Flattening the Smartphone Market
<p>Common cellphone operating systems like Android, WebOS, and Maemo are depriving cellphone carriers of one of their most treasured means of keeping customers in the dark and feeding them bullshit. They&#8217;re making smartphones comparable to each other, and by doing so brutally intensifying the competitive pressure on the carriers.</p>
<p>Before these common platforms, one of the ways carriers had to quell customer demand for features like tethering was simply that the feature sets of different phones were difficult for customers to compare in meaningful ways, and there was no real benchmark for what a cellphone could or should do (I mean, other than make phone calls).</p>
<p>That&#8217;s all changed now. To see how, consider the impact of the Froyo announcement &#8211; Android 2.2.  This was a feature list of what upcoming cellphones would be able to do <em>that wasn&#8217;t censored by a carrier</em>.   Every actual Android phone offering from now on will be compared against the Froyo feature list and against all other Android cellphones. And if any come out with an Android feature disabled or available only at extra cost, the pressure won&#8217;t be on Google &#8211; it will be on the carrier.</p>
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<p>Consider as an example the feature of 2.2 that looks most deadly to the iPhone right now &#8211; its ability to act as a WiFi hotspot for up to 8 devices.  If you&#8217;re Sprint, and you&#8217;re betting your company on fielding a 4G data network that means always-on high-bandwidth Internet for your road-warrior customers, this is great news; you&#8217;re ready, and the marketing for the EVO 4G is already promising it.  If you&#8217;re not Sprint, your data network is probably underprovisioned and this feature scares the living crap out of you.</p>
<p>But what are you going to do about that?  If you disable the feature, you drive your customers to Sprint.  If you charge extra for the feature, you still drive your customers to Sprint (people love flat-rate plans; they have a psychological resistance to being nickled and dimed, even when it&#8217;s an economically rational choice for them).  In effect, Sprint is defecting from the feature-suppression cartel that has kept tethering out of the hands of almost all U.S. cellphone users. And this is difficult for the other carriers to obfuscate because now, <em>everybody knows that Android 2.2 is supposed to do that</em>.</p>
<p>I&#8217;ve written before that the carriers are losing control of their cellphones&#8217; feature sets to Google.  First to go has been the ringtone market; not much life left in it when you can grab any random MP3 or OGG off the net and use it as a ringtone.  Android 2.2 is where this becomes overt.  There&#8217;s been a lot of talk about how Apple will have to play catchup with the 2.2 feature list at its iPhone 4G announcement, but the story behind that is that the <em>carriers</em> will now have to play catchup.  The same competitive logic that applies to tethering in 2.2 will apply to any other feature Google chooses to ship in future releases &#8211; and consider the havoc this could wreak if it were (say) VOIP support or SIP conferencing.</p>
<p>Back to Apple.  Anybody want to bet that Steve Jobs hasn&#8217;t already been on the horn to AT&#038;T demanding that they allow the iPhone 4G to ship with tethering enabled? From his point of view this is now a must-have if the 4G isn&#8217;t going to look like a weak second-best.  But AT&#038;T is going to push back, oh yes they will, because they&#8217;re already notorious for iPhone service problems stemming from network underprovisioning and congestion. Hilarity, and possibly some bloodletting, will ensue. There are only three possible outcomes here: (a) iPhone 4G fails to ship with tethering, in which case Apple and AT&#038;T both take a hit, (b) iPhone 4G ships with tethering and it sucks, in which case AT&#038;T takes a hit and Apple may dodge a bullet or not, or (c)  AT&#038;T ponies up a gigabuck or three to upgrade to 4G at record speed. </p>
<p>The punchline is that Google is now <em>setting the agenda</em> for Apple, AT&#038;T and the carriers in general.  Products are now comparable; everyone has to react to Android feature announcements. Google can probably raise the bar faster than they can react.  What if it were to, say, announce native support for SIP teleconferencing in 2.3?  Suddenly proprietary videophone support wouldn&#8217;t be a differentiator anymore.</p>
<p>It&#8217;s by steps like this that Google will hammer the carriers to their knees, consigning them to the role of low-margin bit-haulers while Google ratchets up the smartphone feature set.  I&#8217;d say it has already begun, but that would be understating the case; with Android 2.2 the process is already quite advanced.</p>
