Google's biggest announcement was not a phone, but a URL

Google logoThe Nexus One is a sharp-looking smartphone, but, as nice as it is, it is the least significant thing that Google announced today. The real news is Google's online store, and what it means for the US wireless industry.

By now, you know the details of Google's first Google-branded, Google-sold "superphone," the Nexus One: huge AMOLED touchscreen, thin-and-light form factor, available unlocked or on T-Mobile, pervasive voice input, etc. And many have already reached for the easiest narrative in which to fit Google's announcement: the Nexus One is Google's attempt at an iPhone-killer.

Google Nexus One

But regardless of the simple conflict stories that the Nexus One announcement evokes, the reaction on Twitter and the comment thread for our liveblog show that the tech-savvy public already understands that the Nexus One is just another Android phone—the latest and greatest Android phone, and possibly even the latest and greatest smartphone—but an Android phone nonetheless.

Google Nexus One

The Nexus One may or may not be an iPhone killer (it probably isn't), but it doesn't matter, because the Nexus One was arguably the least significant thing that Google announced today. The real news at Google's event this morning—news that could shake up the mobile industry just as thoroughly as the original iPhone announcement—wasn't a phone at all, but a URL: http://google.com/phone. An online storefront that, if successful, could knock one of the major pillars out the current, much-reviled US carrier model and result in faster, cheaper, more flexible service for mobile users. Here's how it works.

Google Nexus One

Divide and conquer

Google has confirmed that Nexus One, and all subsequent Google phones sold via the company's online store, will be available unlocked for use on every participating carrier. If a particular Google-branded phone is not on a particular carrier, then that's only because that phone doesn't have the proper radio to support its network. In addition to being unlocked, the phones will also have bundled plan options where the pricing and details are up to the carrier, but every carrier will offer a plan for every phone that's radio compatible.

By offering a lineup of phones that is essentially carrier-independent (with the radio compatibility caveat), Google has separated the two previously interlocked parts of the phone/plan-buying experience—phone selection and carrier selection—and has done so in a way that threatens one of the most important enablers of carrier lock-in.

In short, what Google announced today wasn't just the Nexus One, but America's first carrier-independent smartphone store; the Google store is now the only smartphone store in the US where, for every phone on offer, you first pick which phone you want, and then you pick a network and a plan on that network, choosing from among every network on the platform. So you can comparison shop among networks based purely on plan price and network quality, because you already have your phone picked out.

You can be sure that carriers aren't thrilled about giving up phone-based lock-in, so it's a little surprising to see them going along for the ride. If customers turn en masse to Google's online store the way they did to Apple's iPhone a few years ago, then even more networks will be forced to either sign on or lose out. And once they're on Google's platform, they'll be forced to compete purely on the kinds of things that consumers actually want them to compete on, namely, price and quality. And when networks compete on price and quality, prices will go down and quality will go up.

Aligning incentives, and the iPhone curse

To understand just how big of an impact Google's store could have on wireless in the US, take a moment to think about economic incentives for carriers under the current regime.

Right now, with specific phone models available only on specific carriers, consumers must pick a carrier and phone combination. Many consumers actually pick a phone first, and then pick their carrier based on it (witness the mass customer defection to AT&T when the iPhone was announced). If you want to keep using that phone, you have to keep using that carrier. If you want to switch phones without incurring a huge early termination fee (ETF), then you're limited to the selection that your carrier offers in your area.

This is bad for consumers, but it's great for carriers. Carriers don't have to compete solely on network quality; rather, they compete based on a combination of network quality and phone selection. And because they compete partly (mostly?) on phone selection, their incentives are twofold:

  • They want to offer the largest number of attractive, leading-edge phones in order to attract a user base, and
  • They want to wring the most money out of that user base for the lowest possible cost.

Incentive number 2 is why wireless networks have performance issues, and why AT&T's network gets more complaints than all others. Call it the "iPhone curse," after the "resource curse" that seems to leave oil-rich nations mired in petty tyranny. Because AT&T has ensnared—and locked in—legions of consumers with the iPhone, the company's incentive is to minimize their infrastructure spending so that they can maximize per-user profits. AT&T also has a motive to nickel-and-dime you to death, because it has you locked in with that amazing phone and its accompanying ETF.

In sum, as long as Apple's red-hot iPhone keeps new customers coming to AT&T and keeps existing customers around in spite of the poor service quality, the carrier has little incentive to actually improve its network, and every incentive to cram as many iPhone users as possible onto each cell tower.

If Google's carrier-independent store succeeds spectacularly, it could break the curse. If the idea behind it succeeds, that could break the curse as well. Wouldn't it be great if Apple ran a similarly carrier-independent iPhone store, or Nokia did the same with its smartphone lineup? I, for one, want to live in a world where a carrier competes for my business by being cheaper and faster than the next guy, and not because it has a phone I want. That's why I'm rooting for Google's store idea to catch on, regardless of what the Nexus One kills or doesn't kill.

Source: ars technica

Tags: Android, Google, mobile phones

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