Google to offer paid smartphone apps in Apple challenge

By Alexei Oreskovic

SAN FRANCISCO (Reuters) - Google Inc will allow developers to sell applications for its Android cell phone operating system beginning next week in the United States, as the search giant strives to expand in a smartphone arena dominated by Apple Inc.

Google's announcement marked an important step in the search giant's quest to catch up with Apple in the fast-growing market for smartphones.

It signals Google's commitment to expand into a relatively hot mobile market, even as it pulls back on certain other initiatives such as broadcast radio.

Google said in a blog post on Friday its Android Market will initially carry paid applications from developers in the United States and Britain, with plans to allow developers in Germany, Austria, the Netherlands, France and Spain to participate later this quarter.

That could present an outlet for developers such as Electronic Arts Inc that have been anxious to expand sales of their mobile phone games to the Android Market, which has been limited to free applications until now.

Smartphones, which allow consumers to browse the Web, send email, play games and listen to music, in addition to making calls, are one of the few bright spots in a slowing technology and consumer electronics market.

While overall unit sales of cell phones declined 12.6 percent year-over-year in the fourth quarter, smartphone shipments increased 22.5 percent, according to research firm Gartner.

The T-Mobile G1 phone uses the Android operating system.

The availability of applications that run on a particular smartphone are important to define and distinguish the product, said analyst Rob Enderle of the Enderle Group.

"It's what's providing that extra value and getting people into the stores," he said.

Apple, for instance, enticed a large community of developers to create both paid and free applications for its iPhone.

According to a Google spokeswoman, there are currently 1,000 applications that run on Android smartphones.

Consumers will buy the forthcoming paid Android applications via the Google Checkout payment product.

Shares of Google were down less than 1 percent at $360 in late afternoon trading.

(Additional reporting by Sinead Carew; Editing by Andre Grenon and Brian Moss)