Why The Verizon iPhone is Already Too Late

By Wilson Rothman
|  Tuesday, Aug 10, 2010  |  Updated 10:02 AM EDT
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Why The Verizon iPhone is Already Too Late

Bob Hansen reports

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Verizon Wireless might get an iPhone this January? It's about time. Or is it too late? New reports show that Google's Android is eating the iPhone's lunch. And by clinging to AT&T exclusivity and staying clear of Verizon, Apple is effectively serving up that lunch on a shiny silver platter.

For a decade, Apple played Ice Man in a calculated dogfight of product design and marketing. It rarely made a misstep, and its successes were legendary as a result. This year, Apple has not shown itself to be so level-headed.

You could cite Antennagate or the missing white iPhone as evidence Apple is losing its cool, but these are mishaps, destined to follow previous iPhonapocalypses and Applegeddons into the void of the forgotten past. No, the biggest reason is that it miscalculated how much a prolonged exclusivity with AT&T would cost. The deal has been lucrative — God knows AT&T pays well for the privilege — but the downside has been that Apple has let a reasonable iPhone copy become the No. 1 selling smart phone platform in America.

It let this happen, by simultaneously creating a burning desire for an app-driven touch-screen smart phone, and then denying it to two-thirds of the American populace. That might be an old rant, but the detrimental result of this decision — or rather, the detrimental result of sustaining the decision for so long — are only now becoming apparent.

Droid fever
Look at Android's momentum. Just last week, NPD said that Android phones accounted for a third of all smart phones purchased in the U.S., with RIM's BlackBerry at 28 percent and the iPhone at 22 percent. Apple launched iPhone a year earlier than Android, with more immediate critical and consumer success. In fact, the first Android phone, the T-Mobile G1, wasn't even taken seriously as an iPhone competitor. It wasn't until more than two years after the iPhone's AT&T exclusive deal had begun, that it was time to stop waiting for a call from Cupertino, and instead release an iPhone competitor that could fight — and win.

Along comes Motorola's original Droid, launched in the fall of 2009 by Verizon Wireless as the anti-iPhone.

Let's not forget that Verizon has advertising dollars to burn — they would have gladly burned them on an iPhone, but that was not to be. The campaign slogan was "iDon't, Droid Does." But just like the Biblical anti-Christ, the anti-Jesus-phone bears a striking resemblance to its nemesis. People bought the Droid not because of its hardware keyboard or its LED camera flash; they bought it because they could get apps and do GPS navigation and check e-mail and Twitter and all that iPhone stuff ... but on Verizon.

Verizon has spent years strictly controlling a fairly nondescript line of phones, and charging generally the highest prices in the business. The result is consistently high customer satisfaction rating and the perception — one backed with some reasonable evidence — that it has the largest and most reliable digital network. (I know from testing that AT&T has the fastest, but its 3G footprint really is much smaller than Verizon's.) Now that Verizon's phones offer the same functionality as an iPhone, it's looking a lot prettier.

If Apple had ended its exclusivity in 2009, after two years, it could have quashed the nascent Android menace with ease. But this spring, the two iPhone models weren't able to outsell the combined Android army, including Motorola Droid and HTC Incredible on Verizon, and HTC Evo on Sprint.

iPhone, your phone
It's at this point that Apple devotees note, perhaps huffily, that iPhone sales were obviously stalled in the three months leading up to the launch of the iPhone 4. It was, thanks to an unplanned early look, the most eagerly anticipated handset since the very first iPhone. They will also note that despite Antennagate, sales reached record numbers, that Apple is rumored to be ordering extras made to meet demand, and that even this columnist downplayed much of the controversy surrounding the iPhone 4's design flaw (at the risk of being labeled "fanboy").

The third quarter might prove to be wondrous for iPhone sales, but Android phones are selling out too, and besides, there has been a chilling effect. It's best measured by a survey from the research firm ChangeWave. The percent of "very satisfied" iPhone customers has fallen, from the 3GS's 82 percent to the iPhone 4's 72 percent. Twenty percent said the antenna on the iPhone 4 has caused them grief, but still, the biggest ding was the exclusive carrier deal. Twenty seven percent don't want to be forced to use AT&T, the bulk of those complainers citing coverage and quality of network.

Ultimately, this will have a serious impact on iPhone sales. The market research firm iSuppli just put out the most damning numbers: In terms of global smart phone market share,iPhones will peak at 15.9 percent in 2012, then fall to 15.3 percent two years later. Android will snatch 19.4 percent in two years, and keep on growing, hitting 22.8 percent in 2014. The firm's stated reason for the limited Apple growth? "While Apple’s family of iPhone products continues to be the standard by which all other smart phones are measured, the proprietary nature of the iOS and Apple’s closed system business model will limit the number of smart phones with the operating system." Meanwhile, "the flexibility Android offers for hardware designs and its appealing business model" is already luring in loads of eager hardware makers.

Deja vu
Sound familiar? Or maybe exactly like Windows vs. Mac, the decades-long personal computer battle? You know, the one that had one clear winner and one clear loser, at least in terms of market share? I'm hardly the first person to identify Android as the new Windows, and maybe that's something we can talk about in depth at another time. What's surprising to me is that Steve Jobs didn't see this coming, didn't see how too much control over the hardware supply might once again prevent him from grabbing the brass ring. A little control can be a good thing, but a chokehold, well, that's strangulation, brutha.

I'm not asking for authorized iPhone clones. God knows, nobody wants to relive the StarMax years. But I am saying that when one phone platform is available on all four carriers in a variety of shapes, sizes, software configurations and monthly plans, and the other — fashionable, sure, but no longer a league above — is tied to just the one carrier with the one pricing structure, good people who exercise sound judgment will be forced to pick the former, despite the latter's halo of awesomeness.

And when the halo of awesomeness starts shimmering less brightly, well, even people more susceptible to peer pressure and marketing will start looking elsewhere.

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