This is Part One of a three part post.  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.

I got the Motorola Droid, Verizon’s most powerful Android powered phone, a couple months ago on the day it came out.  I’ve reserved making too much of a judgment until now.  The primary reason for waiting is because I tend (as technologists do) to fall in love with a new toy and look past its faults.  I’m not proud of it, but I actually recommended the, now unanimously scorned, Blackberry Storm to a family member.  So, after waiting a reasonable amount of time, I’m here to tell you the Droid (and Android as an OS) are the real deal.

For those of you a little less tech savy, let me explain.  While it’s not discussed often, your phone has an operating system built into it.  Your phone runs this operating system just as your computer is running Windows (or Mac OS).  The difference between computers and phones is that the operating systems are often developed by and used exclusively by the manufacturer.  For example, only Blackberries run the RIM operating system, only iPhones run Apple’s OS and only Palm Pilots run the Palm OS.  The two largest counter examples are Windows Mobile and now Android (which is an operating system published by Google).  Since I’m quite sure that Bill Gates is not a regular reader of my blog, I’m going to dismiss Windows Mobile for now*.

The implications to RIM (makers of the Blackberry) and Apple of a popular, device-independent operating system are ominous to say the least.  For proof, one need not look further then the fight for dominance in personal computing.  Apple had (hands down) a better product then Microsoft.  This gave Apple a competitive advantage and allowed them to charge a significant markup on their hardware.  On the other hand, the fact that multiple hardware manufacturers were producing Microsoft compatible systems opened up a price war.  As a result, PCs were considerably less expensive even with the same margin on the operating system itself.

Every corporation, academic institution, and even group of friends had to standardize on either Apple or Microsoft.  This standardization would ensure that they could easily transfer files, hire a single set of technical support professionals, and create a knowledge base around the operation of the computer.  Since PCs were cheaper (and gaining on Apple in usability), Microsoft’s market share grew.  Once Microsoft became the dominant operating system for PCs, Apple had no choice but to become a niche player.

I believe we may see the same thing happen in the mobile phone market.  Dell, HTC, Motorola, and LG are all making (or expected to make) competing Android phones.  The fact that these companies will all be competing with the same operating system means that they will have to compete on price, hardware features, or marketing.  No matter what they choose, their competition-tested products are sure to diminish Apple’s market share.  If this dynamic doesn’t change, I predict Apple (and RIM) will be occupying a niche market in smart phones within 5 years.

* What makes PCs dominant is their hold over the things we do in the office –  spreadsheets, presentations, word processing.  Windows Mobile attempts to transfer that power to the phone.  While it does that better than any of its competition, that’s not why people buy phones (at least not yet).

Note: Image from Got No Milk (there looks to be a tasty applesauce recipe there).