Tuesday, October 19, 2010

Verizon & Google Start to Tip the Scales Against Apple

Great news for Apple, with the 70% surge in quarterly earnings. Things look mighty good, at least in the near-term. On the other hand Google's prudent long-term plan in entering the wireless market with a competing mobile platform to better enable connectivity and search capabilities, and oddly not to sell smartphones, is proving to be a winning strategy. After all Google's core competency is search as well as displaying relevant ads, not smartphones. With the increasing popularity of Android based phones, Google is reaping huge long-term rewards. Just recently Apple announced that the iPad will be sold in Verizon stores, and that the iPhone will be sold on Verizon's network next year. (On a side note, some suspect the iPhone will only be released for Verizon's 3G CDMA network. But I'll wager a humble bet with anyone that it will be released for their new 4G GSM network as well. More to follow via my tweets at grochejr.) Why is this significant and how is this news tipping the scales against Apple?

Some may argue that moving their products to work on the Verizon network was all in Apple's eventual and original plan. Why would Apple choose to purposely stay exclusively on AT&T's network? I'll tell you why. Apple, I suspect, was leveraging consumer demand for their iPhone in their negotiations with wireless providers, and hoping to do the same with the iPad. Why? Some quick history first...

Back prior to the launch of the iPhone, AT&T was quick to bow to the whims of Apple and agree to give them a considerable chunk from the monthly data plan fees they charge consumers. All for the temporary exclusivity to sell the iPhone and gain more of the untapped smartphone market share. Apple felt, and probably still does, that the demand for their products will be so great, with the threat of having tons of customers switching wireless providers, that eventually the other telecommunication companies would follow suit and agree to the terms of sharing the profits from their monthly consumer data plans. This would mean huge recurring monthly revenues for Apple that far beat the old one-time hardware sales model. This same sales model is probably playing a significant role in Apple's quarterly earnings announcement yesterday. But the sudden news about the iPad being sold in Verizon stores this fall season of 2010 points to the fact that things didn't go exactly according to plan for Apple.

It's rumored Verizon, with its larger customer base, was first approached by Apple but declined to share the data plan fees. And like a scorned lover, with the foresight of potentially losing market share to AT&T, Verizon made a concerted effort to combat AT&T and Apple. By partnering with Google, HTC, Motorola, as well as other handset makers, true rival mobile touchscreens arose to challenge the iPhone. They then employed their strategy to heavily market and promote the branded "Droid" phones, thanks to Lucas Arts. The Droid phones of course were based on the Android mobile operating system (OS)/platform by Google. And as sales have shown, especially due to Verizon's reputation for a more reliable network than AT&T, consumers were and still are flocking to Droid phones. [Update: Verizon has done well for itself as a result.]

Given strong demand and competition that Android based phones have shown, and Verizon completely keeping its revenues from their monthly data plan fees, perhaps Apple sought to make a peace offering. They no longer can afford to ignore the combined Google-Verizon threat. Therefore Apple is now warming relations with Verizon and them giving an opportunity to sell the iPad. Granted it will only be WiFi enabled, but it will work with Verizon hotspots and mobile MiFis. The 3G enabled iPad will be reserved for AT&T stores, so as to not to let AT&T feel Apple has been ungrateful to them.

In making the recent iPad-Verizon announcement, Apple acknowledges the (Google) Android-Verizon threat. More than anything else, the Android-based touchscreen phones powered by Verizon's network and strong customer base has shaken Apple to the point where they don't necessarily see the scales tipped in their favor any longer. Let's be perfectly honest, selling the iPad in Verizon stores isn't really a peace offering. Given the strong fight Droid phones have given the iPhone, Apple is definitely seeking to preemptively stem the flow of sales to the upcoming Android Tablet by Google and Verizon, slated to come out early next year.

Yes, there are gaps in the user experience on Android phones unlike the superior ones found on the iPhone. And yes, Google isn't making this a priority since they are focused primarily on their core competency, search. This is explanation given by Apple for their onerous and stringent rules for authorizing apps that can be sold on their platform. The goal, to ensure quality with the best (simple) user experience. But with the open platform by Google, the marketplace can provide opportunities for companies to bring about these efficiencies on their own. Enter Amazon, which has now announced they will be publishing their own controlled app store for Android based systems where the quality control issues can be addressed.

The small headline here is that the previously viewed invincible iPhone could be at risk for becoming commonplace. An Apple monopoly on touchscreen devices seems unlikely now. The big news is that due to this fierce competition on pricing, revenue, branding, and innovation, the consumer ultimately wins.

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