This is Part Two of a three part post (Part 1: The Apple and the Android). Google is doing something really exciting in the world of phones. Something that may very well change the way you buy phones and service contracts in the next three to five years. The way Google is approaching the phone market is fascinating not only from a technology perspective, but from a business perspective as well. For this reason, I’m going to spend a few days looking at the play and its intended outcomes.
The timing of this post is intentionally pretty good. Google has allowed their initial testers to review the phone starting today. One of my favorite bloggers, Fred Wilson, was among the testers. He posts his review over at A VC. He talks about it as another smart phone. For now, it’s just that. According to Fred, it may be one of the best, but it is still just another internet enabled, email checking, application running phone. The irony is that the real impact of the Google Phone (Nexus One), won’t be on the cell phone manufacturers.
I mentioned in yesterday’s post that the people who are most scared (or at least should be most scared) of Android, Google’s Operating System, are actually smart phone manufacturers such as Apple and RIM. In the same way, the companies most threatened by the Nexus One are actually the Wireless Cariers not the phone manufacteurs. This is because Google is going to offer the phone as an “open” phone.
Currently, the wireless providers (Verizon, AT&T, T-Mobile, etc…) hold all the strings. They make the deals with the phone manufacturers. Then they sell the phones in their stores coupled with a 2 year service plan. They give the manufactures an initial payment and then rake in the cash every month for the next two years. It’s estimated that AT&T (in addition to the price of the phone) pays Apple $18 per month per iPhone user that stays on their network. How can AT&T afford that? Simple, because they are charging you the customer even more then $18 over what it costs them to actually provide service to your phone.
Based on the latest Google Analytics, I don’t have any readers in Europe. That means that the concept of an “open” phone will be new to just about everybody. Few people stateside have heard of the concept and even fewer have done much thinking into what it might mean to the wireless industry. An open phone is one that is not linked to any specific network and therefore can be transferred to any network easily. If you’re not sure, your phone is not an open phone.
With Google putting their name and reputation behind an “open” phone in the United States, carriers will be pressured to allow “open” phones on their network. I doubt that all of them will, initially, but at least AT&T and T-Mobile will. This (and any other high-profile “open” phones) will put pressure on Verizon and Sprint to update their networks to support “open” phones. If this happens (probably not for several years) power will be shifted away from the carrier. The $18 that AT&T pays Apple? I’ll buy my own phone and then ask them to take that off my bill.
The significance of Google in this game is this. They developed their own phone and likely had offers from Verizon, T-Mobile, and Sprint similar to AT&T’s $18. They said, “no thanks we want to make it open so that we can make more money on phones (and applications for phones) in the future.” It’s a bold move that likely will be mimicked by other device manufacturers. Someone had to fire first in a battle that may eventually (probably 8 to 10 years) change completely how you buy mobile phones and service.
We’ve covered how Google will change the phone that you use, the operating system you use and how you buy your phone and service. Tomorrow, what is Google Voice and how does it fit?
