Is the Google phone the death of Android, the iPhone, or the OEM?

Posted by Rob Enderle, principal analyst, Enderle Group

I have to admit Google is making things interesting they recently leaked that they were going to bring out the Nexus One an unlocked cell phone that was specified by Google but built by HTC.  

This had some folks like my friend Michael Gartenberg wondering if this was a massive mistake and would kill the android platform, which it could.   Others suggested  that this was a key part of an effective strategy to render the iPhone insignificant effectively doing to Apple what DOS and Windows initially did to the Mac.  I’m on a different path; I’m thinking that this may mean the death of the traditional cellphone OEM.   Let’s explore each of these.

Death of Android

The Android suicidal argument is based on conventional wisdom which suggests that anyone who is a platform company going into hardware will kill the platform business.   This is supported by the nightmare Intel had when they tried to build PCs, what happened to Plays for Sure (Microsoft’s MP3 player platform) when they brought out the Zune, and partially why the Xbox pisses off PC hardware vendors as much as it does.    General wisdom is that it is unwise to compete with the people who license your technology or buy your parts. 

However, Google is not going into manufacturing - it is using HTC, arguably its biggest partner, to build a phone to its specification and selling that phone unlocked.   This isn’t quite the same as competing with a partner because they are using a partner to build the device and showcasing how they think might be a better design. 

One of the problems the platform model has demonstrated with both Google and Microsoft against the iPhone is that Apple, by owning the customer, can potentially provide a better experience.  One more competitive with Apple.   I agree this does put stress on Google’s partnerships but I think it is manageable and likely a better path to an Apple like experience than otherwise might result.  We’ll see how Google plays it.

iPhone Killer
This argument is founded on the old Windows/Dos vs. MacOS battle which left Apple in the dust and Microsoft dominant except Google is in Microsoft’s place this round.   If we build on the previous argument that Google can improve and showcase a better experience with their phone by specifying it and owning the customer experience then Apple becomes bracketed by a broad line of increasingly better phones from more carriers in more countries with more diversity.   It is droid squared and assuming a large fraction of these folks execute Apple is trivialized. 

Lots of good inexpensive cars didn’t kill Porsche or any other luxury brand and Apple is now a luxury brand in the Smartphone market which is currently a small fraction of what it will become.  While Google likely will reduce Apple’s relative market share they will also likely cause the market to grow more quickly and Apple will likely continue to make the largest margins in the segment.   It is reasonably possible that Apple could continue to get good growth even as Google moves to dominance because they exist at a premium layer that Google has not yet embraced.  I agree there is a risk but Apple has some experience dealing with this risk and as long as everyone doesn’t jump on Apple as Verizon has done with the droid, Apple could survive this rather well.

Death of the Phone OEM
This is likely the bigger danger.  Right now customer ownership, as noted above, is generally divided between the phone OEM, the carrier, and the platform company.  The Smartphone with the best customer satisfaction is the iPhone and it gets there by owning the customer.  If Google’s effort is equally successful and the US Obama administrations moves to separate phones from carries is successful as well then the roll of both the carrier and the phone OEM would be vastly reduced and we could see lines of Google phones looking like they came from Google and not from companies like Samsung, HTC, Motorola, or others.
 
This customer ownership problem is key because it is clear that the closer the customer is to one company that is focused on them the better their experience likely is and this model could win out.  The end result would be the elimination of a lot of brands and the evaporation of a lot of Smartphone companies and that market consolidated around the platform owners.  

I think if the existing cell phone companies can’t find a way to improve the customer experience to match these new platform owned products many of them may not be around in a few years.   In other words, of the three risks, I think the death of the Cell Phone OEM is the more likely.

Wrapping Up:  Google is Playing it Smart
Given the success of the iPhone I think customer ownership is the key to making a Smartphone that excites people and builds a loyal customer base.  Both of these are critical to both being powerful in this new market and assuring yourself a long term place in it.   I think Google’s move to create their own branded phone, while clearly risky, is worth the risk and that it may help change forever what is a largely broken cell phone market.   What do you think?

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts
are paid to stay up to date on current events and identify trends and
either explain the trends or make suggestions, tactical and strategic,
on how to best take advantage of them. Currently he provides his
services to most of the major technology and media companies.  The
opinions expressed in this commentary are solely those of the writer.