play nice with
a variety of gatekeepers, like mobile carriers, handset makers, mobile software
developers and, last but not least, government regulators like the U.S. Federal
Communications Commission, which auctions off wireless spectrum and sets rules
for its use.

In July, Google jumped headfirst into a regulatory melee in the U.S. when it
very loudly urged the FCC to radically alter the rules of the game in the mobile
market.

Google argued in favor of so-called open-access requirements for the winners
in an upcoming auction of very valuable wireless spectrum, locking horns along
the way with big wireless carriers like its now reported potential partner Verizon.

The FCC later attached open-access requirements on a third of the spectrum
to be auctioned, but stopped short of adopting another Google suggestion that
winning bidders be required to resell the spectrum at wholesale rates to competitors.

Google, which has a dominant position in online advertising delivered via PCs,
dwarfing with its massive success the performance of Internet giants like Yahoo,
AOL and Microsoft, knows that the leadership in the mobile space is up for grabs.

Unsurprisingly, Google is displaying a clear sense of urgency about the wide
open mobile field as well as signs of discomfort at the complexities inherent
in the mobile market that have prevented it from acting with the liberty and
speed it is accustomed to.

"The mobile space is very complicated," acknowledged Marissa Mayer,
Google's vice president of Search Products & User Experience, in a recent
interview with IDG News Service.

After nearing $705 in mid-morning, up by about $10.00 from Tuesday's closing
price, Google's stock was trading closer to $700 in late morning Wednesday.