Droid Shatters the Competitive Landscape

Not since the launch of the iPhone in 2007 has the announcement of a new product had as dramatic an effect on the competitive landscape of the smartphone business as did yesterday’s Verizon Wireless release of the Motorola Droid. The day after Droid, the handset, wireless networks, mapping, and navigation markets all look very different.

Although the Droid handset itself is a very nice piece of hardware, the real news here is Google’s Android 2.0 software. This major overhaul of the operating system and basic applications has taken Android from an interesting wannabe to a top-tier contender in the mobile software market. And the inclusion of Google Maps Navigation, with its free real-time, turn-by-turn driving instructions turns the nav business on its head.

The coming of age of Android could be very bad news for the weaker competitors in the smartphone business. Droid is no iPhone killer—the idea is silly—but it is a viable competitor. At worst, Apple’s penetration into the market will grow a bit more slowly.

I think Research In Motion will also continue to prosper because of its strength in the enterprise market, though it may find things a bit tougher as it seeks to build its share among consumers. The impact on Palm is hard to assess in large measure because the company and its carrier, Sprint, have been so stingy with information about Palm Pre sales. The very slow ramp of Pre applications is certainly a competitive problem. The biggest loser appears to be Microsoft. Windows Mobile 6.5 is a very modest improvement and Microsoft is at least a year away from having a competitive operating system. The only saving grace is that Windows Mobile's main strength is outside North America. Both it and Nokia will be hit much harder when Android 2.0 phones hit international markets, as they will sooner rather than later.

The question of whether, or if, Verizon will get the iPhone has been a popular parlor game, but the terms of the debate have just changed. With the Droid in its lineup, Verizon doesn't seem to need the iPhone as badly as it did a week ago. On the other hand, Apple is still stuck in an exclusive U.S. relationship with AT&T, whose wireless network is groaning under the demands increasingly unhappy iPhone users put on it. Suddenly, Apple seems to need Verizon more than Verizon needs Apple. That means that if Apple wants to get the iPhone onto Verizon, it might have to accept a less sweet deal than the $400 to $500 in subsidy AT&T pays for every iPhone activated on its network.

Of course, the folks really weeping into their beer in the wake of the Droid announcement are map producers, and the makers of mapping software and navigation devices. While Google Maps Navigation could use a little polishing, it offers unique features, such as voice search, and, most important, it's price of zero. Currently, there are two models for navigation services on handsets. You can buy an application, such as the $100 TomTom for the iPhone, that stores maps and driving directions on the device. Or you can subscribe to a service (mostly supplied by TeleNav, Networks in Motion, and AOL's Mapquest) for between $3 and $10 a month. Google's free service pretty much blows up this economic model, especially since Google says it plans to make the software available to other phones and other operating systems. Google, which had license maps from Tele Atlas (owned by TomTom) and others for its Google Maps service now is using its own maps for North America, so that's another industry headed for the dumper.

Things aren't any better for the makers of dedicated personal navigation (PND) devices such as Garmin, Magellan, and TomTom. These products can still offer a richer experience than phone-based navigation, but the gap has been narrowing as handsets get bigger displays that can show more information. And the standalone devices have been slow to add the wireless connectivity that is needed for in-route search. With PNDs already caught in the fierce margin squeeze that comes with commoditization, it4's hard to see much of a future for this business.

It's rare for one product announcement to wreak this much havoc on multiple industries. But that's what we are coming to expect from Google.

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