Owner of copyright: Schierlitz & Budewig, Tom Schierlitz photographer.
To much fanfare, Google released the Nexus One smartphone earlier this month. Some may say that the Nexus One doesn’t compare against the iPhone, and I have to respectfully disagree on that point.
Don’t get me wrong – I’m a big fan of the Apple iPhone + iTunes model. I think Apple has done a really good job in delivering an excellent end-to-end consumer smartphone experience. Integration with iTunes and the App store, the intuitive user interface and the form factor have all set the benchmark by which all other smartphones are compared to.
But the real genius behind the Nexus One phone is not in the hardware or the software. The real genius is in the business model : the Google Store and the power of Open Source.
The Google Store – Selling direct to the end users
In a single move, through creating their online retail experience, Google have opened up a new channel to reach consumers across the globe: http://www.google.com/phone
Compare this with Apple’s business model that encourages you to buy the iPhone with a carrier contract (AT&T in the US, B-Mobile in Brunei).
Economists might argue that this exclusivity reduces competition in the mobile segment by eliminating consumer choice. Fans of the iPhone “have” to go with one of the exclusive carriers, or else they have to resort to various trickery to get their iPhone to work on rival networks. On the supply side, the network operators also have a disincentive to innovate. If they are certain of their exclusivity arrangements, then in a way they are “guaranteed” at least some users who are attracted by the shininess of the iPhone and “just have” to have it. Thus they will be less inclined to spend cash to upgrade infrastructure, choosing instead to maximise their profits through “forcing” consumers to use the exclusive iPhone on their aging infrastructure.
Conversely, with the Nexus One, Google are disintermediating the market for smart phones and are cutting out the middle men (the network operators). No longer do consumers in the US market (one of the largest markets for mobile services) choose a network provider first (AT&T) before picking their smart phone (iPhone). Now users have the choice of picking the unlocked smart phone first (Nexus One) before picking the most appropriate service provider of their own choosing.
From a business model perspective – this puts the network operators back in their place, and re-aligns the incentives for network operators. Instead of earning “monopoly rents” from the smartphone bundles, operators must now compete with each other for what is essentially a homogeneous service. After all, from the point of view of the network and the Internet, a packet is a packet is a packet. A piece of digital information flowing over the network is just the same as any other – and network operators should concentrate on their core competencies of operating and maintaining networks.
If Google had their way, US consumers would be buying unsubsidised Android smart phones from the Google store, and buying cheap pay-as-you-go and unmetered mobile broadband packages from the network operators. US consumers using the free Google Voice service can then call each other for free on their Google phones, further reducing the power of network operators.
So yes, the Nexus One may not be as smooth an operator as the iPhone. But the innovation here is in the business model. Yes, in Brunei we probably take it for granted that we can buy unlocked phones at affordable prices. Like I explain above – the innovation is in the disintermediation, and the potential for turning Google into the one-stop-shop for all our digital interactions: voice, video, data, the lot!
The power of Open Source
And the other smart move by Google? Creating the “Open Handset Alliance”, roping in the other manufacturers and Open Sourcing the Android platform.
Android Timeline (from Google's press site https://sites.google.com/a/pressatgoogle.com/nexusone/)
Because in a world of Real Men™ who do you get to do your Quality Assurance and product testing?
Your competition, geeks on the Internet and other companies.
Although in this case, Google has roped the “competition” together and strung them together into an Alliance, a cartel of sorts. By creating a mutually beneficial relationship, Google have created economic incentives for traditional competitors to work together. HTC, LG, Motorola and Samsung were founding members of the Handset Alliance. ASUS, Garmin, Sony Ericsson, Toshiba and Acer joined later.
Yet they all benefit from working together to collaborate on the Android platform.
And through Google’s work on disintermediation, the power dynamic will shift. Gradually, the power of network operators will erode, and Google will eventually offer the whole spectrum of unlocked Android phones for sale through http://www.google.com/phone
In a way then, T-Mobile, being the first carrier to offer an Android Phone, together with HTC, were the “guinea pigs” for Google’s Nexus One phone. And the Nexus One will only accelerate the adoption of the Android platform.
The Bottom Line
Harvard Business Review and Business Week has good articles on the effect of disintermediation. And Wired has a good review of the phone.
At the end of the day, the Android phone is an excellent choice for users who run their digital lives in the cloud. Mail on GMail. Voice through Google Voice. Snapshots on Picassa. Videos uploaded and shared on YouTube. Navigation through Google Maps.
But the Nexus One falls down with desktop sync. Until we get Google Music with cloud-based storage of our mp3′s, media library sync isn’t coming soon to the Nexus One.
But my use case is I need a companion phone to the corporate Windows Desktop. So that means I need reliable Exchange sync. Word/Excel would be nice, and media library sync would be nice too. So my choice? HTC HD2.
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