VCs see Android gaining on iPhone

An advertisement for the Apple iPhone is shown at a retail store of an Orange mobile phone network provider in Bordeaux, southwestern France, October 23, 2009.

SAN FRANCISCO (Reuters) - Google Inc is posing a bigger challenge to Apple Inc in the mobile world as more and more start-ups develop applications for Google's Android software, venture capitalists said on Tuesday.

While Apple's app store offers more than 200,000 games, tools and other software to jazz up the iPhone, against just 38,000 for Android, the openness of Google's mobile operating system is helping it gain popularity with developers.

"I am quite impressed by the traction the Android ecosystem is getting," said Chris Moore, a partner with Redpoint Ventures, which has invested in online video store Netflix and IAC/InterActiveCorp's Ask.com.

Moore told the Reuters Global Technology Summit that it felt as if as many start-ups were walking into his office to pitch Android applications as those for the iPhone.

"I want to say that on the current trajectory, they (Android) will pass the iPhone platform, or at least reach parity by the end of this year or middle of next year."

Earlier this month, research group NPD said smartphones running on Android accounted for 28 percent of U.S. unit sales in the first quarter, ahead of the iPhone's at 21 percent share. Research in Motion Ltd's BlackBerry was No. 1 at 36 percent.

While Apple questioned the NPD data, saying it was based on a limited sample of consumers, venture capitalists in Silicon Valley are watching these trendlines very closely as they place bets on start-ups developing interesting mobile apps.

App developers have to choose one of the mobile platforms to write software for, though they can adapt an application to run on other platforms.

FRAGMENTED MARKET

Google, Apple, RIM, Nokia, Microsoft and others are jostling for share in the global smartphone market, seeking to capitalize on the transition from personal computers to mobile devices.

Rich Wong, partner of Accel Partners, an investor in social networking site Facebook and mobile advertising network AdMob, said he expects the mobile market to fragment further in the future and does not expect one dominant player to emerge.

For example, while iPhone and Android are duking it out in the United States, Nokia's Symbian operating system is strong oversees and won't give up easily, he said.

"It's not going to be a winner-takes-all environment," Wong said. "I think the fragmentation in this mobile space is forever."

However, David Weiden, a partner with Khosla Ventures, said the current level of competition in the market, with five to eight operating systems jostling for share, is unsustainable and a few dominant players would emerge.

"It's been a long time since such a significant market has been up for grabs," said Weiden, whose firm is invested in mobile device Jawbone and popular iPhone app Tapulous.

"I personally doubt that things will be as fragmented in three years as they are right now," he said, adding that the mobile arena does not tend toward a winner-takes-all scenario as much as a Facebook does "because there is more natural diversity, but the amount of fragmentation right now is unstable."

(Reporting by Alexei Oreskovic and Poornima Gupta; Editing by Steve Orlofsky and Matthew Lewis, Gary Hill)