Google's Phone Doesn't Change Things Much (Yet)

Dec. 14, 2009 4:20 AM ETGOOG, AAPL, AMZN, BKS, MSFT, T, VZ, S, DTEGY7 Comments

In their usual over-enthusiasm for all things with touchscreens (too soon?), CrunchGear has been gushing over Google’s (GOOG) rumored phone. Google has confirmed that they are working on “a device” without further specifics. That hasn’t stopped CrunchGear from actually writing:

…if and when Google starts selling this thing, prepare for some of the strangest – and coolest – times in mobile we’ve ever experienced.

Why all the excitement? Because – get this – a company is going to design hardware (which so far looks like just about every other smartphone out there) which runs open-source software (that so far is available to just about every other smartphone out there).

Here’s how they put it:

When service providers make hardware, they have a different set of priorities. They have a lower number of SKUs so their products have to be great. They control a lot of the software so the UI is great. They control the distribution so there’s a bit of the “rarity” and “early adopter” factor to consider. This sort of stuff is what CE and PC manufacturers would kill for – after all, when’s the last time you drooled over a desktop?

Just to tick through those points – does CrunchGear really believe that fewer products equal better products? The gadget landscape is littered with discarded hardware whose original premise was to tie a service back to a physical device. The iPod (AAPL) is arguably the first massively successful iteration of the idea – but it certainly wasn’t the first attempt. GPS companies, news services, email providers, devices that sit on your nightstand and deliver content, video game producers - you can throw a dart and find examples of a service company that has made the fatal decision, “You know what we need? A piece of hardware. Once we’re in people’s pockets/living rooms/night stands/cars they’ll have to use our service!”

Next up: “they control the software.” The software is Android. Yes, it’s great. But it’s also open source. So there’s no competitive advantage in using it. An exception scenario looks like this: Google designs a new, revolutionary hardware feature. They introduce code into Android which supports it. They don’t tell anybody – that’s the key step. On launch day, the Google Phone has a killer feature which no other phone has, at least until the other manufacturers introduce it. Another scenario could run like this: Google says “screw you” to the Android consortium and starts working on their own proprietary fork. Maybe they just work on their own UI – something HTC has done. I’ll give CrunchGear the benefit of the doubt on this one.

As for the distribution – please. When was the last time someone said “I’m so happy that Apple controls the distribution of the iPhone, because it was so easy to get one when they launched” – and Apple has real physical locations at which to sell their devices! See also: Kindle launch (AMZN), Nook (BKS) launch, Xbox launch (MSFT), etc. The myth of distribution is overblown – there’s benefit in controlling your channel and hawking your own wares, but it’s not a make or break situation. Having a good app store is much more important these days (oh, wait… Android’s Market is available to all handset manufactures).

At the end of the day, CrunchGear is basically hoping that “Google is going to be like Apple!” But in fact, the biggest reason that the Google Phone might actually be a massive success is one that Apple explicitly avoids: the Google Phone is supposed to launch as an unlocked phone available on any GSM carrier. On the one hand, that will open it up to a much wider audience. Furthermore, it frees them of any forced branding issues in the software (although Apple managed to do just fine there). The only downside will be that there may be no carrier to subsidize the phone. Perhaps a few key agreements – or Google’s massive cash reserve – will ameliorate the phone’s cost.

So the Google Phone isn’t revolutionary. It isn’t extraordinary. In fact, it’s not even real yet. Now, I have never used a Google product that I thought was in any way buggy, difficult, or pre-production. I’m a huge fan of everything they do. I have faith that they can produce a handset which, with contracted hardware, an open source OS and no launch partner, is a viable competitor to Apple’s closed iPhone ecosystem. But excuse me if I hold my breath and wait.

Now, I do also love one other line in the CrunchGear article:

But suddenly service providers are doing hardware. Amazon has the Kindle, Barnes&Noble has a lumpen Nook, and now Google has a phone. What’s next? The Credit Suisse Fondue Set?

(Excuse for a second the author’s ignorance – you’d think he’s never heard of a company outside the S&P 500. You’d think he’d never heard of his own company [too soon again?]) You better believe that if CS thought they could profitably securitize little cubes of cheese, a fondue set would assuredly follow (probably through a complicated series of acquisitions). Don’t forget that the single biggest positive offset to Goldman Sach’s (GS) Q307 loss was, of all things, wind farming.

Addendum: CrunchGear may be focusing on the hardware, I’m going to focus on the competition: the most salient outcome of Google’s decision not to partner with a carrier is that people will be able to discriminate among carriers based on network quality rather than phone features.

This is big (though lest I sound hypocritical, I don't think it has anything to do with Google per se). If I didn’t have to contend with AT&T’s (T) awful NYC coverage, I would be back to Verizon (VZ) in a second – but my iPhone requires me to put up with it. So, interestingly, it puts the focus back on network quality - where it should be.

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This is the Green Room is a blog that aims to illuminate four major fields – finance, risk, data, and math – along with many tangents into photography, cars, maps, technology and the occasional quote from The Hitchhiker’s Guide to the Galaxy.

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